TEE-based AMM

A TEE-based AMM executes the core automated market maker logic—including price calculation, slippage, and fee application—inside a Trusted Execution Environment (TEE). This keeps the details of pending trades (like exact size and price) confidential until they are finalized and broadcast to the blockchain for settlement. This prevents front-running and MEV (Miner Extractable Value) extraction by sequencers or validators.

These systems use a hybrid model where user funds remain secured in an on-chain vault (smart contract), while trade computation occurs off-chain within the TEE. The TEE generates a cryptographic proof or attestation of the correct execution, which is then verified on-chain before funds are moved. This separates the trust assumption from the blockchain's consensus to the integrity of the hardware enclave.

By shielding transaction intent and batching order execution within the secure enclave, TEE-based AMMs significantly reduce MEV opportunities like front-running and sandwich attacks. The sequencer or operator of the TEE cannot see or reorder individual transactions for profit before they are cryptographically committed, creating a fairer trading environment.

Moving complex AMM calculations off-chain allows for much higher throughput and lower gas fees for users. The blockchain only handles final settlement and proof verification, not every intermediate calculation. This enables features like instant trade confirmation and more complex pricing curves that would be prohibitively expensive to compute directly on a Layer 1.

The security shifts from purely cryptographic (blockchain) to a combination of cryptographic and hardware-based trust. Users must trust that:

• The TEE hardware (e.g., Intel SGX, AMD SEV) is secure and uncompromised.
• The enclave's attested software is correct and has not been tampered with.
• The operator running the TEE is not malicious (though the hardware limits their ability to cheat). This is a different trust model compared to fully on-chain or optimistic systems.

A core implementation pattern for TEE-based AMMs is the encrypted mempool. Users submit encrypted swap transactions to a network of TEE-operated nodes. Inside the secure enclave, transactions are:

• Decrypted
• Sequenced into a batch
• Matched against the liquidity pool
• Executed at a uniform clearing price

The resulting state change is then cryptographically attested and posted on-chain, preventing front-running and sandwich attacks.

A critical implementation detail is managing trust in the TEE hardware and its remote attestation. Projects must:

• Integrate a verification contract on-chain to check TEE attestation reports.
• Implement a decentralized network of TEE operators to avoid single points of failure.
• Plan for TEE vulnerabilities (e.g., potential side-channel attacks) with mitigation strategies like slashing or rapid software updates. This overhead is the trade-off for gaining confidentiality and MEV resistance.

TEE-based AMMs differ from ZK-based privacy AMMs (like Aztec). While ZK proofs cryptographically verify computation without revealing inputs, they are computationally intensive for complex state changes. TEEs, in contrast:

• Enable arbitrary, private computation more efficiently.
• Can handle large, dynamic state (like an order book) privately.
• The primary trade-off is reliance on hardware security assumptions versus pure cryptographic guarantees of zero-knowledge systems.

The core security model depends on the integrity of the TEE hardware (e.g., Intel SGX, AMD SEV). Users must trust that:

• The hardware manufacturer has not compromised the design.
• The remote attestation process correctly verifies the enclave's code.
• Physical side-channel attacks are not feasible against the specific CPU.

If the TEE enclave is breached, an attacker could access the private order flow and liquidity provider shares. Critical risks include:

• Key leakage: Private keys for signing transactions or decrypting data inside the enclave must be generated and stored securely within it.
• Software bugs: Vulnerabilities in the enclave's application code can nullify hardware guarantees.
• Rollback attacks: An attacker with control over the host machine may attempt to replay old, favorable states.

TEE-based AMMs introduce a centralization point: the operator(s) running the enclave. Considerations include:

• Single point of failure: The availability of the AMM depends on the operator's server.
• Censorship risk: The operator could theoretically censor or reorder transactions before they are posted on-chain.
• Verifiability: The system's correct operation is not publicly verifiable by all network participants, only by those who can verify remote attestations.

A primary benefit is mitigating Maximal Extractable Value (MEV). The TEE acts as a dark pool, batching and ordering transactions privately before settlement. This prevents:

• Front-running: Observers cannot see pending transactions.
• Sandwich attacks: Attackers cannot position their trades around a known victim transaction.
• The trust assumption: Users must trust the enclave operator does not itself perform MEV extraction, which is a shift from trusting the public mempool.

The blockchain remains the source of finality and data availability for settled transactions. The TEE handles computation, but security depends on:

• On-chain verification: The blockchain must verify a cryptographic attestation (e.g., a signature) from the TEE proving correct execution.
• Input integrity: The TEE must receive a verified, canonical view of the blockchain state to compute against. A malicious data feed could corrupt the enclave's execution.

An Order Book DEX is a decentralized exchange that matches buy and sell orders based on price-time priority, similar to traditional finance. TEE-based AMMs often implement a hybrid model, using the TEE to host a private, verifiable order book off-chain. This combines the price discovery efficiency of order books with the on-chain finality and censorship resistance of decentralized protocols.

Minimal Extractable Value (MEV) refers to profit that validators or sophisticated bots can extract by reordering, inserting, or censoring transactions within a block. TEE-based AMMs can mitigate certain MEV vectors like front-running and sandwich attacks by keeping the order flow and matching logic confidential within the TEE until settlement, preventing public mempool exploitation.

This is a paradigm where complex computations are performed off-chain for scalability, with cryptographic proofs or hardware attestations submitted on-chain to verify correctness. A TEE-based AMM uses the TEE's remote attestation to generate a cryptographic proof that the off-chain order matching was executed faithfully according to the protocol rules, ensuring trust without full on-chain execution.

Confidential Transactions are a cryptographic technique that hides transaction amounts and asset types while still allowing network validation. In a TEE-based AMM, the TEE can process these encrypted inputs, perform calculations (like determining swap rates), and produce a valid, settled transaction without ever exposing the private trade details on the public ledger.

A Hybrid AMM Architecture blends multiple liquidity and pricing mechanisms. A TEE-based AMM is a prime example, potentially combining:

• A traditional constant product formula (x*y=k) pool for baseline liquidity.
• A TEE-hosted order book for limit orders and improved price discovery.
• This allows for lower slippage on large trades and more sophisticated trading strategies than a pure on-chain AMM.