Uniswap founder Hayden Adams has pushed back on claims that automated market makers (AMMs) cannot be sustained. The critic he was responding to identified liquidity providers’ (LPs) structural underpayment as the basis for their unsustainability.
However, Hayden Adams emphasized that there is real-world growth in Uniswap pools as evidence of viability, with V4 hooks set to enhance LP profitability.
AMMs remain competitive under different market structures
According to Hayden Adams, AMMs remain competitive under different market structures. He stated that for low-volatility pairs such as stablecoins, AMMs offer steady yield to participants with cheaper capital, allowing them to outprice professional firms.
Hayden also stated that AMM wins in terms of high volatility long tail. “Other market structures don’t scale well enough. LPs are often the projects themselves or early supporters with the goal of creating liquidity, not maximally profitable delta-neutral market making. Way better than paying a market maker in options,” he added.
In comparison to professional markets, Hayden Adams stated that AMM liquidity is more composable and can be used as collateral more easily. This approach, Adams argues, is more effective than paying market makers option-like fees. The listing of the UNI/USD1 pair on Binance has made it even more liquid.
Notably, Balancer, a major AMM, suffered a $120 million exploit due to a precision flaw in its code. Uniswap also saw a major positive market reaction in that same month. Thereafter, Adams proposed activating a “fee switch” to share protocol revenue with UNI token holders, resulting in a 35% increase in the token’s price.
As Uniswap v4 development continues, its promised “hooks” will be closely watched as a potential answer to the critical question of long-term LP profitability and the sustained health of decentralized liquidity. At the end, Hayden stated, “ Def agree on improving LP returns.”
Uniswap faces $100 million loss amid high valuation
Uniswap has generated nearly $600,000 in fees within approximately 10 days since implementing its fee structure on December 27. This translates to an annualized fee revenue of over $24 million. As reported by Cryptopolitan, the decentralized exchange has burned 96,000 UNI tokens, with an annualized burn rate of approximately 3.893 million UNI.
According to Dragonfly partner Omar Kanji, since Uniswap’s fee switch was turned on, its value has hit 240 times its annualized fees. The fully diluted value of the decentralized market is $540 million, with yearly fees of approximately $2.3 million.
The price has declined by 5.7% over the last 24 hours and 1% over the last week.
The key support level at $5.70 appears to be holding for now, but a breakdown below that level could invalidate the bullish case for the token, according to data.
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