Arrakis Finance and Valantis Labs have partnered to create HOT, a first of its kind MEV-aware AMM built on top of the Valantis Modular DEX. HOT will be the first modular AMM deployed on the Valantis Protocol, powered by Arrakis’ novel suite of modular liquidity management vaults and off-chain quoting infrastructure.

Partnership Origin Story

Valantis was born by observing the great inflexibility in today’s DeFi protocols.

One of the core members of the Valantis team saw this firsthand while working alongside the team that created G-UNI, the product that would eventually birth Arrakis Finance. While concentrated liquidity was a great innovation at introducing LP expressiveness into AMMs, trying to accommodate all actors under the hood of a single, opinionated DEX protocol was not possible. It was clear DEXes were not in their final form, but any innovation required building an entirely new DEX from scratch: fragmenting resources, increasing costs and reducing security. There must be a better way.

About Arrakis

Arrakis Finance, founded in 2022, is a research-first organization building for the hyper tokenized future. Arrakis is focused on creating decentralized alternatives to centralized market making across next-generation AMMs and order books. Arrakis aims to connect passive liquidity sources, including retail LPs and token projects, with complex market-making strategies. HOT is the flagship modular AMM design on top of which Arrakis’ liquidity management infrastructure will run.

About Valantis

The Valantis founding team first came together at Nethermind in July 2022 with a single question in mind:

Can we construct a protocol that can recover every possible DEX design imaginable in a way that does not necessarily fragment resources like liquidity, security, integrations, etc?

You can explore how Valantis Modules can be used to build any conceivable DEX design in the Valantis Documentation.

The broader vision for Valantis is covered in the Introduction to the Modular Exchange Article.

With this foundation, the team is set off to tackle one the greatest problems in DeFi: Starting with the losses that passive LPs incur in the form of Loss-versus-Rebalancing (LVR), and the rise of Private Market Makers in intent networks.

HOT AMM is built by composing the co-designed HOT Module onto an immutable Valantis Sovereign Pool.

About the HOT AMM

HOT stands for Hybrid Order Type and references the fact that this AMM has a hybrid or dual approach to processing trades. HOT was designed to drive better outcomes for LPs by merging the benefits of PMMs with the permissionless nature of traditional AMMs.

HOT contains a normal AMM swap, in which anyone can permissionlessly trade against the pool, familiar to today’s DEXes. Where HOT differs though is in the second type of swap dubbed “flash swap”. The flash swap, similar to PMMs, operates through an RfQ (request for quote) system. This novel RfQ system, also known as the Arrakis Quoting Service, allows permissioned solvers to receive a guaranteed or deterministic quote to trade against the pool.

LPs will receive more flow (volume) that would have otherwise gone to a different PMM and not to a regular AMM and LPs will also earn fees on this flow.

Valantis’ unique representation of reserves allows for flash swaps to occur with maximum capital efficiency and fine tuned rebalancing of the AMM. This means the system can achieve very efficient pricing, and settle high levels of volume without incredibly deep liquidity.

The flash swap also requires the Solver to push an Arrakis-validated price update to the pool’s state. This update aligns the AMM spot price with that of leading Centralized Exchanges to remove arbitrage opportunities. The Solver also resets a dynamic fee that will increase according to perceived volatility over time in between flash swap orders. This means AMM swaps receive minimum fees following a Solver update while protecting LPs against arbitrageurs as the AMM price becomes stale over time.