Paper 2026/1877

Otter: A Provably MEV-Resilient Automated Market Maker via Surplus Redistribution

Abstract

Miner extractable value (MEV) in automated market makers allows block builders to profit from transaction ordering and injected trades, imposing costs on users and contributing to builder centralization. We introduce Otter (Optimal Truthful Trading with Excess Redistribution), a two-asset batch AMM that achieves provable MEV resilience when the consensus layer provides censorship resilience and block space is uncongested. In particular, Otter makes truthful behavior a dominant strategy for both users and builders. Consequently, a builder cannot profit from strategic deviations, including reordering bids or injecting sybil bids. These guarantees continue to hold even when the builder is itself a trader with intrinsic value. Moreover, we show that our mechanism maximizes social welfare, in a strong sense, within a natural class of mechanisms satisfying the desired game-theoretic properties. To achieve these guarantees, we introduce a new paradigm called surplus redistribution, which provably prevents residual surplus from being captured as MEV by redirecting it to the broader community. Specifically, the pool's output tokens need not be distributed entirely among the users in the current batch. Instead, any residual surplus may be transferred, for example, to a smart contract governed by the decentralized community. The accumulated surplus can subsequently be used to benefit community members in ways that preserve the mechanism's game-theoretic guarantees --- for example, by subsidizing traders' transaction fees, rewarding liquidity providers, or returning assets to the pool to reduce price impact and slippage for future traders. Our approach relies on the underlying consensus layer to provide censorship resilience. We motivate the necessity of this assumption through an impossibility result showing that the desired game-theoretic guarantees become unattainable when the builder is additionally allowed to censor transactions. Thus, our results also provide a mathematically formal demonstration of how consensus-level security guarantees can fundamentally expand what is achievable at the application (i.e., smart-contract) layer. Finally, we establish additional results characterizing the builder fee structures compatible with our desired incentive guarantees.