Automated Market Making for Goods with Perishable Utility

TL;DR

This paper introduces an automated market maker for perishable utility goods, specifically compute resources, which ensures transparent pricing, incentive alignment, and bounded regret in decentralized markets.

Contribution

It designs a novel AMM mechanism for time-sensitive compute markets with proven equilibrium properties and incentive-compatible provider strategies.

Findings

Existence and uniqueness of equilibrium quotes established

Mechanism ensures active supply exceeds demand under certain conditions

CFM rule achieves bounded worst-case regret

Abstract

We study decentralized markets for goods whose utility perishes in time, with compute as a primary motivation. Recent advances in reproducible and verifiable execution allow jobs to pause, verify, and resume across heterogeneous hardware, which allow us to treat compute as time indexed capacity rather than bespoke bundles. We design an automated market maker (AMM) that posts an hourly price as a concave function of load--the ratio of current demand to a "floor supply" (providers willing to work at a preset floor). This mechanism decouples price discovery from allocation and yields transparent, low latency trading. We establish existence and uniqueness of equilibrium quotes and give conditions under which the equilibrium is admissible (i.e. active supply weakly exceeds demand). To align incentives, we pair a premium sharing pool (base cost plus a pro rata share of contemporaneous surplus) with a Cheapest Feasible Matching (CFM) rule; under mild assumptions, providers optimally stake early and fully while truthfully report costs. Despite being simple and computationally efficient, we show that CFM attains bounded worst case regret relative to an optimal benchmark.