1/ Regardless of our own opinions, we can’t stop developers and LPs from forking AMMs and fragmenting liquidity further.

The trend seems to be catching on, with three new AMMs launched in the past two weeks.
2/ This is growth phase. We will probably enter a liquidity consolidation phase of sorts after this (maybe projects will die as quickly as they were born), but in the meantime, this will accelerate another trend: adoption of liquidity aggregators.

Why? 👇
3/ Liquidity fragmentation

The most obvious problem caused by fragmentation is that, as more liquidity sources become available, the complexity of finding the best price for a given market at a given time increases.

I talked a bit about this in Feb:
3a/ Chart below shows distribution of sources in orders served by @0xProject API in the past two weeks.

We aggregate 12+ sources, including private AMMs and RFQT. All of them, even the newest ones, are being used.
4/ AMM liquidity is not static

AMM liquidity fragmentation is bad for LPs as it can make impermanent loss worse.

However, for LPs the barriers for moving their $ from one AMM to another today are almost non-existent. With a few clicks they can take their $ to the newest shop.
4a/ Liquidity moving from one source to the next adds yet another layer of complexity for traders looking to find the best prices.

> Enter aggregators and sMarT OrdEr rOutiNg.
5/ Liquidity Aggregation

Aggregators exist to remove the mental hurdle of finding the right platform by guaranteeing you get the best an ecosystem has to offer.

Instead of choosing which protocol to use, traders can use an aggregator that takes care of finding the best price.
6/ Smart Order Routing

Providing the overall best source for a swap is valuable, but where things get really interesting is when aggregators add smart order routing (SOR).

SOR refers to splitting a trade across different liquidity sources.
6a/ ~20% of volume flowing through @0xProject API in the past two weeks used 2+ liquidity sources in a single trade.

Our SOR accounts for all tx fees before making a rec, which means that if the user had gone to a single source they would've gotten a worse price for their trade.
7/ Beware that not all DEX aggregators are created equal.

When using an aggregator it's important to look out for accuracy of quoted vs realized prices as well as revert rates.

More on that here: https://twitter.com/fulviamorales/status/1299138642212913152?s=20
8/ Final thoughts

As the liquidity supply landscape gets more complex, the demand (traders) will likely migrate more and more to solutions that do the heavy lifting 🏋️‍♀️ of finding the best price for them.
8a/ DEX aggregators still have areas for improvement (e.g. reducing gas costs), no doubt, but it would be naive to think they will not get better at what they do.

Fin. 🧠
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