Proactive Market Making (PMM) vs Constant Product Market Making (CPMM)

Capital efficiency: Targets liquidity around a reference price, enabling deeper liquidity with less capital. This matters for stablecoin pairs (e.g., USDC/USDT) or pegged assets where price should be stable. Protocols like Curve Finance and DODO leverage this for minimal slippage.

Oracle dependency: Requires a reliable external price feed (e.g., Chainlink). This introduces a centralization vector and smart contract risk if the oracle fails. It's less suitable for long-tail assets without a clear reference price.

Simplicity & censorship resistance: Operates with the x * y = k formula, requiring no external data. This matters for permissionless listing of any asset pair. Uniswap v2 is the canonical example, securing over $4B in TVL across thousands of pools.

Capital inefficiency: Liquidity is spread evenly across all prices, leading to high slippage for large trades. This matters for protocols with large treasury swaps or institutional order flow, where cost is a primary concern.

Stable and correlated assets. If you're building a stablecoin exchange, a derivatives vault for pegged assets, or a low-slippage aggregator, PMM's efficiency is critical. Use Curve's stableswap or DODO's PMM algorithm.

Permissionless innovation and exotic pairs. If you're launching a new token, creating an NFT AMM, or need maximum composability for DeFi legos, CPMM's simplicity wins. Build on Uniswap v2/v3 or the Balancer Vault for generalized pools.

Targeted liquidity concentration around a reference price (e.g., from an oracle). This enables deeper liquidity and lower slippage for stable pairs (USDC/USDT) or pegged assets (wBTC/BTC) compared to CPMM. Protocols like DODO and Curve (StableSwap) use variants of PMM to achieve 5-10x higher capital efficiency for correlated assets.

Oracle-integrated pricing allows the pool to maintain a price close to the global market, reducing arbitrage losses for LPs. This is critical for derivatives protocols like Perpetual Protocol (v1) or synthetic asset platforms that require tight peg maintenance. However, it introduces oracle risk as a dependency.

Deterministic, oracle-free pricing via the x * y = k invariant. This eliminates oracle manipulation risk and simplifies auditability, a key reason Uniswap V2 remains a bedrock of DeFi. The model is battle-tested, securing over $4B in TVL across forks with no fundamental exploits of the core invariant.

Zero pre-configuration needed for any token pair. This makes it ideal for launching long-tail assets, NFTs (via Sudoswap), or experimental tokens where no reliable oracle exists. The model's neutrality fostered the ERC-20 token launch boom and remains the default for decentralized exchange of uncorrelated assets.

Oracle dependency is a single point of failure. If the price feed (e.g., Chainlink) is delayed, manipulated, or halted, PMM pools can be drained or become insolvent. This requires trust in external data providers and adds complexity to the security model.

Liquidity is spread thinly across all prices, even implausible ones. For stable pairs trading in a tight band (e.g., 0.99 - 1.01), this leads to high impermanent loss and poor capital utilization compared to PMM. This inefficiency directly led to the creation of specialized AMMs like Curve.

Universal liquidity provision: The x * y = k formula provides continuous liquidity for any asset pair without external data. This matters for permissionless listing of long-tail assets, as seen in Uniswap v2 pools.

Minimal, battle-tested code: The core contract logic is simple, reducing attack surfaces and audit costs. This matters for new protocols prioritizing security and deterministic behavior over optimization, forming the foundation for DEXs like SushiSwap.

Inefficient price discovery: Large trades incur significant price impact (Δy = (Δx * y) / (x + Δx)), leading to poor execution. This matters for institutional-sized swaps or stablecoin pairs, where Curve's StableSwap or a PMM is vastly superior.

Idle liquidity in low-volatility ranges: Most liquidity sits unused at prices far from the market. This matters for LPs seeking yield, as capital is poorly utilized compared to concentrated liquidity (Uniswap v3) or oracle-guided PMMs.

Oracle-guided price anchoring: Uses external price feeds (e.g., Chainlink) to concentrate liquidity around a target price. This matters for spot trading of major assets and stablecoin pairs, enabling DEXs like DODO to offer CEX-like spreads.

Configurable pricing curves: Developers can tailor the bonding curve (i as price anchor, k as curvature) for specific assets. This matters for launchpads (ICO pools) and synthetic assets, allowing for shallow curves near the mark price.

Single point of failure: Relies on external, often centralized, price oracles. A manipulated or stale feed can drain liquidity. This matters for decentralization purists and assets with unreliable feeds, making trust-minimized CPMM a safer default.

Higher operational overhead: Requires oracle updates and more complex math, increasing gas costs for swaps and pool maintenance. This matters for high-frequency traders and users on high-fee chains, where CPMM's simplicity is a cost advantage.