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Oct 15, 2020

Great thread! High margin professional tradfi market makers are the definition of the entrenched and extractive middlemen defi promises to replace and democratize. I love watching it happen in real time 💜

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Cyrus Younessi

@cyounessi1

Oct 15, 2020

Super interesting technical discussions on both sides of the AMM debate tonight(@SBF_Alameda and @KyleSamani vs @danrobinson). There are also plenty of practical reasons for Uniswap's strong PMF, though. Here's the bottom line for me, as an active Uniswap LP:

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hayden.eth

@haydenzadams

Oct 15, 2020

Reminds me of a convo w/

@scott_lew_is

in the early days of Uniswap where we discussed professional market makers getting outcompeted by passive pooled LPs that would happily accept much lower margins :)

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and

Out of curiosity -- how much margin do you think professional MMs make on an average trade, in bps?

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I would assume some hilariously tiny amount! The point isn’t the margin per trade, it’s the return on invested capital

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> it’s the return on invested capital Got some bad news for you about AMMs... :D

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That’s exactly the point Hayden is making! Professional market makers make much higher returns on their capital than liquidity providers make on Uniswap. Their margin is our opportunity

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I don't think this is the right framing. Are you implying that AMM LPs are willing to accept a % fee that is so low that sophisticated MMs (and other competing AMMs) just won't bother participating in the market?

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Will Warren

@willwarren

Oct 15, 2020

Replying to @srndptme and @cyounessi1

The following image demonstrates how sophisticated MMs can eat into AMM fees until it is no longer viable to overcome impermanent loss.

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No—my point is that AMMs can deploy way more capital because LPs are OK with modest returns and are guaranteed their fair share of fills. Retail investors, too, are better off trading against an AMM, because liquidity doesn’t tactically dry up.

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I agree that professional market makers undercutting the spread do ruin this nice equilibrium! The solution to this, as for so many other problems, is to have all trading in the world go through Uniswap