2026-10-03T23:25:25Z https://drops.dagstuhl.de/oai

oai:drops-oai.dagstuhl.de:27867 2026-10-02T17:40:22Z ddc:004 open_access

Multi-Currency AMMs for Decentralized FOREX Markets: Feasibility & Optimal Design Li, Reina Ke Xin Park, Andreas Veneris, Andreas Singh, Srisht Fateh automated market makers decentralized finance currency foreign exchange Most currency pairs lack a direct liquid market, so international foreign exchange relies on routing transactions through a dominant vehicle currency. Multi-currency automated market makers (AMMs) offer an alternative by sharing liquidity across many currency pairs, facilitating direct cross-currency trade while exploiting liquidity consolidation. This paper studies a multi-currency pool design that minimizes trading cost. Under a constant-mean AMM architecture, equilibrium trading costs reflect the trade-off between reduced price impact from consolidated liquidity and increased impermanent loss from joint return risk. This work derives closed-form costs, characterizes optimal pool weights, and shows that the optimized multi-currency pool dominates the status quo over a range of market parameters. It then formulates the system-level problem of partitioning currencies into multi-currency pools, which is solved using a hierarchical agglomerative clustering algorithm. Empirically, using exchange rate and trade data for 43 currencies over 2008-2023, the algorithm runs in 1.6 seconds and produces pools with geographic and economic structure. Notably, this reduces realized costs by 13% relative to the status quo of vehicle-currency routing, with gains stable through episodes of global financial stress. Schloss Dagstuhl – Leibniz-Zentrum für Informatik Reina Ke Xin Li and Andreas Park and Andreas Veneris and Srisht Fateh Singh 2026 Is Part Of LIPIcs, Volume 395, 8th Conference on Advances in Financial Technologies (AFT 2026) InProceedings Text doc-type:ResearchArticle publishedVersion application/pdf doi:10.4230/LIPIcs.AFT.2026.13 urn:nbn:de:0030-drops-278671 https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2026.13 eng https://creativecommons.org/licenses/by/4.0/legalcode