Industry Debate: Flaws in the AMM Model, Uniswap v4 "hooks" Feature Holds Great Expectations

Recently, the DeFi community has reignited discussions about whether automated market makers (AMMs) can sustain profitability. The controversy was sparked by trader “LAMB-bear,” who criticized the fee structure of AMMs and the risks borne by liquidity providers (LPs), arguing that market volatility over a few days can wipe out months of LP earnings, making the model inherently unsustainable.

In response to this core criticism, Uniswap founder Hayden Adams issued a systematic rebuttal. He pointed out that critics overlook the unique advantages of AMMs in different market environments.

For example, in low-volatility trading pairs like stablecoins, AMMs can offer participants with lower capital costs stable returns, providing quotes more attractive than those of professional market makers;

As for long-tail, highly volatile tokens, AMMs are often the only way to unlock market liquidity. Their value lies in supporting project growth rather than purely seeking arbitrage profits.

Adams also acknowledged that the most competitive area currently is trading pairs involving mainstream tokens like ETH, but the continued growth and evolution of the AMM ecosystem demonstrate its vitality. For instance, the upcoming Uniswap v4 will introduce the “hooks” feature, supporting custom logic at the pool level, directly enabling the construction of efficient pools that can continuously generate value for LPs.

In response to Adams’ rebuttal, critics later softened their stance, claiming they remain “staunch supporters of AMMs,” but believe that the current mechanism has structural inefficiencies. They agree that the V4 solution can address these issues while also enhancing LP returns.

This debate is set against the backdrop of a complex landscape recently highlighted in the AMM field. Just a few months ago, Balancer suffered losses exceeding hundreds of millions of dollars due to code vulnerabilities, ringing alarm bells about technical risks;

Meanwhile, Uniswap proposed enabling a “fee switch” to share revenue with token holders, a move that significantly boosted its token price.

In summary, the core consensus in current industry discussions is not that AMMs will disappear, but that their fee structures and risk management mechanisms require ongoing innovation and iteration.

With the advent of next-generation solutions like Uniswap v4, the market is eager to see whether these improvements can effectively balance the risks and rewards for liquidity providers, thereby proving the long-term sustainability of the AMM model.

#DeFi #AMM