Related trading pairs will help AMM enter a larger market, Uniswap founder Hayden explained in an article Odaily Planet Daily News: Uniswap founder Hayden wrote on X platform that he cannot ignore the theory of correlated trading pairs when observing various things, and noticed that the second largest Uniswap fund pool on Base is Jito pledging SOL/BTC trading pairs, which is in line with the logic of correlated trading pairs. Hayden stated in his article titled "Correlation Trading Pair: How AMM Can Win the Largest Market" that AMM has the potential to become the core engine of all financial markets, and tokenization will make the market programmable, changing market types, market makers, and traded assets. He stated that Uniswap has been operating autonomously since its launch in 2018, with a cumulative trading volume exceeding $4.6 trillion and driving the proportion of decentralized exchanges in centralized spot trading volume from less than 1% to over 20%. As AMM develops, its liquidity gradually forms a correlated trading pair structure. He pointed out that AMM initially achieved product to market matching in the long tail asset market, followed by the development of stablecoin trading pairs. Due to the low capital cost of passive strategies, the demand for professional market making in stablecoin trading pairs has been squeezed. Hayden stated that traditional financial markets are dominated by market making companies, which integrate capital, trading strategies, execution techniques, settlement, and distribution into a vertical business. Citadel Securities handles approximately 25% of the trading volume of US stocks, with a net trading revenue of $12.2 billion and trading capital of approximately $21 billion last year. He believes that blockchain can break down different aspects of traditional market making business, with code responsible for execution, shared services providing custody and settlement, and open-source software replacing proprietary infrastructure. The scarce element of capital in AMM is the capital itself, and participants who can hold inventory at lower costs have an advantage. Hayden stated that when liquidity providers hold assets with similar price trends, inventory risk is lower, and liquidity will deepen as a result. Ethereum ecosystem assets are usually traded with ETH, Solana ecosystem assets are usually traded with SOL, stablecoins form trading pairs with each other, and a few high liquidity trading pairs are responsible for connecting different asset clusters. He pointed out that after tokenized assets share the same settlement layer, any asset can be traded directly with other assets. For example, Nvidia/USD can be converted to Nvidia/SPY and linked to the US dollar through SPY/USD; Oil companies can trade with oil ETFs or tokenized oil, and private credit can trade with tokenized US treasury bond bond funds. Hayden stated that traditional market makers typically pursue Delta neutrality, reducing risk by pricing in US dollars and hedging against non US dollar risks, which increases market making costs. The market structure consisting of low volatility correlated trading pairs and a few high volatility bridging trading pairs is expected to improve market making efficiency and reduce costs. He said that DeFi has shown this model, ETH/USDC is one of the deepest markets on the chain, because different asset clusters will complete routing through this transaction pair. Passive liquidity providers are responsible for related trading pairs, while active liquidity providers compete on bridging trading pairs. Hayden stated that a correlated market for tokenized stocks has emerged, and currently there are 10 tokenized stocks trading with SPY in the Uniswap fund pool on Robinhood Chain. In the 12 days before going online, the trading volume of these fund pools reached 33 million US dollars, with over 11000 users participating in trading. Many of these trades occurred during the US market closure period, and some trades were completed directly between different stocks without going through the US dollar. He also stated that Uniswap v4 Hooks support market customization, which can enhance the revenue of liquidity providers. Uniswap Labs' recently launched DualPool Hook will use passive AMM funds to earn lending income when funds are not redeemed. Hayden believes that AMM is still in its early stages and will enhance the returns and market competitiveness of liquidity providers through various means in the future. He stated that passive liquidity will develop in a manner similar to index funds, lowering the threshold for creating and participating in the market.
