AMM providers get destroyed without large maker rebates because they're forced to provide at the market, both directions, whatever that is.
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even with 30bp taker fees/maker rebates there's significant money to be made each day trading against AMMs, just doing arbs.
If fees were lower, AMMs would lose even more to that.
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Arbitrage profits are not equal to liquidity provider losses!
Ask Kyle to explain volatility harvesting to you
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They are unless the person providing in the AMM strongly things that on long timescales the assets are mean-reverty
which I think is not really what people are trying to express
and if they are then AMMs make more sense
as long as the belief is both strong and very nonspecific
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I just mean mathematically, in the short run, it is not a zero-sum game.
ETH price goes from $300 to $310, arbitrageurs trade and make money. Market price goes from $310 to $300, arbitrageurs trade and make money. Liquidity providers now have more money than they started with.
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I’m assuming the arbitrageur is actually arbitraging—trading against Coinbase or whatever. So they make actual profits on the way up and on the way down.
The liquidity providers make money from fees. And since the price is back where it started, they make a profit.
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but if instead price goes from 300 to 310 to 320 then the LP loses a LOT
why are you assuming it mean-reverts instead of has momentum?
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I was just responding to the implication that because arbitrageurs can make money trading on Uniswap, AMMs must necessarily be losing money. Sometimes they gain money from it!
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yeah not true if you believe in mean reversion, but it's the right prior
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Isn’t it a question of how many hours/days per year does the price revert vs. not revert? And by how much (when it doesn’t?). In low vol regimes it’s going to revert a lot.
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low vol doesn't mean it doesn't revert
it could also just slooooooowly drift down
Yeah fair but it still stands that LPs will earn if it does revert. Guess it just depends on their overall market expectations and whether fees make up for the IL if/when it hits.