A Netting Protocol for Liquidity-saving Automated Market Makers

Automated Market Makers are one of the most used Decentralized Finance services. They allow users to exchange crypto-assets without a third party. Current protocols have strong constraints related to the liquidity level that users' balances must satisfy for each transaction. In this paper, we propose a liquidity-saving mechanism that aims at reducing the required amount of liquidity in an AMM service. We provide an operational semantics of such a mechanism that precisely characterizes the interactions between users and AMMs and the conditions when the liquidity-saving mechanism is triggered. Our mechanism collects the proposed transactions in a finite queue, providing a global perspective of all users' actions. Starting from the queue, it finds a feasible transaction sequence that satisfies the users' balances. Finally, it performs these transactions on the blockchain atomically, reaching a state where all liquidity constraints are met. By doing so, the mechanism allows for novel liquidity saving behavior for multi-party exchange and multi-AMM arbitrage with less upfront liquidity as usually required.