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ROUTE SELECTION IN CONSTANT FUNCTION MARKET MAKERS: HOW TRADE SIZE, PRICE IMPACT, AND SWAP FEES SHAPE ROUTING DECISIONS BETWEEN DIRECT AND TWO-HOP PATHS

AUTHORS:
Anish Varma
Vedant Herekar
Yashvardhan Didwania
Tathvavith Satelli
Mentor
Affiliation
ASMSOC, NMIMS, Mumbai, India
DOI: 10.55041/ijsmt.v2i10.060
CC BY 4.0 License:
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Abstract
Decentralized exchanges fill orders from pooled liquidity, so the amount received depends on trade size and on the route taken through the available pools. Constant function market makers (CFMMs) price trades through nonlinear functions, which makes route choice sensitive to order size and fees. The study examines how trade size, price impact, and swap fees affect route selection between direct execution from USD Coin (USDC) to wrapped Ether (WETH) and a two-hop route through the stablecoin DAI. Counterfactual trades of up to $2,000 were simulated across 237 synchronized Uniswap V2-style pool states, with and without a 0.30% fee per hop. The two-hop route produced more output in 2.570% of state–trade-size combinations with fees and 31.113% without, and switching always ran from the two-hop route to the direct route as trade size increased. Route selection therefore depends jointly on initial relative pricing, trade size, and per-hop fees.
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PUBLICATION DETAILS
Review Type:
Double-Blind Peer Review
License:
CC BY-NC 4.0
Volume/Issue:
Volume 02, Issue 10
Review Rounds:
2
Article Type:
Research Article
Publication Date:
Oct 12 2026
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Varma, A., Herekar, V., Didwania, Y. & Satelli, T. (2026). Route Selection in Constant Function Market Makers: How Trade Size, Price Impact, and Swap Fees Shape Routing Decisions Between Direct and Two-Hop Paths. International Journal of Science, Strategic Management and Technology, 02(10), 1-9. https://doi.org/10.55041/ijsmt.v2i10.060

Varma, Anish, et al.. "Route Selection in Constant Function Market Makers: How Trade Size, Price Impact, and Swap Fees Shape Routing Decisions Between Direct and Two-Hop Paths." International Journal of Science, Strategic Management and Technology, vol. 02, no. 10, 2026, pp. 1-9. doi:https://doi.org/10.55041/ijsmt.v2i10.060.

Varma, Anish,Vedant Herekar,Yashvardhan Didwania, and Tathvavith Satelli. "Route Selection in Constant Function Market Makers: How Trade Size, Price Impact, and Swap Fees Shape Routing Decisions Between Direct and Two-Hop Paths." International Journal of Science, Strategic Management and Technology 02, no. 10 (2026): 1-9. https://doi.org/https://doi.org/10.55041/ijsmt.v2i10.060.

References
Adams, H., Zinsmeister, N., & Robinson, D. (2020). Uniswap v2 core [White paper]. Uniswap. https://uniswap.org/whitepaper.pdf

Angeris, G., & Chitra, T. (2020). Improved price oracles: Constant function market makers. In Proceedings of the 2nd ACM Conference on Advances in Financial Technologies. ACM.

Angeris, G., Agrawal, A., Evans, A., Chitra, T., & Boyd, S. (2021). Constant function market makers: Multi-asset trades via convex optimization. arXiv:2107.12484.

Angeris, G., Evans, A., Chitra, T., & Boyd, S. (2022). Optimal routing for constant function market makers. In Proceedings of the 23rd ACM Conference on Economics and Computation (pp. 115–128). ACM. https://doi.org/10.1145/3490486.3538336

Caparros, B., Chaudhary, A., & Klein, O. (2025). Blockchain scaling and liquidity concentration on decentralized exchanges. SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4475460

Daian, P., Goldfeder, S., Kell, T., Li, Y., Zhao, X., Bentov, I., Breidenbach, L., & Juels, A. (2020). Flash Boys 2.0: Frontrunning in decentralized exchanges, miner extractable value, and consensus instability. In 2020 IEEE Symposium on Security and Privacy (pp. 910–927). IEEE.

Danos, V., El Khalloufi, H., & Prat, J. (2021). Global order routing on exchange networks. In Financial Cryptography and Data Security: FC 2021 International Workshops. Springer.
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✓ All ethical standards met
This article has undergone plagiarism screening and double-blind peer review. Editorial policies have been followed. Authors retain copyright under CC BY-NC 4.0 license. The research complies with ethical standards and institutional guidelines.
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