Uniswap Founder and Former Trader Clash Over Future of Automated Market Makers
Uniswap Founder Predicts AMMs Will Dominate Major Markets
Hayden Adams, the founder of Uniswap, published a blog post arguing that automated market makers (AMMs) will take over the world’s largest markets once tokenized assets begin trading against each other instead of against dollars. An AMM is a system that automatically sets prices and facilitates trades on a blockchain without relying on traditional buyers and sellers. Adams’ post, his first since 2019, sparked a debate between supporters who called his idea disruptive and critics who questioned whether anyone would want to trade assets like NVIDIA stock against an index fund like SPY.
The post, titled "Correlated Pairs: How AMMs Win the Biggest Markets," received over 229,000 views, 885 likes, and 142 replies within 19 hours. Adams argued that onchain liquidity has already formed clusters—such as Ethereum-based assets trading against ETH or stablecoins trading against each other—because liquidity providers lose less money when the two assets they hold move together. He believes tokenization will allow the same pattern to reorganize stock markets, where NVIDIA stock (NVDA) could trade against the S&P 500 index (SPY) instead of the U.S. dollar.
Key Arguments in the Debate
- Adams claims AMMs will reduce costs for liquidity providers by pairing assets that move together, like stocks and index funds.
- A former XTX Markets trader, Brian Huang, argued that AMMs cannot compete with traditional market makers because they lack the ability to place and cancel orders quickly across thousands of assets.
- Critics questioned whether traders would want to trade assets like NVDA against SPY instead of against dollars, as it would require two trades and double the fees.
- Adams pointed to Uniswap v4, a new version of the protocol, as a key part of his vision, allowing passive capital to earn additional yield.
Why Adams Believes AMMs Will Succeed
Adams compared his vision to the rise of index funds, which now hold over $21 trillion compared to $18 trillion in actively managed funds. He argued that passive liquidity provision—where investors simply hold assets in an AMM—could displace professional market makers, just as passive investing displaced active fund managers. He cited Citadel Securities, which trades nearly 25% of U.S. equity volume, as an example of a system that could be disrupted by AMMs.
His argument focuses on the cost of capital. Traditional market makers hedge their positions and pay for that hedge, while an investor who already wants to hold assets like NVIDIA and SPY can provide liquidity without that cost. The tighter the correlation between two assets, the smaller the gap between a passive AMM and an active market-making strategy, making it easier for AMMs to undercut traditional firms.
Former Trader Says AMMs Are "Going to Zero"
Brian Huang, co-founder of the onchain portfolio app Glider and a former trader at XTX Markets, strongly disagreed with Adams. He argued that AMMs cannot match the speed and precision of traditional market makers, who place and cancel orders across thousands of assets at different price levels. Huang said AMMs force liquidity providers to set a price range and then suffer losses when traders exploit that range.
Huang also raised concerns about fairness. He said AMMs do not separate different types of traders, meaning a large professional firm like Wintermute gets the same pricing as an individual trader. He argued that retail investors should not be market makers, as they often lack the knowledge to manage risk effectively. He pointed to high advertised yields on small AMM pools as evidence that retail investors do not understand how AMMs work.
Critics Question Demand for Correlated Pairs
Katia Banina, CEO of the trading venue Bebop, called Adams’ post "very good" but questioned whether traders would want to trade assets against each other instead of against dollars. She noted that most people trade assets like NVDA against USD because dollars are used to buy goods and services. Trading NVDA against SPY would require two trades and double the fees, making it less attractive.
Banina also argued that the correlation between individual stocks and index funds is not strong enough to eliminate risk for liquidity providers. She acknowledged that AMMs might continue to exist but said they would not replace traditional market-making.
What Is Confirmed
- Hayden Adams published a blog post arguing that AMMs will dominate major markets by pairing correlated assets like stocks and index funds.
- A former XTX Markets trader, Brian Huang, responded that AMMs are "going to zero" and cannot compete with traditional market makers.
- Uniswap v4, a new version of the protocol, includes features that Adams believes will support his vision.
- Uniswap generated $81.2 million in fees over 30 days, with protocol revenue nearly tripling after a recent update.
- Decentralized exchanges (DEXs) currently handle about 20% of all crypto trading volume, a record high.
What Is Still Unclear
- Whether traders will adopt correlated pairs like NVDA/SPY instead of trading against dollars.
- Whether regulated assets, like tokenized stocks, will allow open liquidity pools or require permissioned access.
- How AMMs will handle the technical challenges of managing inventory and gas costs on blockchains.
- Whether passive liquidity provision can truly displace professional market makers in traditional markets.
Why This Debate Matters for Crypto Markets
The outcome of this debate could shape the future of trading, both in crypto and traditional markets. If Adams is right, AMMs could make trading cheaper and more accessible by reducing reliance on professional market makers. This could lead to more liquidity in tokenized assets, such as stocks and bonds traded on blockchains.
If critics like Huang are right, AMMs may remain a niche tool for crypto trading but fail to compete in larger markets. The debate also highlights the challenges of bringing traditional assets onto blockchains, including regulatory hurdles and technical limitations.
What Happens Next
Adams suggested he might expand on his ideas in a future blog post. He also pointed to Uniswap v4, which includes features like the DualPool hook, allowing pool inventory to earn additional yield between trades. This could make AMMs more attractive to liquidity providers.
For now, the debate remains unresolved, with supporters and critics offering strong arguments about the future of AMMs and their role in global markets.
