Understanding PropAMMs in DeFi: Benefits, Risks, and Solutions
Original title: PropAMMs: the good and the bad, and how to keep trustless infrastructure competitive
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Summary
PropAMMs combine fast offchain pricing with custom execution to update quotes before swaps for onchain liquidity. However, these systems introduce opaque and trusted architectures. Operators have abused these designs to spoof quotes by offering fake prices that change during execution to extract higher spreads. A case study of the Gyroscope pool architecture demonstrates this abuse. While theoretical models suggest PropAMMs provide lower spreads and improved liquidity, practical application often results in worse execution. Decentralized alternatives and design patterns can blend PropAMM performance with trust-minimized AMM guarantees to mitigate operator risk and open liquidity provider participation. Speakers Ariah Klages-Mundt and Tammy Yang break down these mechanics at Devcon.
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Key points
- PropAMMs combine fast offchain pricing with custom execution to update quotes before swaps.
- Operators have abused PropAMM architectures to spoof quotes and extract higher spreads during execution.
- A case study of the Gyroscope pool architecture demonstrates how quote spoofing occurs in practice.
- Practical application of PropAMMs often leads to worse execution despite theoretical liquidity improvements.
- Decentralized design patterns aim to blend PropAMM performance with trust-minimized AMM guarantees.
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