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The thing this is missing: There's no promise that, if Bob is an LP in an AMM and markets move, Bob will be the one to get to trade against the AMM. Sometimes Alice gets their order in first, and then Bob loses. And more generally: Bob could do that trade without being an LP.

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Benjamin Dean Mahala

@BenDMahala

Oct 15, 2020

So I'm going to be ~contrarian~ here and argue that AMMs are (in theory) isomorphic to regular liquidity providing on an order book exchange (in normal language, that means they're the same if you look at them the right way) twitter.com/SBF_FTX/status…

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10:35 AM · Oct 15, 2020Twitter Web App

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Dominator008

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AMMs eliminate price-time priority and potentially reduce the impact of informed traders. Is that a bad thing? Not necessarily, especially when you look in the long term. One could even argue that eliminating informed traders is a good thing.

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Sure, but even with an order book on a CEX, someone can snipe one of Bob's orders before he can update it if they are faster then he is. In practice, AMMs are mostly on-chain and have to deal with the mempool dark forest and high fees so updating/arbing is more expensive.

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But this isn't a fundamental property of AMMs vs order books, it's just an artifact of having to deal on-chain. An on-chain order book wouldn't be any better.

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