Let’s talk about the trending project @metricxyz on the timeline. It’s the classic AMM vs PropAMM debate. Or simply put: passive market-making AMM vs proprietary market-making AMM. Compared to Uniswap, it directly addresses the issue of LVR. In the passive AMM model, prices are determined by the ratio of two assets in the pool, which cannot actively update. It relies on external arbitrage traders to execute trades and adjust the asset ratio in the pool. Here’s the problem: these arbitrage trades are often referred to as toxic orders. Strictly speaking, they exploit information asymmetry to take advantage of LPs, always buying low and selling high. The price they capture is always ahead of the pool’s price. Essentially, LPs are passively rebalancing their positions at unfavorable prices every time. This issue seems almost unsolvable for now because passive AMMs don’t rely on external pricing mechanisms but instead use pure mathematical formulas to solve problems. This means they can’t integrate oracles to provide pricing for the pool. The upside is that they’re stable, decentralized, simple, and elegant—the great xy=k formula. (Of course, encouraging more organic orders can help improve this issue, meaning more user-driven trades and natural traffic. Additionally, the introduction of hooks does have the potential to address this problem at the protocol level.) Metric’s PropAMM model, on the other hand, uses oracle-driven pricing rather than relying on the asset ratio in the pool. Why is it called proprietary market-making AMM? Because its prices are actively provided by market makers/oracles, and LP funds are allocated around these quoted prices in tiers. These funds automatically shift as prices fluctuate. For example, if an LP places funds in the -1% to +2% price range, when the price changes, the market maker’s oracle updates the price, and the tiers within that range shift accordingly without requiring any trades. For instance, if the reference price moves from $100 to $110, the tier at +1.5% deviation will automatically adjust from $101.50 to $111.65. So, as long as the oracle updates prices promptly and accurately, the LVR issue is essentially resolved. However, if the oracle fails, problems will arise. This introduces an additional trust risk, as the oracle plays a critical role in this model. Another point about this design is that there’s no concept of fees. Instead, all costs are embedded in the spread. Currently, the spread is shared among LPs, Curators, and Metric. The debate between AMM and PropAMM isn’t new. Both models have their own characteristics. I’ve never believed that passive AMM is outdated technology because it has minimal reliance on external trust, even if it comes with a certain degree of inefficiency. PropAMM is a better choice in certain scenarios, but it requires trust in oracles or a Curator. In the long run, I think both will coexist in the market rather than replace each other.