Can the Traffic from Robinhood Chain Save UNI? Understanding the Fixed Costs that Passive AMMs Cannot Eliminate
Author: CM
The Robinhood chain has sparked another wave of interest in Uniswap. On the surface, the fee income appears quite substantial, second only to Tether and Circle, but many newcomers are unaware of how much UNI actually benefits from it.
In conclusion, it’s very little, which is related to the characteristics of passive AMMs.
Comparing it to Hyperliquid, Hyper can use 99% of its revenue to buy back tokens, while Uniswap has to distribute most of it to LPs.
Thus, looking at the data, Uniswap can generate more fees than Hyper, but the impact on token value is not on the same level for both.
The reason is that Hyper does not need to distribute fees to HLPs; its market makers can profit through the spread, and they can flexibly hedge in risk management, rather than relying on protocol fee sharing.
The original design intention of passive AMMs is to facilitate anyone to provide liquidity, focusing on serving LPs and traders, rather than the income of the protocol itself. Additionally, impermanent loss cannot be completely hedged, which is not friendly to large professional market makers.
As a result, if LPs can earn fees that outpace impermanent losses, that is considered a good outcome; it is impossible to take too much fee from LPs to buy back tokens.
Currently, the proportion of the fee switch being activated is about 1/6, which has not caused a massive loss of LPs, and this is already close to the limit.
From my perspective, Uniswap could completely refrain from issuing tokens; it is inherently a decentralized invention that does not primarily aim for profit. Its significance lies in its ability to operate independently of any third party, as long as the blockchain exists.
The cost of this system is that its execution price is certainly not optimal, the wear and tear is definitely higher than centralized systems, and impermanent loss is unavoidable. Many people call this a bug of AMMs, but I do not think so; this is a fixed cost, and what you gain is a permissionless, unstoppable, decentralized trading system.
AMMs and CLOBs, in my view, are two different worlds. Purely from a profit-making perspective, the token value under the AMM model is weak, but this is a great invention. That’s just the way it is.
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