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Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out. Let’s say

Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out. Let’s say I want to be a market maker on Binance, in both BTC/USD and ETH/USD. Let’s say that I have a strategy where I can provide $5m in liquidity to each of those markets (i.e. $5m of orders for other traders to aggress) for a total of $10m of liquidity. But because most of the time those orders are just resting unexecuted, it turns out I actually only need $1m in capital to run my market making algos. In the DEX example, if I want to provide $5m liquidity to a BTC/USDT LP and $5m to an ETH/USDT LP, I need $10m to do this. So to run my $10m liquidity provider on a CEX I only need $1m whereas in order for an AMM to provide $10m in liquidity, it needs $10m in capital.

SilasX 5y ago
That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell. Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1]. I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it. You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market. Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m". If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent. [1] though arcticbull mentions a case where the value could be propped up for a similar kind of attack: https://news.ycombinator.com/item?id=28798110 https://news.ycombinator.com/item?id=28798110

SilasX 5y ago

That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell. Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1]. I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it. You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market. Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m". If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent. [1] though arcticbull mentions a case where the value could be propped up for a similar kind of attack: https://news.ycombinator.com/item?id=28798110 https://news.ycombinator.com/item?id=28798110