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SBF
@SBF_FTX
Replying to
@SBF_FTX
15) This means that any "benign" taker -- someone who just needs to put on a position at a reasonable price -- has to pay that same 30bps. It's really inefficient. What if an algo set the price? Well either:
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SBF
@SBF_FTX
16) a) that algo is a CEX oracle --> just trade on the CEX b) that algo is on-chain tradeable --> that algo is the DEX, recurse on it c) that algo is something else, and likely garbage. So how can AMMs even exist then? It basically has to be one of the following.
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SBF
@SBF_FTX
17) a) The liquidity providers are making a mistake, and bleeding to IL but don't realize it. b) Volatility is so low that IL is close to 0, so fees can be small too. E.g. Curve. c) There's _so_ much random taker flow that it's > IL. But still AMM/IL is worse than orderbooks
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SBF
@SBF_FTX
18) or, finally: d) someone is paying you to use the AMM, e.g. yield. So in summary, either the LPs are losing; the retail takers are losing; or someone is paying the system to compensate for those. And when that yield goes away, you're back where you started.
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SBF
@SBF_FTX
19) What if you just really need easy liquidity? Yeah, that's totally legit. That's the clearest use case for AMMs: You have a token, you want liquidity for it. You don't want to bother with an MM. So you just put some tokens in an AMM and don't worry about it.
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SBF
@SBF_FTX
20) You lose some money on it, but sure, that's fine, it's the price of liquidity. What if you program an AMM to do "smart" pricing/trades/etc.? If it's really custom -- it's not really an AMM, it's an on-chain algo trading firm. Which is awesome!
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SBF
@SBF_FTX
21) Note that reducing gas costs and blockchain latency does help some: it at least makes it cheap to add/remove liquidity, so you can stop providing when you want if markets start moving. But overall: The problems with AMMs run deep.
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SBF
@SBF_FTX
22) AMMs force you to always make two-sided markets at mid. That strategy does not generally do so well. And throwing math at it, or synthetic hedges, or whatever, doesn't really help. So much yield has gone to them that we forget they weren't popular before.
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SBF
@SBF_FTX
23) But in the end, except in a few cases that play to their strengths (stablecoin<>stablecoin, new project that needs easy liquidity, etc.)-- --you can't really fix AMMs, you can just make them a bit less bad. The past is orderbooks. So, I think, is the future.
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AlwayzApin
@BTCsupernova
Replying to
@SBF_FTX
and
@SBF_Alameda
SBF, Is it possible that the value proposition to the swappers on a truly defi AMM platform (speed, execution at efficient price, deep liquidity, no need to open full blown DEX account, anonymity, etc.) would allow the swap fees (alone) to exceed IL w/o incentives?
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AlwayzApin
@BTCsupernova
Replying to
@SBF_FTX
and
@SBF_Alameda
yes, my experiences swapping on Uniswap are that it is slow, somewhat opaque and the gwei is anger-inducing. My experiences with thorchain's BepSwap (which is admittedly very limited in scope of tokens right now BEP-20 only) is that it is very fast and cheap. future=interesting.
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