The Future of Non-Extractive Matching Pool Economics

Traditional AMMs impose a permanent, passive rent on all trades via LP fees, misaligning incentives between liquidity providers and traders. This creates $10B+ in extractive value annually, slowing adoption and innovation.

• Inefficient Capital: >90% of LP capital sits idle, earning no yield.
• Adversarial Pricing: LPs profit from trader slippage, a fundamental conflict.
• Value Leakage: Fees accrue to passive capital, not active protocol contributors.

Decouples order routing from liquidity provision. Solvers compete to fill user intents off-chain, sourcing liquidity from any venue, paying LPs only for capital actually used.

• Zero Slippage for Traders: Solvers internalize MEV, offering improved prices.
• LP as Wholesaler: LPs earn fees only when their liquidity is the best price, forcing efficiency.
• Natural Monopoly: The protocol with the best solver network and fill rates wins, not the highest LP bribes.

Coincidence of Wants (CoW) and batch auctions eliminate the need for intermediary LPs by matching complementary orders peer-to-peer. This is the purest form of non-extractive economics.

• Pure Surplus Creation: Value is created by matching, not extracted via spreads.
• MEV Resistance: Batch settlements neutralize frontrunning and sandwich attacks.
• Network Effects: Liquidity begets liquidity as more intents create more coincidences.

Cross-chain intent fulfillment requires a neutral, decentralized sequencing layer to prevent solver cartels. Protocols like Across use a bonded solver network with cryptoeconomic security.

• Decentralized Sequencing: No single entity controls order flow or censorship.
• Guaranteed Settlement: Cryptographic proofs and bonds ensure intent execution.
• Interoperability Standard: Becomes the base layer for cross-chain intent-centric architectures like layerzero and Chainlink CCIP.

Future matching pools will replace mercenary LP capital with restaked economic security. Stakers secure the network and earn fees from solver competition, aligning long-term health with protocol success.

• Stake-for-Security, Not Liquidity: Capital secures the matching process itself.
• Protocol-Owned Liquidity: Fees can be directed to a treasury or stakers, recapturing value.
• Slashing for Malice: Solvers/LPs that harm users lose stake, enforcing good behavior.

The final state is a self-sustaining economic mesh where intents are the asset. Matching pools become public utilities with fees asymptotically approaching zero, funded by adjacent services (e.g., lending, derivatives) built on the settled intent layer.

• Zero-Marginal-Cost Matching: Infrastructure costs are amortized across infinite use cases.
• Composability Primitive: Settled intents become verifiable inputs for complex DeFi legos.
• Exit to Community: Governance minimizes parameters, protocol becomes a credibly neutral market floor.

Without explicit fees, liquidity providers (LPs) rely on arbitrage profits and native token incentives, creating a fragile equilibrium. A market downturn or competitor with better bribes can trigger a rapid TVL exodus.

• Incentive Misalignment: LPs are extractive by nature; their loyalty is to yield, not protocol health.
• Protocol Capture: Sustainable models like Uniswap V4 hooks or CowSwap's surplus auctions must outbid mercenary capital, risking a race to the bottom.

Non-extractive pools concentrate order flow, creating a massive MEV target. Searchers will exploit the inherent latency of batch auctions, extracting value that should go to users or the pool.

• Value Leakage: Without a robust solution like Flashbots SUAVE or CowSwap's solver competition, MEV erodes the promised user surplus.
• Centralization Pressure: Only well-capitalized, vertically-integrated searchers can participate, defeating decentralization goals.

Matching pools that settle on-chain require price oracles. A large pool becomes a fat target for oracle manipulation attacks to drain reserves, a systemic risk magnified by the lack of transaction fees as a natural barrier.

• Attack Cost vs. Reward: A $100M+ TVL pool can be worth attacking for a fraction of that cost if oracles like Chainlink have low staleness thresholds.
• Design Imperative: Requires hybrid models with zk-proofs of execution or limit order books to minimize oracle dependency.

Expanding to chains like Solana or Arbitrum via bridges like LayerZero or Axelar fragments liquidity and introduces new settlement risks. A "global pool" is an illusion without atomic composability.

• Capital Inefficiency: Liquidity must be over-collateralized on each chain, negating the core efficiency promise.
• Bridge Risk: Adds custodial, oracle, and validator set risks from external protocols, creating a brittle stack.

Traditional AMMs and order flow auctions are structurally extractive, with ~$1B+ in MEV annually siphoned from users. This creates poor execution, frontrunning, and a negative-sum game for the ecosystem.

• Value Leakage: Fees and arbitrage profits go to searchers/validators, not LPs or traders.
• User Distrust: Opaque execution erodes confidence in on-chain finance.

Shift from state-based execution (what to do) to declarative intents (what you want). This enables non-extractive matching via off-chain solvers competing to fulfill user requests optimally.

• Value Capture Reversal: Surplus from better routing is returned to the user as improved execution.
• Composability: Intents become a primitive for cross-chain swaps, limit orders, and complex DeFi actions without protocol-specific liquidity.

Liquidity is no longer just token pairs in a pool; it's the competitive solver network with access to private capital, CEXs, and cross-chain bridges like LayerZero and Across. This creates a dynamic, efficient marketplace.

• Capital Efficiency: Solvers use existing inventory, reducing the need for locked TVL.
• Resilience: Decentralized solver sets prevent monopolistic extraction and single points of failure.

The high-APY, mercenary capital model for bootstrapping TVL is a broken incentive. Sustainable protocols will own the matching layer, not the assets. This aligns protocol revenue with user outcomes, not speculative farming.

• Sustainable Fees: Revenue from solver competition and order flow, not from taxing swaps.
• Sticky Users: Superior execution and returned value create defensible moats over pure yield.

Intent-based systems provide a clearer regulatory path. The protocol facilitates a match but never takes custody of user assets, operating as a pure information layer. This contrasts with opaque, extractive OTC desks or broker-dealer models.

• Compliance Edge: Clear separation of roles (user, solver, protocol) reduces securities law exposure.
• Institutional Onramp: Enables compliant participation from regulated entities as solvers or users.

The final evolution is users delegating continuous financial intents to agentic wallets. These agents constantly optimize across DeFi and CeFi via solver networks, making non-extractive pools the default liquidity backbone for all on-chain activity.

• Always-On Optimization: Passive yield generation and cost minimization become automated.
• Network Effects: The most used intent standards and solver networks become critical infrastructure, accruing value akin to TCP/IP.