AMMs are shifting from public to private. The dominant Uniswap v3 model broadcasts all liquidity and trades, creating predictable MEV and suboptimal execution. The next generation uses private pools and confidential swaps to protect trader value.
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Blog
The Future of AMMs: Private Pools and Confidential Swaps
Public liquidity is a bug. Next-gen AMMs like Penumbra use ZK-proofs to hide pool reserves and swap direction, neutralizing MEV and protecting LP alpha. This is the inevitable evolution beyond Uniswap V4.
introduction
THE STATE OF PLAY
Introduction
Automated Market Makers are evolving from public, transparent liquidity pools to private, intent-based execution systems.
The core innovation is intent-based execution. Protocols like Uniswap X and CowSwap separate order submission from execution, routing trades through a network of private solvers. This creates a competitive auction for the best price, eliminating frontrunning.
This is a fundamental architectural change. It moves the system's intelligence from a public, on-chain constant function to a private, off-chain competition among solvers. The result is better prices and protected user flow.
Evidence: Uniswap X processed over $7B in volume in its first six months, demonstrating demand for this model. Its success is forcing a re-evaluation of the public AMM's role in the DeFi stack.
key-trends
THE END OF PUBLIC ORDER FLOW
Executive Summary: The Three-Pronged Attack on Public Pools
Traditional AMMs leak value through MEV, latency arbitrage, and toxic flow. Private execution is the inevitable counter-attack.
01
The Problem: The MEV Tax
Public mempools are a free-for-all. Every swap signal is front-run, sandwiched, or arbitraged, extracting ~$1.5B annually from users. This is a direct tax on liquidity providers and traders.
- Value Leakage: LPs lose to arbitrage bots on every price update.
- User Experience: Slippage and failed transactions become unpredictable.
$1.5B+
Annual Extract
>90%
Trades Vulnerable
02
The Solution: Encrypted Mempools & Private Pools
Move order flow off-chain into confidential state. Protocols like Penumbra and Aztec encrypt transactions, while CowSwap and UniswapX use batch auctions solved by solvers.
- MEV Resistance: Orders are matched without revealing intent.
- Price Improvement: Solvers compete to provide the best execution, often beating the public market.
~0
Front-Running
$200M+
Saved for Users
03
The Architecture: Intent-Based Infra
Users submit what they want, not how to do it. This shifts complexity to a solver network (e.g., Anoma, Across, UniswapX).
- Composability: Solvers can route across any liquidity source (DEXs, private pools, OTC).
- Efficiency: ~30-50% gas savings by avoiding redundant on-chain state updates.
50%
Gas Reduction
Multi-Chain
Native Execution
04
The New LP: Capital Efficiency as a Service
Private pools (e.g., Maverick, Gamma) move LPs from passive providers to active managers. Concentrated liquidity becomes a private, managed strategy.
- Higher Fees: Capture >90% of swap fees vs. sharing with the public pool.
- Reduced Toxicity: Curated counterparties minimize adverse selection.
1000x
Capital Efficiency
90%+
Fee Capture
05
The Threat: Fragmentation & Centralization
Private liquidity fragments the market. Solver networks become critical, centralized points of failure and potential new MEV hubs.
- Liquidity Silos: Price discovery suffers if major volume moves off-book.
- Solver Power: A few dominant solvers could extract rent, replicating CEX issues.
O(10)
Major Solvers
Risk
Re-Centralization
06
The Endgame: Hybrid AMMs
The future is a hybrid model. Public pools act as base liquidity and price oracles, while private systems handle large, sensitive flow. Protocols like Balancer and Curve will integrate private vaults.
- Public Baseline: Essential for censorship resistance and startup liquidity.
- Private Performance: The default for institutional and high-value swaps.
80/20
Private/Public Split
All Major DEXs
Will Adopt
thesis-statement
THE MARKET FAILURE
Thesis: Privacy is a Prerequisite for Professional Liquidity
Public mempools and transparent AMMs create toxic arbitrage, forcing professional liquidity to stay off-chain.
Public mempools are toxic. Every swap on Uniswap v3 is a free option for MEV bots, who front-run and extract value from both the trader and the liquidity provider.
Professional LPs require information asymmetry. Hedge funds and market makers like Jane Street or Wintermute cannot deploy capital when their positions and intentions are broadcast in real-time.
Private pools solve this. Protocols like Ambient Finance and Maverick Protocol enable confidential liquidity provisioning, where LP positions are not public until a trade is executed.
Evidence: Over 99% of traditional FX volume is OTC. The current public AMM design captures less than 1% of professional liquidity because it lacks this basic privacy primitive.
PUBLIC VS. PRIVATE AMM MECHANICS
The Transparency Tax: Quantifying the Leak
A comparison of core mechanics and their measurable impact on user execution, revealing the cost of on-chain transparency.
| Mechanism / Metric | Traditional Public AMM (e.g., Uniswap V3) | Private Pool / OTC (e.g., Via, Rarimo) | Confidential Swap (e.g., Elusiv, Aztec) |
|---|---|---|---|
Pre-trade Transparency | Full. Price, size, wallet visible. | None. Quote is private intent. | None. Obfuscated via ZKPs. |
Frontrunning Risk | High. MEV bots snipe visible txns. | None. Settlement is atomic. | None. Logic is encrypted. |
Typical Slippage on $100k Swap | 0.3% - 2.0% | 0.0% (Fixed-price quote) | 0.1% - 0.5% (pool dependent) |
Settlement Latency | ~12 seconds (Ethereum block time) | < 2 seconds (off-chain match) | ~30-60 seconds (proof generation) |
Fee Structure | LP fee (0.01%-1%) + gas + MEV tax | Protocol fee (0.05%-0.3%) | Protocol fee (0.1%-0.5%) + proof cost |
Capital Efficiency | Low. LPs fragmented across ticks. | High. Full depth for matched trade. | Medium. Pooled but encrypted liquidity. |
Composability | High. Integrated with DeFi Lego. | Low. Isolated bilateral agreement. | Very Low. Limited ZK-circuit support. |
Regulatory Opacity | Transparent. Fully visible ledger. | Opaque. Counterparty known off-chain. | Opaque. Cryptographic privacy. |
deep-dive
THE PRIVACY LAYER
Architectural Deep Dive: How ZK-Proofs Re-Architect the AMM
Zero-knowledge proofs introduce a confidentiality layer that fundamentally alters AMM liquidity and trade execution.
ZK-Proofs separate liquidity from visibility. A private pool's reserves and composition become a private state, proven valid without public exposure. This enables institutional-grade liquidity without front-running risk.
Confidential swaps invert the MEV game. Trades are proven correct off-chain before submission, making the public transaction a simple verification. This architecture mirrors intent-based systems like UniswapX but with cryptographic finality.
The AMM becomes a verification contract. Core logic shifts from managing public pools to validating ZK-SNARKs or STARKs. Projects like Penumbra and Aztec demonstrate this model, where the chain only sees proof validity.
Evidence: Penumbra's shielded pool AMM processes swaps where asset types and amounts are hidden, relying on the Balancer-style constant function verified inside a ZK-circuit.
protocol-spotlight
FROM PUBLIC GOOD TO PRIVATE EXECUTION
Protocol Spotlight: The Vanguard of Private AMMs
Public AMMs leak alpha and invite MEV. The next generation uses cryptographic primitives to privatize liquidity and execution.
01
Penumbra: The Zero-Knowledge DEX
A shielded, cross-chain DEX built on Cosmos that treats every action as a private, multi-asset swap. It's the AMM as a cryptographic black box.
- Full privacy for swaps, LPing, and governance via zk-SNARKs.
- Batch auctions every 20 seconds to eliminate frontrunning and internalize MEV.
- Single-sided, multi-asset liquidity in shielded pools, abstracting away impermanent loss.
0
Leaked Alpha
20s
Batch Window
02
The Problem: Frontrunning is a Tax on Liquidity
Public mempools turn every Uniswap v3 limit order into a free option for searchers. This results in worse execution and deteriorated LP returns, creating a prisoner's dilemma for sophisticated traders.
- ~50-80% of profitable DEX arbitrage is frontrun or sandwiched.
- LPs leak >100 bps in annual yield to MEV bots.
- Forces institutions to use opaque, off-chain RFQ systems.
>100 bps
LP Yield Leak
~80%
Arb Frontrun
03
The Solution: Encrypted Mempools & Threshold Decryption
Protocols like Shutter Network and EigenLayer's MEV Blocker encrypt transactions until they are included in a block. This moves the battleground from public data to private computation.
- Threshold decryption by a decentralized keyholder set prevents censorship.
- Composable with existing AMMs like Uniswap and Curve.
- Preserves auditability post-execution for compliance rails.
~500ms
Encryption Overhead
100%
Public AMM Compatible
04
Elusiv: Privacy as a Modular Primitive
A zk-rollup on Solana that provides private balances and transfers. Its ZK-Pool enables confidential swaps by pooling user intents and settling off-chain.
- ~$0.001 cost per private transaction on Solana.
- Non-custodial privacy using zk-SNARKs and MPC.
- Plug-and-play SDK allows any dApp to integrate private swaps.
$0.001
Avg. Cost
1s
Confirmation
05
The Architectural Shift: From State to Intent
Private AMMs are a subset of the broader intent-based architecture championed by UniswapX and CowSwap. Users submit desired outcomes, not transactions; solvers compete privately for best execution.
- Off-chain solver competition discovers price across public and private liquidity.
- Batch settlements on-chain maximize cohesion and minimize cost.
- Naturally resists MEV by hiding the execution path.
10x+
Liquidity Source
-90%
Failed Txns
06
The Trade-Off: Liquidity Fragmentation vs. Alpha Preservation
Privacy creates fragmented liquidity pools, challenging the 'public good' model of AMMs. The equilibrium will be hybrid pools with shared liquidity but private order flow.
- Shielded pools attract large, sensitive flow but may have lower depth.
- Cross-chain aggregators like LI.FI and Socket will route to the optimal private venue.
- The endgame is confidential virtual state shared across chains.
Hybrid
Equilibrium Model
Multi-Chain
Liquidity Scope
counter-argument
THE TRANSPARENCY TRAP
Counter-Argument: Is Privacy at Odds with DeFi's Soul?
The core value of public mempools and transparent settlement is a non-negotiable foundation for decentralized finance.
Public mempools enable composability, which is the atomic unit of DeFi's innovation. Private transactions create opaque state changes that break the predictable, permissionless connections between protocols like Uniswap, Aave, and Compound.
Transparency is the ultimate audit trail. It allows block explorers, MEV searchers, and regular users to verify system integrity in real-time. Opaque pools require blind trust in a new set of validators or operators, reintroducing custodial risk.
Front-running is a feature, not a bug. It is the market mechanism for pricing time preference and transaction ordering. Protocols like Flashbots and CoW Swap have built sustainable systems atop this reality, optimizing execution rather than hiding intent.
risk-analysis
PRIVATE POOLS & CONFIDENTIAL SWAPS
The Bear Case: Risks and Adoption Friction
While private AMMs promise a new frontier, their path is littered with technical debt, regulatory landmines, and fundamental market structure challenges.
01
The MEV Paradox: Privacy Creates New Attack Vectors
Hiding intent from public mempools doesn't eliminate MEV; it centralizes and potentially weaponizes it. Solvers and sequencers become the new, unavoidable intermediaries with privileged information.
- Frontrunning Risk Shifts: From public bots to opaque solver auctions.
- Centralization Pressure: Requires trusted execution environments (TEEs) or MPC networks, creating single points of failure.
- Regulatory Spotlight: Opaque order flow becomes a compliance nightmare for institutional adoption.
1-2
Trusted Parties
High
Opaque Risk
02
Liquidity Fragmentation: The Silent Killer of Price Discovery
Private pools atomize liquidity, undermining the core utility of public AMMs. This creates worse execution for the majority of traders who cannot access private venues.
- Bifurcated Markets: VIP whales get better prices in dark pools, retail gets worse prices on public venues.
- Inefficient Capital: Liquidity is trapped in opaque, non-composable silos, reducing overall system efficiency.
- Slippage Arbitrage: Creates persistent arbitrage opportunities between public and private pools, a tax on the system.
~30%
Potential Slippage Gap
Fragmented
TVL
03
Adoption Friction: The Developer's Burden
Integrating private swaps requires overhauling wallet UX, smart contract standards, and tooling. The complexity cost stifles innovation and user onboarding.
- Non-Standard Flows: Breaks the universal
approve->swappattern, requiring custom intent signing. - Tooling Gap: Block explorers, analytics dashboards (like Dune, DeFi Llama), and aggregators cannot parse private transactions.
- Walled Gardens: Protocols like UniswapX or CowSwap create their own ecosystems, fracturing composability.
10x
Dev Complexity
Broken
Composability
04
Regulatory Ambiguity as a Protocol Risk
Confidential transactions on-chain attract immediate scrutiny from regulators (SEC, MiCA). The legal classification of a private pool or a solver network is dangerously undefined.
- Security vs. Utility: Is a private pool share a security? Is a solver a broker-dealer?
- OFAC Compliance: Enforcing sanctions lists becomes technically impossible with fully private swaps, risking entire protocol sanctions.
- Jurisdictional Arbitrage: Forces protocols to choose governance domiciles, inviting political risk.
High
Legal Overhead
Global
Scrutiny
future-outlook
THE PRIVACY SHIFT
Future Outlook: The 24-Month Migration
Automated Market Makers will fragment into private, intent-driven liquidity pools, rendering public on-chain order books obsolete for sophisticated trading.
Private pools dominate institutional liquidity. The current model of public, permissionless liquidity is a leaky sieve for institutional capital. Protocols like Whales Market and Elixir are building the infrastructure for private, permissioned liquidity pools that offer MEV protection and execution guarantees, attracting the next $100B in assets.
Confidential swaps become the standard. The future is not hiding the trade, but hiding the intent. Systems using threshold encryption (like Fhenix or Inco Network) or secure enclaves will allow users to submit encrypted swaps, with the winning solver decrypting only the final execution path. This kills frontrunning at the source.
AMMs become intent settlement layers. The core AMM (e.g., Uniswap V4) becomes a back-end settlement primitive for intent-based networks like UniswapX, CowSwap, and Across. The public pool is the liquidity of last resort, not the primary venue. This migration mirrors the shift from centralized limit order books to dark pools in TradFi.
Evidence: The 90%+ fill rate for UniswapX on Arbitrum, which routes orders off-chain to professional market makers, demonstrates the demand for this model. The launch of Uniswap V4 hooks is the catalyst, enabling the private pool architectures that will define the next cycle.
takeaways
THE AMM FRONTIER
Key Takeaways for Builders and Investors
The next evolution of Automated Market Makers moves liquidity off-chain for performance and on-chain for settlement, creating new vectors for value capture and risk.
01
The Problem: Public AMMs Are a Front-Runner's Paradise
On-chain liquidity pools broadcast pending swaps, creating a multi-million dollar MEV opportunity for searchers. This results in toxic flow, worse prices for users, and suppressed LP yields.
- Cost: LPs lose 5-50+ bps per swap to arbitrage.
- Latency: The public mempool creates a ~12-second race condition.
- Outcome: Honest users subsidize sophisticated bots.
5-50+ bps
LP Loss/Swap
~12s
Race Window
02
The Solution: Encrypted Mempools & Private Pools
Projects like Penumbra and Elixir separate execution from settlement. Swaps are negotiated off-chain in a private state, then proven on-chain. This eliminates frontrunning and unlocks new liquidity sources.
- Privacy: Order flow is hidden until settlement.
- Efficiency: Enables institutional-scale block trades without market impact.
- Composability: Private pools can be integrated as a liquidity source for intent-based systems like UniswapX and CowSwap.
0 bps
Frontrun Loss
Institutional
Flow Type
03
The New Business Model: Selling Block Space as a Service
Private pool operators (e.g., Elixir, Maverick) don't just earn fees—they sell guaranteed, frontrun-proof block space. This transforms LPs into infrastructure providers with predictable yields.
- Revenue: Fee income + block space premiums.
- Predictability: Reduced adverse selection leads to smoother, higher APY.
- Vertical: A natural fit for RWA and treasury management, moving beyond retail DeFi.
Fee + Premium
Revenue Model
RWA
Key Market
04
The Architectural Shift: From Stateful Contracts to Settlement Layers
AMMs become a verification layer for pre-negotiated swaps. This mirrors the intent-based and solvers architecture winning on Ethereum, but applied to concentrated liquidity.
- Throughput: Batch settlements increase TPS by 10-100x vs. vanilla AMMs.
- Modularity: Separates pricing logic (off-chain) from custody/settlement (on-chain).
- Interop: Enables cross-chain liquidity aggregation via protocols like LayerZero and Axelar without new trust assumptions.
10-100x
TPS Gain
Modular
Architecture
05
The Risk Vector: Centralized Sequencing and Trusted Hardware
Performance requires a sequencer or TEE (Trusted Execution Environment) to manage the private state. This introduces new liveness and censorship risks that are not present in pure on-chain AMMs.
- Failure Point: Sequencer downtime halts trading.
- Trust Assumption: Users must trust the hardware/operator not to cheat.
- Mitigation: Projects like Penumbra use proof systems, while others may opt for decentralized sequencer sets.
Liveness
Key Risk
TEE/Sequencer
Trust In
06
The Investment Thesis: Owning the Liquidity Gateway
The winner isn't the pool with the best UI—it's the protocol that becomes the default private liquidity backend for aggregators, RWAs, and cross-chain apps. Network effects compound around liquidity, not features.
- Moats: Liquidity depth and integrator relationships.
- TAM: Captures flow from traditional finance entering via stablecoins and bonds.
- Metrics: Track private TVL, institutional partner announcements, and integration share with top aggregators.
Liquidity Depth
Core Moat
TradFi Flow
Growth Driver
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