Forwarded the Original Title ‘AMM vs. CLOB: Which Trading Model Reigns Supreme?’

Recently, Flashbots’ Strategy Lead Hasu highlighted that most of the trading volume on the Solana chain is actually facilitated by Automated Market Makers (AMMs) rather than Central Limit Order Books (CLOBs), or simply, order book models. This conclusion was surprising, as many had believed that one of the key reasons for Solana’s market success was its ability to support CLOBs. As Feng Liu put it: “One of Solana’s core selling points back then was the ability to finally build an order book DEX on it, and that ‘order book trading is the future of DEX.’”

It’s worth noting that the debate between AMMs and CLOBs is not new and has been ongoing for some time. Since DeFi Summer, AMMs have quickly become the cornerstone of decentralized trading, driven by their algorithmic asset pricing. At the same time, CLOBs, with their dominance in traditional finance and centralized exchanges, have been seen as a more mature market mechanism. This rivalry has spurred continuous innovation on various blockchain platforms. On Solana, known for its speed and low costs, Phoenix successfully brought CLOBs into the spotlight for a time.

Is AMM Dominance Limited to Long-Tail Assets?

Hasu’s finding quickly sparked widespread discussion within the community. In response, Kyle Samani, a partner at Multicoin Capital, explained that in long-tail asset markets, the lack of real market makers (MMs) to provide liquidity has led to AMMs filling the gap, thus leading to the current dominance of AMMs. Solana’s success is not solely reliant on CLOBs but rather on its consistent ability to offer fast, low-cost trading experiences that support various types of assets. Additionally, Solana’s no-bridging mechanism is a significant factor in its success, given the general negative sentiment towards cross-chain bridging among users.

Udi Wertheimer, founder of Taproot Wizards, also believes that AMMs have a unique advantage in supporting long-tail assets, helping small communities quickly bootstrap liquidity for these assets. Solana hosts a large number of memecoins, and for these assets, AMMs are the ideal choice.

Krane further divided the market into three categories: memecoins, major assets (such as SOL/USDC), and stablecoins. He pointed out that AMMs perform particularly well in the memecoin market because these assets require good passive liquidity, where CLOBs underperform. For major assets, while CLOBs hold a certain position in some cases, AMMs remain competitive. In the stablecoin market, CLOB adoption has not yet become widespread.

However, Doug Colkitt, founder of Ambient, offered a different perspective and refuted these claims with data. He pointed out that many people mistakenly believe that the AMM trading volume on Solana mainly comes from some inactive long-tail assets. However, the data he provided shows that even in major trading pairs like SOL/USDC, AMM trading volumes far exceed those of CLOBs. For example, Orca recorded a 24-hour trading volume of $250 million, while Phoenix only saw $14 million. Even under the most favorable assumptions for CLOBs (using Phoenix’s 7-day average daily trading volume instead of the lower daily volume and including as much CLOB trading volume as possible), AMM trading volume on major trading pairs still surpasses CLOB by 50%. Without these assumptions, the gap widens to 10 times.

Community Views: CLOB Development Is Limited by Blockchain Performance

The dominance of AMMs on Solana is not just due to long-tail assets but is rooted in the limitations of blockchain performance. Many community members believe that CLOB’s development is constrained by blockchain performance bottlenecks. Sam noted that the inherent challenges blockchain faces (high latency, high gas fees, poor privacy protection, etc.) make CLOBs unsuitable for effective operation in the current blockchain environment. In contrast, AMMs are better suited to blockchain’s characteristics, particularly in price discovery and liquidity provision.

Enzo shared a similar view, suggesting that CLOBs face limitations such as high latency, expensive gas fees, and low throughput on Layer 1, but these limitations can be overcome in Layer 2 solutions, making CLOBs more competitive in those environments. On the current Layer 1 chains, AMMs remain the more practical choice.

In fact, a similar viewpoint was discussed in Reforge Research’s April article, “@reforge/evm-parallelization">Death, Taxes, and EVM Parallelization.” The article noted that implementing CLOBs on blockchain platforms like Ethereum often leads to high latency and high transaction costs due to platform processing capacity and speed limitations. With the advent of parallel EVMs, network processing power and efficiency have seen significant improvements, making CLOBs more viable and setting the stage for substantial growth in DeFi activity

Disclaimer:

1. This article is reprinted from [ChainFeeds Research], and the copyright belongs to the original author [0xNatalie]. Forwarded the Original Title ‘AMM vs. CLOB: Which Trading Model Reigns Supreme?’. If you have any objections to the reprint, please contact the Gate Learn team, and the team will handle it according to the relevant procedures.
2. Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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