The Growing Pool of Automated Market Makers by Hillrise Group

Published on: 09.05.2021

Hillrise Group released research article The Growing Pool of Automated Market Makers.

Automated Market Makers (‘AMM’) have become a focal point in the current discussion of the exchange business. With giants like Coinbase listing on the Nasdaq, the discussion about AMMs taking the spotlight from these incumbents has become increasingly relevant.

When you think of AMMs, Uniswap typically comes to mind. Their model follows the classic x * y = k constant product formula that most initiated in DeFi are familiar with. Other popular AMMs like Sushiswap or Pancakeswap use the same constant product model, but innovate more in platform features.

The simplicity of the constant product model brought about tremendous adoption, yet is not without limitations. For instance, slippage can be extremely high for large trades relative to the trading pairs liquidity, at increasing rates. Liquidity provided has also been argued to be non-optimal from a capital efficiency perspective due to the bonding curve. As such, a variety of innovations have appeared, some looking to replace the constant product model, others looking to co-exist by serving a niche segment.