Ethereum Foundation researchers Mike Neuder and Maryam published a primer on Proprietary AMMs (PropAMMs) and their potential role in bringing more trading activity back onchain on Ethereum.

A PropAMM is a smart contract that implements a standard DEX interface using a parameterized pricing curve, but where a professional market maker actively manages the capital by frequently updating the contract's price parameters based on an offchain pricing model. The key innovation is that execution logic happens onchain, making it composable with DeFi, while the market maker's active management ensures the contract trades at fresh, competitive prices rather than stale passive liquidity.

The researcher note that on Solana, PropAMMs now facilitate roughly one third of all onchain trading volume. The core challenge for Ethereum is block structure. On Solana, market makers land cheap oracle update transactions at high frequency. On Ethereum, PBS (Proposer-Builder Separation) incentivizes builders to maximize extraction.

A current workaround relies on trusted relationships with specific builders that can guarantee market makers get oracle updates in their blocks. FOCIL, scheduled for Hegota, will help partially, but it doesn't garuntee block ordering. The researchers propose an in-protocol Application Controlled Execution (ACE), which would guarantee that parameter update transactions always precede trade execution at the protocol level. It can help PropAMMs to function without trusted builder relationships.

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