The Future of Automated Market Makers Is Key to Unlocking DeFi Liquidity

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  • Liq­uid­i­ty is the lifeblood of cryp­to — the vast major­i­ty of liq­uid­i­ty in cryp­to is not being used, because it is siloed
  • The next gen­er­a­tion of AMM will do for DeFi liq­uid­i­ty what Google Fiber did for inter­net speeds

Decen­tral­ized finance promis­es to allow any­one to have com­plete con­trol over how they use their money.

But, sad­ly, the indus­try is rife with lega­cy busi­ness mod­els from tra­di­tion­al finance that have taint­ed the waters of DeFi and pre­vent­ed the indus­try from reach­ing its potential.

For cryp­to projects and their users to get the full ben­e­fit of DeFi, we need to fix the very way mon­ey is accessed and moved on the blockchain. Just like you expect to be able to sim­ply deposit, with­draw and trans­fer mon­ey from a bank account, you need to be able to eas­i­ly trans­fer, swap, sell and buy tokens. 

In oth­er words: You need liquidity. 

Liq­uid­i­ty is the lifeblood of cryp­to. The vast major­i­ty of liq­uid­i­ty in cryp­to is not being used, because it is siloed. 

A sig­nif­i­cant por­tion of cryp­to either sits dor­mant in the wal­lets of indi­vid­ual users — the DeFi equiv­a­lent of keep­ing cash under your mat­tress — or on cen­tral­ized exchanges.

The rest lives across thou­sands of decen­tral­ized pro­to­cols, yield farms and pools that can’t read­i­ly be accessed by any­one oth­er than their users.

A lack of acces­si­ble and easy-to-use liq­uid­i­ty is throt­tling the growth of DeFi — hold­ing back the cryp­to projects that are build­ing the future of the inter­net of val­ue that is Web3. 

In the ear­ly days of the inter­net, the indus­try faced a sim­i­lar issue. It was expen­sive and dif­fi­cult to move infor­ma­tion and as a result, Local Area Net­works (LANs) were used by large orga­ni­za­tions to effec­tive­ly move data and infor­ma­tion around. But that data was stuck. It was siloed with­in each net­work, because it was too pricey to move.

Just as increased band­width was avail­able for the inter­net of infor­ma­tion to cre­ate use­ful appli­ca­tions for every­day peo­ple, improved tech­nol­o­gy is need­ed in DeFi to cre­ate the inter­net of value.

So, how do we align incen­tives between cryp­to projects and their users and thus encour­age peo­ple to “put their mon­ey to work” in sim­ple and inex­pen­sive liq­uid­i­ty protocols? 

How do we make liq­uid­i­ty in DeFi as seam­less, effi­cient and sim­ple to use as the mod­ern internet? 

The answer, just as was the case in Web1, is to make it cheap­er and eas­i­er to use! That will unlock the cre­ativ­i­ty of cryp­to and enable the cre­ation of DeFi native appli­ca­tions for buy­ing cof­fee, get­ting a home loan, send­ing mon­ey to fam­i­ly in anoth­er coun­try or any num­ber of oth­er real life ways peo­ple use their mon­ey everyday.

Auto­mat­ed mar­ket mak­ers (AMM) are the tech­nol­o­gy that have so far come the clos­est to mak­ing this vision a real­i­ty because they make it easy for cryp­to users to both deposit mon­ey into liq­uid­i­ty pools — and get paid rewards for doing so — and pay to access that liq­uid­i­ty. But even the best AMMs remain too expen­sive or too com­pli­cat­ed. Or both. 

The next gen­er­a­tion of AMM will do for DeFi liq­uid­i­ty what Google Fiber did for inter­net speeds — take what was already a qual­i­ty prod­uct (in the case of the inter­net, broad­band) and expand and improve on it massively. 

The next AMM, which hasn’t yet been invent­ed, will fur­ther reduce slip­page, increase ease for users, and make the entire expe­ri­ence cheap­er by find­ing unique ways to encour­age more liq­uid­i­ty to be provided.

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  • Bryan Gross



    Bryan Gross is the Stew­ard at ICHI, a DAO which designs pro­to­cols that help oth­er cryp­to projects to par­tic­i­pate in DeFi more effi­cient­ly. ICHI’s core tech­nol­o­gy enables oth­er cryp­to projects to cre­ate new, more sus­tain­able liq­uid­i­ty pro­grams called Vaults. ICHI works with lead­ing DeFi projects includ­ing ShapeShift, Fuse and 1INCH. Pri­or to work­ing with the ICHI DAO, Bryan led blockchain projects at IBM. He was also pre­vi­ous­ly a man­ag­er at Ama­zon and led the launch of Ama­zon Lend­ing in Europe. He cur­rent­ly serves as an advi­sor at Dap­per Labs.

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