AMM Swap Path Routing Across DEX Liquidity Graphs
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Solution Overview
Problem
Decentralized exchanges (DEXs) face challenges in efficiently navigating complex multi-token and multi-DEX transactions due to the lack of systems and methods for evaluating and executing optimal swap paths, particularly in volatile decentralized finance markets.
Innovation Solution
A system and method for determining and executing an automatic market maker path for smart order routing, utilizing a reference graph traversal and gradient descent optimization to find favorable swap paths across multiple decentralized exchanges and liquidity sources.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If decentralized exchanges support multiple tokens and liquidity sources, then the system's adaptability and versatility improve, but the complexity of navigating and evaluating swap paths increases significantly
Solution Approach 1:
The patent segments the complex swap path evaluation problem into discrete graph traversal steps, where each node represents a token/DEX combination and each edge represents a possible swap route. This segmentation allows the system to handle multi-token and multi-DEX transactions by breaking down the overall transaction into manageable path segments that can be evaluated independently and combined.
Solution Approach 2:
The patent introduces an automatic market maker (AMM) function as an intermediary mechanism that standardizes the evaluation of swap paths across different liquidity sources. The AMM function acts as a mediator that provides a consistent mathematical framework for comparing different swap routes, eliminating the need for complex custom evaluation logic for each liquidity source.
2Measurement precision
If the system evaluates all possible swap paths across multiple DEXs, then the precision of finding optimal routes improves, but the time required for path determination increases
Solution Approach 1:
The patent performs preliminary graph construction and path enumeration before executing the actual swap transaction. By pre-building the reference graph that captures all possible swap paths across multiple DEXs and liquidity sources, the system prepares the evaluation framework in advance, allowing for rapid optimal route determination when the transaction is executed.
Solution Approach 2:
The patent implements dynamic path evaluation by continuously updating the reference graph with current liquidity pool states and AMM function parameters. This dynamic approach allows the system to adapt to changing market conditions while maintaining efficient path determination, balancing the need for comprehensive evaluation with execution speed requirements.
3Reliability
If the system captures the complexity of large numbers of liquidity sources, then the quality of swap execution improves, but the computational resources and system complexity increase
Solution Approach 1:
The patent creates a universal reference graph framework that can handle multiple types of liquidity sources and AMM functions through a single unified model. This universal approach allows the system to capture the complexity of large numbers of liquidity sources without requiring separate evaluation logic for each type, thereby improving swap execution quality while controlling system complexity through standardization.
Data Source
AI summary
A pathfinding method for choosing a swap path between a start token and a target token on one or more distributed ledger technology (DLT) sources that includes: connecting to a DLT source thereby retrieving DLT source data; constructing a reference graph comprising nodes and edges from the DLT source data; traversing the reference graph, therein iteratively calculating swap efficiencies for all swap paths between a start token and a target token by applying gradient descent to all swap path traversals, and determining a select swap path based on all swap efficiencies. The method may further include pruning the reference graph or traversal, wherein nodes, edges, and/or swaps that are determined to be negligible, are removed from the traversal parameters.