# Arbiter for Liquidity Providers ## Challenges in Liquidity Provision to AMMs One of the biggest challenges for Liquidity Providers in DeFi is **Loss Versus Rebalancing**. As prices shift, arbitrageurs exploit discrepancies between AMM and market prices, extracting value from LPs. The Arbiter hook for UniswapV4 and PancakeSwapV4 directly addresses this issue by auctioning privileged access to the MEV and redistributing the proceeds to LPs. ## Arbiter's Auction Hook Arbiter uses Harberger Lease Auctions to rent two privileged roles within a V4 pool: - **Fee Manager** is a sole role that allows the holder to provide a function that sets a fee based on the swap input parameters and allows the holder to collect X% (e.g. 5%) of fees as a reward. Introducing this role creates a profit-driven competition for solving **Optimal Fee Problem**. - **Pool Searcher** is the sole role that allows the holder to perform swaps without fee. This partially solves the LVR, as a significant part of extracted arbitrage is redistributed in the form of auction proceeds. Moreover, zero fees create new arbitrage opportunities. Proceeds from these auctions are distributed between Liquidity Providers (**bid token** being distributed as a **rent**). **!! Depending on the pool configuration, these proceeds may be distributed automatically or require LPs to take simple and specific actions. !!** ### Case 1: Pool Tokens as Bid/Rent Token In this scenario, the bid/rent token is one of the trading tokens in the liquidity pool. Proceeds from the auction are distributed automatically to LPs using the donate method. **No additional actions are required.** Rent is allocated to active ticks automatically during swaps and liquidity modifications. ### Case 2: External Token as Bid/Rent token: In this scenario, the bid/rent token is external to the pool's trading tokens (e.g., UNI, CAKE). **LPs must subscribe to the hook using the PoolManager to be eligible for rewards.** Rewards are distributed proportionally to actively subscribed liquidity. **!! Rewards are distributed automatically !!** LPs must call the collectReward on the hook to claim their rewards. ## Find More https://arbiter.finance/pitchdeck/ - pitch deck https://arbiter-1.gitbook.io/ - arbiter general docs https://hackmd.io/@arbiter/HyEAkkTfJg - technical docs (WIP) https://hackmd.io/@arbiter/S1mYi16M1l - one-pager for Investors https://hackmd.io/@arbiter/Hk3Y81aMyg - one-pager for Searchers/Arbitrageurs