AMM YIELD MAXIMIZATION: CONVERGENCE OF THE LP AND ARBITRAGEUR

Summary from the TLDR Crypto newsletter

MEV-X researchers and HSE University collaborators introduce "dislocation value," the total extractable profit when an AMM pool price diverges from the market, and demonstrate that any fee levied on arbitrage trades reduces total value capture across all six tested architectures, including Uniswap V2/V3, Balancer, and Curve. Pools optimizing fee revenue independently capture roughly 50% of maximum dislocation value, with the remainder split between external arbitrageurs and unrealized losses. At the standard 0.30% fee tier, pool capture falls to 42% on a 1% dislocation scenario. The proposed fix is AMM hooks that execute atomic internal arbitrage post-swap, letting pools charge zero on rebalancing operations while retaining normal retail fees and eliminating external searcher profit. This architecture converts liquidity providers into active arbitrageurs at the protocol level, redirecting the value leakage currently flowing to external searchers back to the pool.