Research

How should investors assess the performance of AMMs?

Token Terminal

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Successful marketplace businesses unlock money to their supply-side participants. In the context of AMMs, this means that market makers (LPs) who deposit assets into an AMM expect to get back more than their initial deposit. To determine the long-term viability of an AMM, we need to develop tools that tell us how likely that is to happen.

Quantifying & comparing the performance of AMMs

In our new AMM dashboard,​ ​we’ve initially settled on two simple performance indicators that tell us about an AMMs capital efficiency and financial performance.

I) Liquidity turnover ratio (LTR)

What is the trading volume generated per $ of liquidity provisioned? Calculation: daily GMV / daily average TVL.

  • The higher the LTR, the better the capital efficiency.

II) Return on investment (ROI) 

What is the gross rate of return generated per $ of liquidity provisioned? Calculation: (daily Revenue / daily average TVL) * 365.

  • The higher the ROI, the better the financial performance.

Definitions: TVL = liquidity provisionedGMV = trading volume generated Revenue = total trading fees paid

Cumulative GMV & Revenue figures for AMMs

Latest LTR & ROI figures for AMMs

Uniswap’s historical LTR and ROI figures

  • Latest LTR:
  • 0.35x
  • Latest ROI:
  • 38.42%

SushiSwap’s historical LTR and ROI figures

  • Latest LTR:
  • 0.18x
  • Latest ROI:
  • 19.29%

Balancer’s historical LTR and ROI figures

  • Latest LTR:
  • 0.04x
  • Latest ROI:
  • 5.40%

Curve’s historical LTR and ROI figures

  • Latest LTR:
  • 0.03x
  • Latest ROI:
  • 0.47%

DODO’s historical LTR and ROI figures

  • Latest LTR:
  • 0.75x
  • Latest ROI:
  • 31.68%

Caveats for using LTR & ROI

  • Investors should always focus on long-term data: For example, token incentives may temporarily increase an AMMs trading volume and thereby trading fees paid, which means that the above performance indicators should be viewed on a long-term basis.
  • Absolute numbers matter: Ratios should always be evaluated against absolute figures, as it usually becomes much harder to maintain high performance at scale.
  • Note: For readers who want to learn more about the net returns of AMM deposits, we recommend checking out: https://research.paradigm.xyz/uniswaps-alchemy.

Check out our new AMM dashboard.Contribute to our Gitcoin grant here.

The authors of this content, or members, affiliates, or stakeholders of Token Terminal may be participating or are invested in protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Token Terminal does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only, and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Token Terminal at any time without notice. Token Terminal accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.

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