How do Uniswap's AMMs address the sustainability challenges of the crypto market

Criticism of automated market makers (AMM) is becoming increasingly viral within the DeFi community. However, Hayden Adams, creator of Uniswap, does not hesitate to defend this model, arguing that AMMs possess a flexibility and efficiency that are often underestimated.

AMM and low-volatility pairs: a hidden efficiency

In less volatile markets, the numbers speak for themselves. Liquidity providers (LP) of AMMs generate steady returns with minimal invested capital, far surpassing the profitability that centralized market makers would offer. These large-capitalized entities struggle to compete in less attractive segments. Thus, AMMs stand out as a more accessible and more profitable alternative for small participants.

Exotic and illiquid assets: AMMs, a necessity

For long-tail or highly volatile tokens, the situation becomes clear: AMMs are one of the few viable and scalable liquidity solutions. Traditional market makers are reluctant to intervene in these high-risk assets. Instead, it is the project teams themselves, often accompanied by early investors, who supply liquidity—not to arbitrage in a delta-neutral manner, but simply to ensure traceability and accessibility of their tokens.

Economy versus delta-neutral market making

Adams points out a rarely discussed economic reality: paying a professional market maker to maintain a perfect delta-neutral hedge is expensive—often as much as the volatility fees inherent to AMMs. In comparison, allowing LPs to naturally absorb price discrepancies proves to be much more economical and flexible for emerging projects.

AMMs will not disappear tomorrow. They rather represent a pragmatic evolution of decentralized finance, adapted to the realities of the crypto market.