Conversation

SBF
@SBF_FTX
3) The premise here is a little odd: Providing in AMMs has made people millions this summer. How are they broken?
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SBF
@SBF_FTX
4) Well, let's see how we got here. First, why do AMMs exist in the first place? Because most blockchains don't have the throughput to support orderbooks, so they _have_ to use AMMs instead. OK, well how are they doing? Until this summer, very little usage.
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SBF
@SBF_FTX
5) Now, though, there's way more. But it's not all "natural". Most volume--and TVL--in DeFi comes from yield farms, one way or another: projects dropping their tokens on their users. Whatever you think of it, it means that the reported usage numbers are heavily incentivized.
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SBF
@SBF_FTX
6) People are using AMMs because they're being actively paid to. But that doesn't have to be unique to AMMs: you could also drop yield on an orderbook, or stakers, or pretty much anything else. And once that yield goes away, how much volume and TVL will remain? It's unclear.
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SBF
@SBF_FTX
7) Anyway--most people see the big problem with AMMs being "impermanent loss". What's IL? It's the fact that, if you provide liquidity in an AMM and prices move, you lose value. It's "Impermanent" in that, if you keep providing and prices revert, you get your value back.
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SBF
@SBF_FTX
8) Lots of projects are trying to fix IL. Some change the curve. Some have insurance, or options, or hedging. Many have yield. Do these help? Maybe, but probably not much. Do they fix IL? Nope.
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SBF
@SBF_FTX
9) Why is that? Because IL isn't some misparamaterization. IL is just a PC euphemism for "doing bad trades". Here's where IL really comes from. ------ Say that you put 1 ETH and 400 USDC in an AMM, and currently ETH is worth $400. Say it's 30bps taker, 30bps maker rebate.
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