If you have been on crypto-Twitter recently, you would have surely seen multiple debates on the merits and the mechanics of Automated Market Makers (AMMs). Regardless of your stance, it is hard to deny AMM’s impressive year. Simply look at Uniswap’s YoY volume growth…it is nothing but astounding. The defensibility of this growth is a different question. Whether it may be layer-2 or faster layer-1’s improving the user experience of order-book based DEXs, we simply no dot know the full context of how AMM’s will fit as cryptosystems scale. I lean towards the camp that AMM’s are here to stay.
The main point of contention in AMM discussions is Impermanent Loss. There were some great threads on this topic recently. Even if it is not the intention of each protocol, current AMMs address this IL challenge in different ways. Some protocols use liquidity rewards (Balancer, Uniswap), some use