Things I tell people about AMMs:
(running list)
(running list)
1. You can get all the volume you want out of an AMM if your prices are wrong.
2. You can get all the volume in the world if you incentivize anyone more per swap than the swap fees.
3. If you are a little unprofitable due to impermanent loss on a xy=k AMM and very unprofitable trying to LP on a concentrated liquidity AMM, you are going to lose your shirt on a leveraged concentrated liquidity AMM.
4. Impermanent loss is probably real loss.
5. If you are fixing impermanent loss by changing your design to create permeant loss every time the price moves, it's probably worse.
6. LP money wants to be passive.
7. LP money wants to be an ERC20
8. If you make a new AMM design that's uniswapV2, but better in one way, it's probably going to be worse than uniswapV2.
9. Static trading fees are obviously, spectacularly wrong.
10. AMM's that price based only information they know from trades with them are like someone competing in NASCAR blindfolded.
It can be done. Just put your foot down and scrape the wall all the way around track. But if there's ever a seeing guy in the race, it's over.
It can be done. Just put your foot down and scrape the wall all the way around track. But if there's ever a seeing guy in the race, it's over.
11. Dynamic fees that only track volatility/off twapness are great, but only halfway there.
12. The APY shown in an AMM UI is only the income side. The loss side is prices changing. The losses aren't shown in UIs.
13. 90% of LP's are net unprofitable.*
*My guess. Excepting stable pairs and incentives.
*My guess. Excepting stable pairs and incentives.
14. UniswapV2 is better than you think.
15. UniswapV2 is not great about concentrating liquidity, but it's better than you think.
(see 14)
(see 14)
16. All pools in a given pair are PVP with each other.
17. All DEXs on a chain are in a PVP match with each other.
18. AMM's have tremendous winner takes all effects.
More money makes for better trades, more good trades make for dramatically better profitably potential and profits brings more money.
More money makes for better trades, more good trades make for dramatically better profitably potential and profits brings more money.
19. The advent of good aggregators is good for new entrants because they can drive quite a bit of trades.
New ones don't have to get both users and LP's simultaneously.
New ones don't have to get both users and LP's simultaneously.
20. Notwithstanding #19, having traders using your UI is a massive advantage, because they are trades that your PVP competition is never going to get.
21. I never want to write bin based concentrated liquidity code.
God bless everyone who has.
God bless everyone who has.
22. I hate oracles.
Not really relevant, but just throwing this in there.
Because I hate oracles.
Not really relevant, but just throwing this in there.
Because I hate oracles.
23. In the formula `profit = revenue - losses`, a small percent reduction in losses or a small percent increase in revenue can have a huge impact on profit.
24. To a first approximation, LP profitabitly is
(fee x volume) - (assets exposed * asset price changes)
(fee x volume) - (assets exposed * asset price changes)
25. Orderbook based market making is the pinnacle of hundreds of years of evolution in traditional finance. The most efficient way humans have ever found to do this.
But every time it's been tried onchain, it's failed. Pls don't build another one until you know why.
But every time it's been tried onchain, it's failed. Pls don't build another one until you know why.
26. For everyone concentrating liquidity around the 1:1 between an asset and it's more risky derivative asset that also has a time delay to redeem: 
27. If your AMM competitors for a pair are boneheadedly losing money, there may be no possible way to be profitable, since to compete for trades you would have to lose more money than they do.
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