From Solana to the EVM: A New Path for Proprietary AMMs | Fahim Ahmed - Flashbots

Hi everybody. My name is Sasha Barry. I'm with Hype Partners, the marketing and PR agency. And I'm going to be with you for the next couple hours bringing people on. We're going to keep it lively, going to keep it light.

Uh we have the first speaker, Fahim Ahmed, who's going to talk about prop AMMs and why they're so successful on Salana and how they're going to change the world on EDM. Welcome.

Hello everyone. So today I'm going to be talking about prop amms and what has made them work so well on Salana and how they can work even better on EVM. To quickly introduce myself so I'm currently a fourth year CS student at the University of Wateroo who previously worked at Bass Axar Flashbots and Amazon. I've also built a lot of Dune dashboards. have hit the front page of Dune and I've created this write up on prop amms kind of researching what made them work so well on Salana and it kind of blew up and so I've done a lot more research into it and started like reverse engineering some propm on EVM and I'm pretty excited to share some of my findings here.

So what are some things that you're going to learn from this talk? First off, what are propms? Why have they taken off on Salana? What are the current challenges that they face on base? And how are they currently designed on base?

So, first off, why should he even care about this? Well, the reason why you should care about propm is the fact that they've attained a lot of volume in a short amount of time. Like on Salana, they've gotten 73% of volume market share. And just two days ago, Will Warren from ZeroX mentioned on his talk that propm 40 to 50% of volume or Zox's volume on base, which is honestly incredible. And so here's a quick little like graph from sandwich.

me from Ghostlabs where they're showing how tight the spread is on uh Salana on props. Like 0.05 bits. Like that is really tight. And to give a quick briefer of what an AMM is before we get into prop amm.

It's basically just this formula here x* y equals k where x is the number of tokens like token a b y is the number of token b and k is some constant. And so if you want to swap from token a to token b, you're going to deposit token a and in order for and so that's going to make the value of x go up. And in order for k to be constant, the value y is going to have to go down. And that's the number of tokens you're going to get. And so what actually is a prop AMM?

So it's an AMM except a market makers actively managing the liquidity on it. And so what that means is that only the market makers able to provide liquidity. The price curve is what they're going to be updating frequently. And such as like maybe the value K isn't constant. And the price curve formula is actually going to be more complex than just x * y= k.

And so for example here on the slide uh it can go from like an x y formula into maybe just some other price curve formula. And so here like prop amms they work best for short tail more liquid assets compared while AMMs they serve these like longer tail assets like memecoins. And so a question that you might ask is why not like a central limit orbrook? Why not a club? And the reason for that is because like on Salana um there like if you want to update multiple prices, you're going to have to do multiple update transactions.

But on a prop mm with just one update transaction, you can update a whole range of prices. And so as a result, it's going to be expensive to update multiple prices on chain if you're doing a club. Additionally, you can't connect um like a club to Jupiter for order flow, but they have a AMM interface. And so when would you use a club over a prop AMM? There's one main scenario and that's when placing orders is free.

So for example, Poly Market, they have an off-chain order matching and Hyperore Hyperore for Hyperlquid, they have a free order placement and so you don't pay any costs. And so why has it taken off on Salana? Well, first off, Jupiter is the main source of order flow on Salana. And so if you want to get that order flow, you got to connect to Jupiter. Second thing is that market makers like Wintermute, they want cheap top-of-the-lock uh updates for market uh they want cheap top-of-the-lock updates, which Salana excels at because of how cheap rights are.

And so does this sort of environment exist in EVM chains? Well, sort of, but not really. But I'm going to get to that. The first challenge is that there's no main source of order flow. Like you have multiple aggregators and you have ZX as one of the top aggregators, but they don't hold all of the order flow.

The other challenge is that you're kind of missing like updates are expensive on EVM. They're not cheap and as you can see here, they use a lot of gas gas units in a sense where if you want to frontr run an update, you only need to increment or increase your gas price by 10 times the amount compared to Salana where it's 100 to,000 times the amount. And so this could be solved by like cheaper SS store op codes or even like a priority lane for updates. But that's like a hypothetical solution. But despite this, you still have prop mm starting to launch on base.

And so like why is this the case? Before I get into that, the current two propm on base is from Wintermute and Elomoi, both of which are accessible through Zerox's matcha aggregator. And so, for example, like if you wanted to uh use their aggregator or use a propm like here's how it look like. You just go into their matcha aggregator, place an order, and it'll show you what the route is. And so how does one of these prop mms work on a high level?

For example, L45i. I spent some time like reverse trying to reverse engineer their smart contracts actually like submitting a lot of transactions through their well through matcha in order to land a few transactions in Alpha Mofi and also decode a lot of the smart contracts and try to like reverse engineer it. And so this diagram here, it's very simplified and I'll have like a detailed uh version in a future write up. But at a high level, the user, they're going to submit a swap to Alform. Alomify, they're going to uh call a pricing contract in order to calculate how much tokens they need to uh send back to user.

If like the quote is stale, such as if a market maker hasn't updated it, um then it's going to fall back to an oracle. And then from there uh the users the uh USC like if we're doing from USC to uh CBPTC the user's USCC is going to go into the vault and then the amount out amount of tokens that was calculated by the pricing contract is then going to be sent to the user. And so some really interesting insights about this when I was reverse engineering your contracts is that negative spreads cannot be taken advant of advantage of in the sense where if you have a bid that's actually higher than the ask um an arbiter can't just buy the bid and or buy the ask and sell at the bid. And the spread also appears to increase if like the trader flagged as risky or toxic. Another thing too is that the spread will also increase if the pool is imbalanced.

I'm still trying to reverse engineer the exact number, but it seems to be something along the lines of like one basis point uh per like percentage that the pool is off by. So, say for example, if it's like a 60/40 pool, then it'll be in 20 basis points increase, but don't quote me on that that I'm still reverse engineering. And lastly, there's also like a limit on the number of trades that can occur during a specific block. More details in a future write up. And so, so that's this flow for a swap, but what about a flow for actually um updating a quote?

And so you're going to have a market maker. They're going to interact with the uh Elomo smart contract. They're going to submit an update. And that update is going to store quotes in multiple price contracts. Well, at least some transactions, they do multiple price contracts.

And note that this is very simplified. There is some routing that goes on under the hood, but that's going to be in a future update. And this happens every block. So here you can see that um you have multiple different addresses um calling this update uh function. And all these addresses are actually funded by the same wallet if you to look under the hood.

And the reason for that, the reason why you have these different addresses calling these update functions is because of the way like base they kind of limit you if you are the same address calling like the same function. And so this is just a way to get around the spam limiter. And these update transactions, they consume 54,000 units of gas. And so with that said, how much like one of the questions you're going to like ask is like how much are they spending on these update transactions? Because we've all heard on Salana how they're spending a lot of money, but what about on EVM where these update transactions are around are using much more gas units.

And so two days ago when I just ran a Dune query, they were using around 30 bucks in total throughout the day, which is much smaller than I would have expected. And the reason for that is because they're only updating like once a block as opposed to on Salana where they're having hundreds of updates every second. And a really interesting insight about this is that they don't actually have much of a priority fee. Like it's it's basically non-existent. And so with that being said, I kind of want to talk more about like what's next for propm.

And so from and so there's going to be a lot more propm launching on EVM soon. You kind of heard about that from Will's talk from Xerox two days ago. And I kind of want to plant the seed about the future of propm like tokenized stocks, real world assets all come on chain. And so, how are market makers going to be market making for these real world assets and stocks? Well, they're going to want a way to do so with cheap updates and effective ways of being able to bring those off-chain prices onchain.

And that's where Prop MM excel at. And so, with that being said, that's that's my talk and I would love to answer any questions and also happy to answer questions offline if you want to connect with me on Telegram or Twitter. Yeah. Sorry.