> For the complete documentation index, see [llms.txt](https://comm-1.gitbook.io/comm-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://comm-1.gitbook.io/comm-docs/chapter-1-executive-summary-and-industry-vision/structural-challenges-of-traditional-market-making-and-amms.md).
# Structural Challenges of Traditional Market Making and AMMs
Throughout the evolution of the Web3 financial ecosystem, liquidity has remained the lifeline that determines the viability of decentralized exchanges (DEXs) and decentralized finance (DeFi) applications. However, existing liquidity-provision models face several irreconcilable structural contradictions:
1. **Value Monopoly by Centralized Market Makers (MMs):** In traditional CEXs and early Web3 markets, high-frequency arbitrage, spread capture, and order-flow premiums have been almost entirely monopolized by a small number of top-tier centralized market-making institutions. Retail market-making participants and community capital are excluded from core returns, serving only as passive liquidity fillers.
2. **Impermanent Loss and LVR Extraction in Passive AMMs:** Although AMM protocols such as Uniswap have enabled permissionless liquidity access, static liquidity pools face severe LVR (Loss-Versus-Rebalancing) challenges. Arbitrage and MEV bots continuously extract volatility premiums from liquidity pools, leaving ordinary LPs in a negative-sum situation of “earning yield while losing principal.”
3. **Low Capital Efficiency and Zero-Sum Competition:** Traditional single-token pools and simple two-token pools lack the ability to orchestrate capital across markets and trading pairs. Large amounts of static capital remain idle in low-volume ranges and cannot adapt to the high-frequency volatility of crypto markets.
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