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I am going to weigh in on the whole AMM debate, are they good or bad?
Thread:
Thread:
First off I mostly agree with this thread from Sam: from a trading perspective they are terrible. https://twitter.com/SBF_Alameda/status/1316509291017203712
The two main reasons are: Impermanent Loss (if prices drift away you'll automatically hold big bags of the cheapest thing) and terrible trading:
Due to the AMM fees and the fact that (currently) a lot of volume is arbitrage, very often you'll end up in situations where an asset drops in price, and the AMM will keep buying it at a higher price literally until arbitrage comes in to adjust the curve.
I think this is pretty fundamental and no oracles or smart onchain algo can change it: https://twitter.com/mikevanrossum/status/1295198566961487872
So case closed? Not quite:
In crypto a lot of money is being made by exchanges and big traders (like market makers). Why can't we put these things on the blockchain and tokenise equity and profit to share them? In essence Uniswap is an exchange and a market maker combined.
In crypto a lot of money is being made by exchanges and big traders (like market makers). Why can't we put these things on the blockchain and tokenise equity and profit to share them? In essence Uniswap is an exchange and a market maker combined.
From that perspective an AMM is super interesting: it's a smart contract everyone can always trade against, it runs on ETH so no website nor servers needed, no team to manage daily ops. And fees paid go to the LPs!
The closest thing we had before this were exchange tokens like BNB and FTT, which definitely seem to move inline with exchange success. But can't really compare it to the ownership LPs have in an AMM.
So I think the problem here ties back to the other problem: it's very hard to do profitable trading in an AMM model. Without sorting out that side Uniswap taking over crypto trading just doesn't seem likely to me.
That said I do think AMMs are very interesting for tokens that are not traded anywhere else (yet), I'd go as far as saying it's a more fair than something being traded on a single CEX with a single MM (but less privacy, etc).
Can we build trading infrastructure where not that much profit ends up being sucked up by exchanges and massive HFT traders? More ideas and experiments are needed.
Meanwhile feel free to do whatever you want with your money, personally I think sticking it an AMM is bad trading advice - but so is buying many tokens available right now.
Note that it's possible as an LP to come out profitable in an AMM, odds are just against you
Note that it's possible as an LP to come out profitable in an AMM, odds are just against you
