AMMs are infrastructure, not features. The next evolution of decentralized finance treats liquidity pools as a public utility for settlement, not just a trading venue. This requires swaps with zero slippage and guaranteed execution, which only stablecoins provide.
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The Future of Automated Market Makers Relies on Predictable Stablecoin Swaps
Unpredictable algorithmic stablecoins fragment liquidity pools, increasing slippage for all traders. This analysis argues that AMM sustainability depends on asset stability, not just volume.
introduction
THE LIQUIDITY ANCHOR
Introduction
Automated Market Makers require stable, predictable swap execution to become the universal settlement layer for all onchain value.
Volatility is a bug, not a feature. Unpredictable price impact from volatile assets like ETH makes AMMs unusable for large-scale commerce and institutional activity. Stablecoin pairs eliminate this uncertainty, turning the AMM into a reliable price oracle and execution engine.
The benchmark is the CLOB. To compete with centralized limit order books, AMMs must offer deterministic swap rates. Protocols like Uniswap V3 with concentrated liquidity and Curve's stableswap demonstrate that predictable pricing attracts order flow that volatile pairs cannot.
Evidence: Over 70% of DEX volume occurs on stablecoin pairs. The dominance of USDC/USDT pools on chains like Arbitrum and Base proves that reliable liquidity is the primary demand driver, not speculative trading.
thesis-statement
THE AMM IMPERATIVE
The Core Argument: Stability is a Public Good for Liquidity
The future scalability of on-chain finance depends on AMMs becoming efficient stablecoin routers, a role impossible without price stability.
AMMs are becoming stablecoin routers. Over 80% of DEX volume involves stable pairs. The primary function for protocols like Uniswap V3 and Curve is now facilitating low-slippage stablecoin swaps, not price discovery for volatile assets.
Volatility destroys capital efficiency. Slippage and impermanent loss in volatile pools force LPs to demand higher fees, creating a negative feedback loop. This makes AMMs expensive infrastructure for simple transfers.
Stablecoins are the settlement layer. Projects like Circle's CCTP and layerzero's OFT standard treat stablecoins as the canonical settlement asset. AMMs must provide the predictable, low-cost rails between these standards.
Evidence: The 3 largest DEX pools by TVL are stablecoin pools (Curve 3pool, Uniswap USDC/USDT). Their existence subsidizes the entire DeFi ecosystem by providing a foundational liquidity layer.
key-trends
AMM EVOLUTION
Key Trends: The Data-Backed Reality
The next generation of AMMs will be defined by capital efficiency, driven by the dominance of stablecoin pairs which demand predictable, low-slippage execution.
01
The Problem: Concentrated Liquidity Is Still Inefficient
Uniswap V3's active range management is a manual, gas-intensive burden. For stable pairs, >90% of capital sits idle outside a narrow band, while LPs chase rebalancing. This creates systemic slippage and fragmentation.
- Capital Inefficiency: Vast TVL locked but not actively pricing assets.
- LP Attrition: Constant monitoring and gas costs erode fees.
- Slippage Spikes: Liquidity cliffs appear at range boundaries.
>90%
Idle Capital
~$100
Avg. Rebalance Cost
02
The Solution: Curve's Stableswap Invariant & Forks
Curve's algorithm (and forks like Solidly, Velodrome) optimizes for minimal slippage within a pegged price range (e.g., $0.99-$1.01). It's the de facto standard for predictable stable swaps, attracting ~$2B+ TVL.
- Near-Zero Slippage: Mathematical focus on pegged assets.
- Passive LPing: No active range management required.
- Fee Concentration: Becomes the liquidity black hole for stables.
<0.01%
Slippage
$2B+
TVL
03
The Next Frontier: Dynamic AMMs with Oracles
Protocols like Maverick and Shell use external price oracles (e.g., Chainlink) to auto-concentrate liquidity. This moves beyond static curves to algorithmic market making, reducing slippage by ~70% vs. V3 for stable pairs.
- Oracle-Guided: Liquidity pools move with the market price.
- Capital Efficiency: 10-100x higher utilization than static CL.
- Predictable Execution: Swaps are guaranteed near the oracle price.
10-100x
Capital Util.
-70%
Slippage vs V3
04
The Meta-Solution: Intent-Based Aggregation
Users don't care about the AMM—they care about the outcome. Solvers on UniswapX, CowSwap, and 1inch Fusion batch orders and route across all AMMs (Curve, Maverick, etc.) to find the best stable swap. This abstracts complexity and enforces MEV protection.
- Outcome Guarantee: User specifies "I want X USDC for my DAI."
- Cross-AMM Optimization: Aggregator finds the optimal pool.
- MEV Resistance: Batch auctions and private order flows.
$10B+
Monthly Volume
>95%
Fill Rate
AMM PERFORMANCE MATRIX
The Slippage Tax: Comparative Impact of Asset Type
Quantifies the cost of slippage and price impact for different asset classes in a standard 1M USDC swap, highlighting why stablecoin efficiency is critical for AMM viability.
| Key Metric | Volatile Pair (ETH/USDC) | Stable Pair (USDC/USDT) | Correlated Pair (wBTC/ETH) |
|---|---|---|---|
Typical Slippage for 1M Swap | 2.5% - 5.0% | 0.01% - 0.05% | 0.8% - 1.5% |
Price Impact (Uniswap V3 5bps Pool) |
| < 1 bps | 15 - 30 bps |
Effective Fee After Impact (vs. 5bps sticker) | ~55 bps | ~6 bps | ~35 bps |
Primary Cost Driver | Bonding Curve Geometry | Oracle & Pool Imbalance | Relative Volatility Drift |
Reliant on External Price Feed | |||
Vulnerable to MEV Sandwich Attacks | |||
Liquidity Concentration (Top 5 Pools TVL %) | ~15% | ~35% | ~8% |
Protocols Optimizing for This | Uniswap, Curve Tricrypto | Curve, Uniswap Stableswap | Balancer Weighted Pools |
deep-dive
THE FRAGILITY
Deep Dive: How Volatility Fractures the Liquidity Graph
AMM liquidity becomes unusable during market stress, forcing a fundamental redesign around stable assets.
Volatility creates toxic flow. AMMs like Uniswap V3 are passive liquidity pools. During a price crash, arbitrageurs extract value from LPs faster than fees accrue, making providing liquidity a net-negative activity.
This fractures the liquidity graph. LPs withdraw capital or widen ranges, increasing slippage for all traders. The network effect of deep liquidity, the primary value proposition of DEXs, disintegrates precisely when it is needed most.
The solution is predictable assets. AMM innovation now focuses on stable-to-stable swaps and pegged assets. Protocols like Curve's stableswap and Maverick's concentrated liquidity for LSDs demonstrate that efficiency requires minimizing price drift.
Evidence: During the March 2023 banking crisis, Curve's 3pool TVL dropped 40% in days due to USDC depeg fears, while volatile asset pools on Uniswap saw LP losses exceed fees by over 300%.
counter-argument
THE VOLATILITY TRAP
Counter-Argument & Refutation: Don't AMMs Exist for Volatile Assets?
Volatile AMMs are a liquidity sink, while stable AMMs are the capital-efficient engine for all future DeFi.
AMMs for volatile assets are a solved, but inefficient, problem. Uniswap V3's concentrated liquidity improved capital efficiency, but LPs face impermanent loss as a permanent tax. This creates a constant liquidity churn that protocols like Gamma Strategies must actively manage.
Stable AMMs like Curve/Uniswap V4 transform liquidity from a cost center into infrastructure. Their predictable, low-slip swaps are the foundational layer for intent-based systems like UniswapX and CowSwap, which route orders to the most efficient pool.
The evidence is in volume. Over 70% of DEX volume involves a stablecoin. Protocols like Aerodrome on Base demonstrate that ve(3,3) incentives built atop stable pools create the deepest, most usable liquidity for an entire ecosystem.
takeaways
STRATEGIC IMPERATIVES
Takeaways for Builders and Investors
The next wave of AMM innovation will be defined by capital efficiency in stablecoin liquidity, not just permissionless token launches.
01
The Problem: Concentrated Liquidity is Still Dumb Money
Uniswap V3's active range management is a manual, gas-intensive burden for LPs, creating predictable MEV and leaving ~70% of TVL inactive during normal volatility. This inefficiency is a tax on every stable swap.
- Key Benefit 1: Automated, algorithmic strategies can boost effective capital efficiency by 3-5x.
- Key Benefit 2: Reduces LP attrition and protocol fee leakage to MEV bots.
70%
Idle TVL
3-5x
Efficiency Gain
02
The Solution: Oracle-Integrated, Gas-Optimized Vaults
The future is non-custodial vaults (like Morpho Blue or Aave V3) paired with Chainlink or Pyth feeds for near-zero-slippage stable routes. This moves pricing logic off-chain, enabling sub-penny swaps and ~50% lower gas costs vs. constant-product AMMs.
- Key Benefit 1: Enables new primitives like single-sided LPing and cross-margin leverage.
- Key Benefit 2: Creates a defensible moat via superior UX and capital efficiency for protocols like Curve and Pendle.
-50%
Gas Cost
Sub-penny
Slippage
03
The Meta: Composability is the Real Yield
Predictable, low-volatility stable pools become the base layer money market for DeFi 2.0. They are the collateral engine for lending (Aave, Compound), the settlement layer for intent-based systems (UniswapX, CowSwap), and the backbone for RWA protocols.
- Key Benefit 1: Drives protocol-owned liquidity and sustainable fee generation beyond token emissions.
- Key Benefit 2: Unlocks cross-chain stable liquidity as a service for layerzero and Circle's CCTP.
$10B+
Addressable TVL
Base Layer
DeFi 2.0
04
Curve's Crisis is a Feature, Not a Bug
The veToken model collapse and repeated exploits expose a critical truth: algorithmic stability in code is more reliable than governance. The winning stable AMM will have immutable core math, minimized governance surface, and real-time risk parameters.
- Key Benefit 1: Attracts institutional capital wary of governance attacks and vote-buying.
- Key Benefit 2: Creates a more resilient and attack-resistant liquidity base for the entire ecosystem.
Immutable
Core Math
Minimized
Gov Surface
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