Compass Investments

The controversy erupted after GEE-yohm trader LAMB-bear Lambert said AMMs will never be viable because the commission is tied to actual volatility, while liquidity providers sell bulges whose price should be determined by implied volatility. In their view, this disconnect puts liquidity providers at risk during severe price spikes, when monthly profits can disappear in a matter of days.

Adams responded with a thorough rebuttal, arguing that AMMs already outperform alternative instruments in a number of market segments. He noted that in low-volatility pairs, such as stablecoins, AMMs provide stable income to participants with cheaper capital, giving them an advantage over quotes from professional firms.

In the case of long-tail, high-volatility tokens, Adams added, AMMs are often the only scalable structure, as projects and early adopters create liquidity to seed the market, rather than simply seeking delta-neutral returns.

According to the head of Uniswap, the most persistent competition comes from core highly volatile tokens like ETH pairs. While critics often point to dilution in claiming LP losses, Adams countered that AMMs have seen steady growth over the years and their orderbooks are reaching maturity. He also mentioned that the upcoming Uniswap v4 hooks will allow for customizable logic at the pool level, which will open up opportunities for pools that benefit LPs more.

AMMs are just beginning to show their potential, he wrote, emphasizing the advantage of lower capital costs and composability.

Lambert later corrected his position, responding to Adams that he is still an AMM”maximalist” but sees structural weaknesses in the current models. He argued that volatile losses and gamma risk could be controlled by raising commissions, and proposed a range of solutions, from v4 hooks to alternative issuance models or tools such as Panoptic that allow traders to hedge LP risk.

Recent months have demonstrated both the benefits and vulnerabilities of AMMs. In November 2025, a major AMM Balancer suffered a $120 million exploit due to a subtle bug in its code, a clear reminder of the technical dangers inherent in these complex systems.

At the same time, Uniswap itself provoked a positive market reaction in the same month when Adams proposed implementing a “toll switch” to distribute revenue from the protocol to UNI token holders, resulting in a 35% increase in token price.

Furthermore, projects across the ecosystem are improving AMM formulas, and even new entrants such as Pi Network have implemented updated DEX and AMM features to improve liquidity management and user security.

The general conclusion that follows from this discussion is not that AMMs are doomed, but that their current compensation schemes need refinements. As Uniswap v4 develops, its announced “hooks” will come under scrutiny as a potential answer to the critical question of long-term LP profitability and the sustainability of decentralized liquidity.