AMM Fee Optimization Study Finds Traditional Pools Capture Just 50% of Value
Every swap on a decentralized exchange leaves a small mark behind: a price that no longer matches the wider market. That gap, tiny as it usually is, quietly funds an entire industry of arbitrage bots and MEV searchers. New research from the MEV-X research team, working with academic collaborators from HSE University, digs into exactly how much value gets created by these micro-dislocations, and who actually ends up keeping it. The findings point toward a specific answer for AMM fee optimization: pools that charge nothing on arbitrage trades capture the most total value, even though that sounds backwards at first glance.
Key takeaways
- DeFi markets are efficient overall but constantly dislocated at the micro level, since almost every swap knocks a pool’s price away from the broader market.
- The combined value released by that mispricing — called dislocation value — is maximized when a pool charges a zero fee on the arbitrage that corrects it.
- Constant-product AMMs like the classic x·y=k model can theoretically capture only up to 50% of dislocation value through fees, and real markets often fall short of even that.
- Using AMM hooks, a pool can execute a mechanism that executes internal arbitrage at the atomic level following every swap, securing value that might otherwise remain untapped or be claimed by external searchers.
- Retail traders keep paying normal swap fees; only the pool’s own internal rebalancing trade runs fee-free.
DeFi’s Hidden Inefficiency: Where Arbitrage Value Comes From
Arbitrage in decentralized finance exists because pools react slowly to price changes elsewhere. Any swap large enough to move a pool’s price away from the market rate creates an opening, and someone, somewhere, is usually watching for it. According to the MEV-X and HSE University researchers, this isn’t an occasional glitch — it’s structural. Almost every trade produces a small dislocation, and each one becomes a potential profit opportunity for whoever arbitrages it fastest.
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