Last revised on September 26, 2024 at 11:41:33. See the history of this page for a list of all contributions to it.
In the fast-paced world of Decentralized Finance (DeFi), scalability and efficiency are paramount. Traditional Automated Market Makers (AMMs), while foundational, struggle to handle high volumes due to their centralized liquidity pools. To address these challenges, we introduce SAMM (Sharded Automated Market Maker), a groundbreaking approach that distributes liquidity across multiple independent shards, each functioning as a smart contract on the same blockchain. This innovative design not only boosts system throughput but also aligns with the decentralized ethos of DeFi.
At the heart of SAMM lies the concept of sharded liquidity pools. Unlike traditional AMMs that rely on a single, large pool of liquidity, SAMM splits liquidity into multiple smaller pools, or shards. Each shard operates as an independent smart contract, allowing trades to be executed in parallel across the system. This parallelism significantly enhances the scalability of the AMM, enabling it to handle a larger number of trades simultaneously.
A unique challenge with multiple AMMs is the potential inefficiency caused by traders splitting their trades across shards. To mitigate this, SAMM implements a novel trading fee structure. This mechanism incentivizes traders to use the smallest shard that meets their liquidity needs, thus optimizing the use of each shard and preventing performance degradation.
SAMM ensures that liquidity is evenly distributed across all shards by designing incentives for liquidity providers. These incentives encourage providers to balance their contributions, so no shard becomes overly dominant or underfunded. This equilibrium is essential for maintaining the system’s efficiency and preventing congestion in any single shard.
A critical aspect of SAMM’s design is that it guarantees Subgame-Perfect Nash Equilibria (SPNE). This theoretical framework ensures that both traders and liquidity providers naturally adopt strategies that lead to an optimal, balanced state across the system. In practice, this means that liquidity providers will distribute their assets in a way that supports even trade distribution, and traders will follow fee structures that promote efficient use of shards.
Performance evaluations on blockchain demonstrate that SAMM achieves a throughput more than five times higher than traditional AMMs. This impressive scalability allows SAMM to handle a larger volume of trades, approaching the system’s theoretical throughput limit. By leveraging sharding, SAMM not only enhances performance but also supports the growing demands of DeFi applications.
SAMM is developed as a directly deployable open-source smart contract. This approach not only accelerates its integration into existing DeFi ecosystems but also fosters community-driven innovation and adoption. By making SAMM available to the public, we empower developers and users to benefit from scalable and efficient trading mechanisms.
SAMM represents a significant leap forward in the evolution of Automated Market Makers. By introducing sharded liquidity pools, novel fee structures, and robust incentive mechanisms, SAMM addresses the scalability challenges that have long hindered traditional AMMs. Its open-source nature and deployment-ready design make it a valuable addition to the DeFi landscape, paving the way for more efficient and scalable decentralized trading.
For a detailed exploration of SAMM and its underlying principles, refer to the arXiv preprint.