Measuring Price Improvement with Order Flow Auctions
Research from Uniswap Labs proposes a new methodology for measuring price improvements across Order Flow Auctions (OFAs).
The Rise of Order Flow Auctions Uniswap has been a pioneer of automated market makers (AMMs) – which have gained significant traction over the past few years. The Uniswap Protocol alone has processed over $2 trillion in all-time volume, with over 465 million swaps.
Order Flow Auctions (OFAs) have been proposed as a complement to the AMM. Systems like UniswapX, 1inch Fusion, CoWSwap, and Flashbots Protect introduce methods like batching and auctioning to optimize trading outcomes for all participants. These OFAs aim to redistribute surplus from specialized actors to swappers.
Measuring Price Improvements from OFAs While OFAs offer a promising solution to complement the AMM, there is no clear framework for evaluating the impact of introducing these systems into DEX interfaces. Quotes offer a simple way to compare prices across interfaces in a given moment, but swaps on some interfaces often settle at prices that are different from original quotes.
New research from Uniswap Labs introduces a novel, open source methodology to evaluate and compare OFAs, focusing on Price Improvements (PI). The methodology outlined in this research can be applied across any set of trades, focusing on three key factors that impact price improvement: liquidity access, gas optimization, and priority fee settings.
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Read the full paper here
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