TL;DR CVMMs are profiting from retail DeFi users across the MEV supply chain. Arrakis is building the first decentralized alternative to address this problem, using cutting-edge mechanisms to recapture MEV, empower LPs, and hyperscale global onchain liquidity through a trustless framework.

Key Takeaways:

• Arrakis is building the first MEV-aware onchain market maker to combat CVMM value extraction by vertically integrating into the MEV supply chain.

• The Arrakis DVMM is a decentralized MEV recapture solution that aims to make LPs more profitable by building fair, efficient onchain markets.

• Arrakis runs market making strategies for LPs and auctions for the right to use their liquidity to improve their returns.

• HOT AMM’s rollout is the first step towards building the DVMM with the Arrakis Network’s launch set to follow in the future.

Addressing DeFi’s CVMM Problem

Centralized Vertically-Integrated Market Makers are monopolizing DeFi and this is a problem. As we explained in our last blog post, retail users are getting burned as CVMMs like Wintermute extract profits across the MEV supply chain.

Today we announce our plan to fix this problem by building DeFi’s first Decentralized Vertically-Integrated Market Maker (DVMM). Arrakis is an MEV-aware onchain market maker that aims to make LPs more profitable and cater to longtail assets that CVMMs cannot service. In doing so, Arrakis is embarking on a mission to beat the likes of Wintermute onchain.

Arrakis will use two novel mechanisms to build the first DVMM: Liquidity Animation and Marketplace Coordination.

The Arrakis DVMM’s rollout starts with the HOT AMM’s upcoming launch. HOT is an MEV-aware DEX built on the Valantis Protocol. As DeFi’s first modular DEX, Valantis is blazing the trail in next-generation AMM designs and HOT is one of its modules focusing on MEV protection and intents.

Following HOT’s launch, Arrakis will roll out a decentralized network in three phases. Each phase will give LPs new powers that are currently restricted to the Wintermutes of DeFi.

The result is a trustless, MEV-aware market making solution that protects retail users, enhances liquidity, and creates a more sustainable onchain economy.

Liquidity Animation and Marketplace Coordination Explained

MEV extraction is a threat to users. Liquidity Animation and Marketplace Coordination aim to unlock billions of dollars worth of capital that is sidelined due to this threat.

Liquidity Animation gives passive LPs access to active market making strategies when they add liquidity to Arrakis. Operators can sign payloads to animate liquidity and implement strategies on behalf of LPs. Liquidity Animation makes onchain markets fairer by giving retail LPs access to the same strategies that CVMMs use.

Marketplace Coordination is the process of running auctions for the right to access liquidity. With access to liquidity offered through a bidding system, sophisticated actors such as block builders or solvers can win rights to liquidity to improve their operational efficiency. Marketplace Coordination finds a market price for liquidity that currently gets leaked, recapturing MEV for LPs instead of leaking it to extractive actors in the MEV supply chain.

These mechanisms address the two biggest problems CVMMs are causing in DeFi today:

• Marketplace Coordination reduces MEV extraction and the cost of LPing (otherwise known as LVR) because it involves running auctions for liquidity. The proceeds from the auction go to LPs to mitigate LVR. Running auctions for liquidity improves returns for LPs vs. traditional AMMs, where arbitrageurs drive MEV extraction and LVR.

• Both mechanisms cater to longtail tokens underserved by CVMMs because Arrakis runs as a decentralized system. Where CVMMs are limited by their own inventories, Arrakis can hyperscale to support onchain liquidity in a capital-efficient manner.

Builders also benefit because the Arrakis DVMM redistributes the recaptured MEV that would otherwise go to proposers to both builders and LPs.

The Path to Building DeFi’s First DVMM

Arrakis aims to give DeFi the decentralized answer to CVMMs like Wintermute. To achieve this goal, Arrakis will become a decentralized network secured by a trustless network of validators. The Arrakis Network will roll out in three phases that progressively unlock new powers for LPs.

Phase 1: Solver Awareness

Phase 1 unlocks Solver Awareness, wherein liquidity becomes “aware” of offchain intent-driven order flow. With HOT’s MEV-aware AMM developed by Arrakis and Valantis Labs, retail LPs can use a request-for-quote system to participate in onchain market making and solvers trade against the pool to fulfill users’ intents.

Today, intent-based systems leave retail LPs exposed to arbitrage because private market makers operated by CVMMs dominate intent flows. Solver Awareness gives LPs access to intent flows through the HOT AMM.

HOT will launch in the coming weeks.

Phase 2: Builder Awareness

Phase 2 unlocks Builder Awareness, offering block builders access to gated liquidity through sealed-bids auctions. Builders can bid to win access to liquidity to improve their efficiency and LPs enjoy better returns because they receive the bulk of the recaptured MEV.

Phase 3: Multi-Chain and Proposer Awareness

Phase 3 sees Arrakis become a fully-fledged DVMM by unlocking Multi-Chain Awareness and Proposer Awareness. In this phase, shared sequencers can bid in auctions to access liquidity across multiple chains and the protocol recaptures MEV across the full pipeline.

When shared sequencers win access to liquidity, they can execute trades and build blocks across multiple chains. Arrakis uses based sequencing and the auction process helps the network achieve synchronous composability. This gives shared sequencers a way to use liquidity seamlessly between rollups.

In Phase 3, LPs deploy capital into Super Pools, which aggregate spot liquidity across multiple chains. Super Pools are designed to improve capital efficiency and returns for LPs.

The Future of Onchain Markets

CVMMs are a problem for DeFi and Arrakis is proposing a solution with the DVMM. By building the first decentralized onchain market maker, Arrakis aims to give retail users access to strategies that sophisticated actors profit from across the MEV supply chain today.

In the near term, Arrakis should make retail LPs more profitable through HOT. In the long term, the Arrakis DVMM has the potential to support the future of DeFi markets by hyperscaling onchain liquidity. In the long term, Arrakis hopes to offer any entity a way to trustlessly provide liquidity, contribute to the ecosystem, and launch tokens without relying on centralized actors.

By recapturing MEV through a trustless, multi-chain architecture, Arrakis is laying the foundations for a fairer onchain economy. To learn more about the Arrakis DVMM, look out for our full whitepaper, which will be dropping on our website soon. To join us on our journey to build the future of onchain markets, head to our website and keep an eye out for more news on Phase 1’s rollout in the coming weeks.