Paper: arXiv 2306.17316

Authors: Rithvik Rao, Nihar Shah

Abstract

Triangle fees are a novel fee structure for AMMs, in which marginal fees are decreasing in a trade’s size. That decline is proportional to the movement in the AMM’s implied price, i.e. for every basis point the trade moves the ratio of assets, the marginal fee declines by a basis point. These fees create incentives that protect against price staleness, while still allowing the AMM to earn meaningful fee revenue. Triangle fees can strictly improve the Pareto frontier of price accuracy versus losses generated by the status quo of constant fee mechanisms.

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 3.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper introduces an innovative AMM fee structure using solid microeconomic and game-theoretic mathematical formulations. However, as a primarily theoretical framework, it lacks empirical validation, backtesting on historical DEX data, or empirical stress-testing against real-world arbitrage flows.

Research Flowchart

  flowchart TD
    A["Research Goal: Improve AMM fee structure to reduce price staleness & LVR"] --> B["Data/Inputs: Constant fee AMM baseline & Asset price dynamics"]
    B --> C["Methodology: Design Triangle Fees where marginal fee declines with trade size"]
    C --> D["Process: Evaluate Pareto frontier of price accuracy vs. arbitrage loss"]
    D --> E["Findings: Triangle fees strictly improve Pareto efficiency over constant fees"]