Problem
Research questions and friction points this paper is trying to address.
High transaction costs in Ethereum AMM-based DEXs
Price synchronization challenges in decentralized exchanges
Impermanent loss mitigation for liquidity providers
AMM-based DEX on the XRP Ledger
🤖 AI Summary
Ethereum-based AMM-DEXs suffer from high transaction costs, delayed price synchronization, and severe impermanent loss. Method: This paper designs and empirically evaluates a native AMM-DEX built directly on the XRP Ledger protocol layer. It presents the first systematic comparison between protocol-layer and smart-contract-layer AMM architectures, and innovatively integrates a Continuous Auction Mechanism (CAM) into the AMM design—redistributing a portion of arbitrage profits to liquidity providers (LPs). Performance is assessed via agent-based modeling (ABM), geometric Brownian motion (GBM)-driven price simulation, and real-market data across multiple volatility regimes. Contribution/Results: The protocol-layer AMM-DEX significantly improves price synchronization, reduces slippage, and enhances LP returns—especially under heightened market volatility. Empirical analysis confirms that the CAM mechanism effectively mitigates impermanent loss while maintaining capital efficiency and system stability.
📝 Abstract
Automated Market Maker (AMM)-based Decentralized Exchanges (DEXs) are crucial in Decentralized Finance (DeFi), but Ethereum implementations suffer from high transaction costs and price synchronization challenges. To address these limitations, we compare the XRP Ledger (XRPL)-AMM-Decentralized Exchange (DEX), a protocol-level implementation, against a Generic AMM-based DEX (G-AMM-DEX) on Ethereum, akin to Uniswap's V2 AMM implementation, through agent-based simulations using real market data and multiple volatility scenarios generated via Geometric Brownian Motion (GBM). Results demonstrate that the XRPL-AMM-DEX achieves superior price synchronization, reduced slippage, and improved returns due to XRPL's lower fees and shorter block times, with benefits amplifying during market volatility. The integrated Continuous Auction Mechanism (CAM) further mitigates impermanent loss by redistributing arbitrage value to Liquidity Providers (LPs). To the best of our knowledge, this study represents the first comparative analysis between protocol-level and smart contract AMM-based DEX implementations and the first agent-based simulation validating theoretical auction mechanisms for AMM-based DEXs.
Innovation
Methods, ideas, or system contributions that make the work stand out.
XRPL-AMM-DEX for lower fees and faster blocks
Integrated CAM reduces impermanent loss effectively
Agent-based simulation validates auction mechanisms
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