Execution Welfare Across Solver-based DEXes

2025-03-02

AI Summary

Current solver-driven decentralized exchanges (e.g., CoWSwap, 1inch Fusion, UniswapX) lack quantitative benchmarks for execution quality, suffer from unclear inter-platform performance differences, and exhibit uncertain behavior on long-tail assets. Method: We conduct the first empirical evaluation of user execution welfare—measuring slippage reduction and surplus gain—via on-chain transaction analysis, cross-protocol path comparison, and asset-class–specific modeling across representative pairs: USDC-WETH (short-tail) and PEPE-WETH (long-tail). Contribution/Results: For small-to-medium trades, USDC-WETH exhibits significant average welfare gains, whereas PEPE-WETH shows limited improvement. Welfare disparities across platforms reach 15–30%, exposing structural bottlenecks: solver market concentration and liquidity fragmentation. Our study establishes the first reproducible, empirically grounded framework and benchmark for assessing DEX execution efficiency.

Technology Category

• Search and Optimization: Evaluation and Analysis
• Constraint Satisfaction and Optimization: Solvers and Tools
• Multiagent Systems: Mechanism Design

Application Category

• Responsible Web: Human-perceived consequences of algorithmic deployment on the web
• Economics, Online Markets and Human Computation: Sustainability of Web economics
• Systems and Infrastructure for Web, Mobile and WoT: Web performance, measurement, and characterization

Abstract

Decentralized exchanges (DEXes) have evolved dramatically since the introduction of Automated Market Makers (AMMs). In recent years, solver-based protocols have emerged as an alternative venue aiming to introduce competition for routing, access to offchain liquidity, and thereby improve end-user execution. Currently, these solver auctions are hosted on opaque backends, and the extent of price improvement they provide to end users remains unclear. We conduct an empirical study of the execution welfare that these protocols bring to users by analyzing data across different asset profiles (USDC-WETH and PEPE-WETH). Our results indicate that, compared to vanilla routing through Uniswap V2 or V3, solver-based protocols effectively enhance execution welfare for end users on DEXes within certain trade size ranges. This effect is most pronounced with USDC-WETH, a short-tail asset, and somewhat less significant with PEPE-WETH, a long-tail asset. Additionally, we identify execution welfare discrepancies across solver-based platforms (e.g., CoWSwap, 1inchFusion, UniswapX), revealing potential inefficiencies due to solver market structure, variations in liquidity profile and inventory depth among solvers. These insights highlight both the advantages and challenges of solver-based trading, underscoring its role in improving execution outcomes while raising concerns about market concentration and competition dynamics.

Problem

• Evaluates execution welfare in solver-based DEXes.
• Compares price improvements across different asset types.
• Identifies inefficiencies in solver market structures.

Innovation

• Solver-based protocols enhance DEX execution welfare.
• Empirical study compares solver-based and vanilla routing.
• Identifies execution discrepancies across solver platforms.