Core concepts
MEV Module
Overview
A set of advanced permissioned engines that capture and redistribute MEV value back to protocol participants, ensuring there is no value leak to outside extractors, bringing capital efficiency to the next level.
MEV Solutions
| Solution | Status | Description |
|---|---|---|
| X33 AMO | LIVE | Arbitrages the redeem floor and gives back to voters ensuring all value is kept inside the protocol instead of going to outside arbitragers. |
| Backrun Arbitrage | COMING SOON | Frontruns every arbitrage and returns value to users, protecting LPers from LVR and adverse costs from toxic MEV bots. |
Stopping Exploitative Liquidity on Shadow Exchange
What Is Exploitative Liquidity?
Some liquidity providers (LPs) exploit decentralized exchanges (DEXs) by adding tight, one-tick liquidity positions to maximize token rewards, which are streamed per second to in-range liquidity. Using mempool access, they withdraw liquidity when a large swap is detected, avoiding impermanent loss while claiming rewards without supporting trades.
How It Works
- Tight Position: LPs add liquidity in a narrow, one-tick range to earn maximum rewards per unit of capital.
- Mempool Watch: They monitor the mempool for incoming swaps that could shift prices and cause losses.
- Quick Exit: Before the swap hits, they remove liquidity, dodging impermanent loss.
- Reward Grab: They still collect rewards for the brief time their liquidity was active.
This undermines genuine LPs who maintain stable liquidity and bear market risks.
Why DEXs Are Vulnerable
DEXs often fall prey to this exploit because:
- Instant Reward Streaming: Rewards are paid per second and don't have proper mechanisms which require sustained liquidity.
- No Holding Period: LPs can withdraw instantly, avoiding losses from swaps.
Shadow Exchange tackles these issues head-on with targeted solutions.
Shadow Exchange's Solutions
| Solution | Status | Description |
|---|---|---|
| Abuse Prevention Module | LIVE | Using quantitive subgraph data and external monitoring, the protocol utilizes this module to prevent abuse from unproductive liquidity. |
| Delayed Rewards | COMING SOON | Requires LPs to hold liquidity for a minimum time before claiming rewards. |
| Fee Growth Tracking | COMING SOON | Links rewards to swap fees earned, rewarding actual trading support. |
Conclusion
Shadow Exchange's innovative solutions stop exploitative one-tick liquidity strategies. By rewarding only LPs who provide sustained, trade-supporting liquidity, Shadow ensures a fair and stable DEX for all users.