Uniswap Defends AMMs as Critics Question Long-Term Viability

Source: Coindoo Original Title: Uniswap Defends AMMs as Critics Question Long-Term Viability Original Link:

Criticism around the long-term viability of automated market makers has resurfaced, but Hayden Adams argues the debate is missing the bigger picture.

Rather than focusing on theoretical models that claim liquidity providers are structurally underpaid, Adams points to sustained growth in Uniswap’s liquidity pools as evidence that AMMs continue to meet real market demand.

Key takeaways

• Hayden Adams disputes claims that AMMs are structurally unsustainable.
• He argues AMMs outperform in both low-volatility pairs and long-tail assets.
• Uniswap v4 “hooks” are expected to materially improve LP economics.
• Despite strong fee generation, UNI valuation remains under pressure.

In Adams’ view, AMMs should not be measured against professional market-making firms using the same benchmarks. They are built for different objectives. In stable, low-volatility markets, AMMs can generate consistent yield using cheaper, longer-term capital, often allowing them to outcompete firms operating with higher cost structures. At the opposite end, AMMs also thrive in volatile or illiquid markets where traditional models struggle to scale efficiently.

In these long-tail environments, liquidity is often supplied by project teams or early supporters whose priority is market formation rather than extracting maximum short-term profit. Adams argues this dynamic is still more efficient than compensating professional market makers through option-like incentive schemes.

Why composability gives AMMs an edge

A core advantage, according to Adams, is composability. AMM liquidity can be reused across decentralized finance — deployed as collateral, routed through lending protocols, or integrated into new applications. This flexibility has no direct equivalent in traditional market making. Improving liquidity conditions following listings such as the UNI/USD1 pair on certain head exchanges further highlight how capital continues to concentrate around Uniswap’s pools.

The discussion unfolds amid contrasting developments across the AMM sector. While Balancer suffered a $120 million exploit tied to a technical flaw, Uniswap saw positive market momentum during the same period. That divergence reignited debate around activating Uniswap’s fee switch — a mechanism to distribute protocol revenue to UNI holders — which previously triggered a sharp token rally.

Attention is now shifting toward Uniswap v4, where customizable “hooks” could reshape how liquidity is deployed and monetized. These tools are widely viewed as a potential breakthrough for improving LP profitability and addressing one of the most persistent critiques of AMM design. Adams has openly acknowledged the issue, emphasizing that enhancing LP returns is a priority.

Financially, Uniswap presents a mixed picture. Since implementing its updated fee structure in late December, the protocol has generated nearly $600,000 in under two weeks, implying annualized revenue above $24 million. Roughly 96,000 UNI tokens have been burned over the same period, yet valuation remains elevated. Estimates place Uniswap trading at more than 200 times annualized fees, a ratio that continues to weigh on sentiment.

UNI’s price action reflects that tension. The token has slipped modestly in recent sessions, with $5.70 emerging as a key technical support level. Whether that level holds may influence near-term price direction, but it does little to resolve the broader question.

Ultimately, the debate is less about whether AMMs function — they clearly do — and more about how their economics evolve as decentralized markets mature. If Uniswap v4 delivers on its promise, today’s sustainability concerns may soon look outdated.