1/ There have been a lot of great conversations recently on the benefits of CLOBs vs AMMs in DEX liquidity provision. In my opinion, this is the wrong framing.

The real question is, will DEX liquidity be dominated by professionals or retail in the long run? A thread:

2/ First of all, I'll admit that I've come to appreciate AMMs over the years. They allow retail to participate in liquidity provision at scale, which is a fundamentally new and different behavior. That in itself is mind boggling. https://twitter.com/cyounessi1/status/1316570630507188226

3/ *Public* AMMs lend themselves well to retail LPs, but they tend to be worse for professionals. This is because retail is willing to accept a lower return on capital, and returns are uniform across the LPs.

4/ In other words, retail will eventually dilute the returns of the pros to the point where it doesn't make sense to participate. So what alternatives do professionals have? Luckily, there are many: CLOBs, RFQ systems, and proprietary AMMs can all consistently outcompete.

5/ The reason that these are less common on DEXs is _not_ because they are less effective - it is because they require a much higher level of sophistication to operate. And 6 months ago, the opportunity simply wasn't large enough for many pro MMs to bother.

6/ That is no longer the case today. I expect pros who have been dabbling in DeFi to turn to more sophisticated approaches and start undercutting prices once the farming subsidies run out. And what happens then?

7/ I think the likely long run outcome here is that ~20% of the capital will come from pro MMs who are responsible for ~80% of the liquidity and profits. See @willwarren89's excellent visualization below to understand why. https://twitter.com/willwarren89/status/1316622355947425794

8/ But honestly, all of the DEX builders should be trying to grow the pie - anything less is short sighted. The long run TAM of DEX is larger than all of CeFi combined today. Liquidity models will coexist, and users won't know the difference thanks to aggregators like @matchaxyz.

9/ If you're a professional liquidity provider thinking about entering the DEX space and you want to learn more, please reach out to myself or @HendoVentures! We are building the infrastructure to make your life easy at 0x Labs ( @0xProject) and would love to chat.