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. 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, even when the builder is itself a trader with intrinsic value. Moreover, we show that Otter 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 users in the current batch. Instead, residual surplus may be transferred to a smart contract governed by the decentralized community. The accumulated surplus can be used to benefit community members --- for example, by subsidizing transaction fees, rewarding liquidity providers, or returning assets to the pool. Our approach relies on the underlying consensus layer to provide censorship resilience. We motivate its necessity 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 layer.