Conversation

3) One thing you can do on Serum is build an AMM, just like Uniswap. The difference is just that it's faster and cheaper. Does that matter?

4) It does! The biggest thing: say there's an ETH/USDC pool and ETH slowly drops 1%. On Serum, someone will arb it when it's good by ~35bps or so. On ETH -- there is a significant gas cost, and also uncertainty in whether you'll get filled. That means adverse selection.

5) If you're an arb bot and you see a 35bp spread in Uniswap -- so 5bps after taker fees: a) if nothing moves you're competing with other bots and maybe 25% you get the trade b) if things revert other bots will cancel and so you'll definitely get the trade your fill is worse!

6) so the arb bot widens out by gas + adverse selection, maybe looking for 15bps-50bps. In the end, the IL is the same for the pool. But the volume is less, so rebates are less. Or put another way: average trade is worse for it. So fast/cheap lowers effective IL for AMMs.

7) How else is it different? Well -- Serum has on-chain orderbooks! bonfida.com/dex So your AMM could send maker orders on the DEX to mimic the curve.

8) That means that the AMM will be able to have some control over its IL: You don't have to wait for a bot to look at the AMM. The bots look at the orderbooks anyway. So it's a stronger version of (6): you can make sure the trades happen at orderbook prices.

9) But also, it means customers can find it easily! They don't have to even know about the AMM: if they trade on the orderbook, they'll automatically get the AMM's liquidity, and the AMM will get their flow.

Pools: a generalized primitive [EXTERNAL]

10) How does this work? Well, the DEX is on-chain. So an on-chain program can send orders in it. In particular, a Pool can! docs.google.com/document/d/1lm So you can use Pools to build an AMM that trades on a Serum DEX.

docs.google.com

Pools: a generalized primitive A Pool P works as follows: It’s an account that can hold assets You can create P by sending in some assets; you will be given back a Pool Token T which represents your...

11) Note this automatically gets to use Serum's cranks, and the on-chain orderbooks and matching engines. It's also totally customizable. You don't need to have 50/50 balances; you can customize the curve; you can have many tokens; etc.