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SBF
@SBF_FTX
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@SBF_FTX
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?
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SBF
@SBF_FTX
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.
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SBF
@SBF_FTX
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!
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SBF
@SBF_FTX
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.
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SBF
@SBF_FTX
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.
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SBF
@SBF_FTX
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.
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SBF
@SBF_FTX
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.
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SBF
@SBF_FTX
12) What else can you do? Well--you could build borrow-lending (or wait for one to come out--soon!), and compose with it for margin. Or you could let people place limit orders or triggered orders: either through the dex, or with another on-chain program.
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