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I would argue AMM go beyond just evading gas cost. It sounds redundant to say, but an AMM eliminates the need for active market makers; or put another way, anyo
by mNovak 5y ago
I would argue AMM go beyond just evading gas cost. It sounds redundant to say, but an AMM eliminates the need for active market makers; or put another way, anyone can be a market maker. I think that's an interesting thing--previously there was no very effective way for me to participate in market making (and the potential profits of such), but with an AMM it essentially becomes a passive investment.
- is0tope 5y agoThat is true up to a point, however with the "passive" aspect you get exposed to "impermanent loss", which is a loss in value due to the relative price fluctuations between the two assets in the AMM (https://www.machow.ski/posts/an_introduction_to_automated_market_makers/#impermanent-loss https://www.machow.ski/posts/an_introduction_to_automated_ma...). As in most things in finance, TNSTAAFL.
- vmception 5y agoMost things aren't that volatile, especially in tradfi Range liquidity and liquidity pool optimizers reduce, eliminate, or make it profitable despite IL, even in volatile environments All I’m seeing is that tradfi capital markets would benefit more and more
- dannyw 5y agoA TradFi market maker can also offer a liquidity pool if they choose to; its regulation stopping that.
- RandomLensman 5y agoActually, things sort of like that exist in some jurisdictions where banking coops etc. pool and redistribute risk within their network. Arguably, some dark pools also are like this with clear execution rules and an outside price oracle - only up to a point comparable, though.
- dchftcs 5y agoMarket making, at least in stocks, is already very well-automated. They are extremely efficient businesses; they need to, because they take million-dollar risks just in hope to make a few hundred bucks each time, and pay a lot of that in costs. By EMH there's no such thing as free lunch or true passive income. This is especially true in trading. Profit-seeking activities with low barrier-of-entry eventually become races to the bottom. If there's easy money to be made with passive AMM, people will jump into it en masse and eventually compete on cost-saving. Much like mining, where electricity costs and how quickly you can fix mining rigs with few resources could make and break a farm.