The competitiveness of the automated market maker model in on-chain trading is being re-evaluated

Concerns about the lack of sustainability of automated market makers (AMMs) continue to emerge, but recent views from Uniswap founder Hayden Adams have provided a strong defense of this mechanism. He points out that the adaptability of AMMs across different market environments is often underestimated.

AMM Performance in Stable Trading Pairs

In low-volatility trading pairs, automated market makers create a unique revenue path for liquidity providers. In contrast, traditional centralized market makers often need to charge higher fees to maintain profitability due to higher operational costs and risk management expenses. AMMs, on the other hand, can offer relatively stable fee income to participants with minimal capital investment, which provides a clear advantage in terms of cost structure.

Long-tail Assets and Liquidity Dilemmas

For more volatile assets and emerging tokens, AMMs have almost become the only feasible decentralized liquidity solution. In these markets, the main liquidity providers are usually project teams or early supporters. Their goal is not to pursue perfect hedging strategies but to build a liquidity foundation for the ecosystem. This incentive mechanism is more cost-effective than paying options-like fees to professional market makers.

A New Understanding of Sustainability

Adams emphasizes that the standard for measuring AMM sustainability should not be the traditional triangular arbitrage optimization of market making, but rather the incentive alignment among all market participants. When liquidity providers’ earnings are linked to protocol usage, the mechanism inherently possesses self-sustaining characteristics.

Overall, as the infrastructure for decentralized trading, the vitality of AMMs does not lie in fully replicating the logic of centralized market making but in providing flexible and cost-efficient options for different types of assets and market participants.