Uniswap Founder: When Stocks and Treasuries Are Fully On-Chain, How Will AMM Reshape Global Markets?

Original Author: Hayden Adams, Founder @Uniswap

Original Translation: TechFlow

TechFlow Editor's Note: Uniswap founder Hayden Adams believes that as traditional assets like stocks become tokenized, "correlated trading pairs" such as NVDA/SPY will reduce inventory and hedging costs, giving passive AMMs an opportunity to enter the core market long dominated by traditional market makers. Crypto KOL Cody further analyzes the feasibility of this idea in the current on-chain market, drawing on historical backtesting and real LP experience.

The following is the full text:

This is my first blog post since 2019!

Correlated Trading Pairs: How AMMs Win the Biggest Market

I've been working at the frontier of DeFi for 9 years. It's a fascinating field with infinite depth and the power to transform capital markets.

I've always believed in the enormous potential of AMMs, but over the past decade, one big question has haunted me: Can this new market structure truly become the core engine for all financial markets?

After years of evolution and growth, a path toward AMM global dominance is becoming increasingly clear. And the best way to explain it starts in 1976.

Tokenization Changes Who Makes Markets

Index funds celebrate their 50th anniversary this month. When Jack Bogle launched one in 1976, he hoped to raise $150 million. He only managed to raise $11.3 million. Competitors called it "Bogle's Folly" and printed posters claiming index funds were "un-American." They believed a fund that made no decisions could never beat professionals paid to make decisions. Today, most US fund assets are held in passive instruments.

I've been thinking about this lately because the "folly moment" for tokenization is coming to an end. The SEC has approved Nasdaq and NYSE to trade tokenized stocks. The DTCC, which settles nearly every US security, conducted live testing of tokenized trades in July. Nearly all of this activity has been described as the same thing: tokenization as an infrastructure upgrade.

The same markets, faster, cheaper, and running 24/7. All of that is true, but I think the "upgrade" framework masks a bigger story. Tokenization makes markets programmable: it changes which markets exist, who makes markets, and what counterparties these markets trade against.

I built Uniswap in 2018. Anyone can deposit two assets into a shared pool, earning fees on every trade, while prices adjust along a curve based on buying and selling activity. Uniswap has operated autonomously since day one, settling over $4.6 trillion in volume and helping drive DEXs from less than 1% of centralized spot volume to over 20%.

As AMMs like Uniswap have grown, their liquidity has formed a pattern that most of the financial world hasn't noticed yet: correlated trading pairs.

The Easiest Market to Win

To win everything, you first have to win something. AMMs first found product-market fit in long-tail markets, where most assets simply can't get professional market makers' attention. On Uniswap, anyone can create a market in a single transaction, with issuers and early supporters becoming the first LPs.

Stablecoin pairs followed next: on trading pairs like USDC/USDT, a good passive strategy is already close enough to optimal, and lower capital costs are enough to close the gap. That's why professional trading firms don't bother market-making these stablecoin swaps today: they've been underpriced by passive AMMs.

High Profits, No Competition

Traditional financial markets belong entirely to market-making firms. They bundle capital, trading strategies, execution technology, settlement, and distribution into a vertically integrated business. The evolution of this architecture makes sense: assets exist in isolated systems, settlement is slow, and every function requires someone to execute it, so one firm handles everything.

At sufficient scale, all these fixed costs pay for themselves. Citadel Securities handles about 25% of US stock trading volume and generated a record $12.2 billion in net trading revenue last year on roughly $21 billion in trading capital.

Most people see these numbers as proof that the system works well. I see it as complacency.

Breaking the Bundle

Blockchain creates competition at every layer, breaking the bundle. Execution is done through code. Custody and settlement become shared services that anyone can plug into. What once required proprietary infrastructure is now open-source software.

In AMMs, capital is the scarce input, and the advantage goes to whoever can hold inventory at the lowest cost. Trading firms need high returns to justify their overhead, so LPs willing to accept lower returns can undercut them. Most market makers hedge away all price exposure, and hedging costs money, so investors who already hold assets can take on that exposure for free. And asset issuers have negative capital costs, because they typically have to pay professional market makers to make markets for their newly issued assets.

In short, DeFi and AMMs have lowered the barrier to market-making, opening the field to many new participants. Their advantages can come from various sources: lower capital costs, willingness to hold inventory exposure that professional firms typically hedge away, or even being the issuer themselves.

But it all hinges on one question: Can automated strategies perform well enough to make this work?

Liquidity Follows Correlation

Recently, I was on a call with one of the biggest institutions in finance. They asked me what the most common benchmark trading pairs are in DeFi. I explained that Ethereum-based assets tend to trade against ETH, Solana assets against SOL, stablecoins pair with each other, and a small number of high-liquidity trading pairs bridge between these clusters.

No one designed this pattern. It emerged naturally, partly because LPs perform best when the assets they hold move in sync. Correlation means lower inventory risk for liquidity providers, which deepens liquidity. As assets become tokenized, the world's largest markets will reorganize the same way.

They can't do this today. Traditional markets settle in USD out of necessity. Assets exist in isolated systems, and fiat rails like SWIFT and Fedwire are the glue holding everything together. But blockchain is a far more expressive glue. Tokenize assets, and they share a settlement layer, so any asset can trade directly against any other asset.

NVDA/USD can become NVDA/SPY, with SPY/USD as the bridge back to dollars. Oil companies can trade against oil ETFs or tokenized oil. Private credit can trade against tokenized Treasury funds. Tokenization also enables markets across different asset types that are extremely difficult, or even infeasible, in traditional financial infrastructure.

Delta Neutrality Is an Inefficiency

Traditional market-making firms typically try to stay "delta neutral"—trader jargon for being denominated in dollars and wanting to minimize any non-dollar risk. When market-making a volatile asset, they spend money to reduce their non-dollar risk (i.e., hedging), typically through options. This is one of the more costly components of traditional market-making.

Pairing assets into low-volatility "correlated trading pairs," connected by a small number of high-volatility "bridge trading pairs," brings numerous efficiency gains. But the most important one is this: if the person making the market actually wants to hold the underlying asset, market-making becomes cheaper and more efficient.

And the more correlated the trading pair, the smaller the gap between today's passive AMM strategies and the most sophisticated active strategies—making it easier to "undercut" with lower inventory costs.

A concrete example: if someone is long Nvidia, you might also be long SPY, and the efficiency gap between a passive AMM and an active strategy on NVDA/SPY is far smaller than on NVDA/USD.

Interconnected Liquidity

If stocks instead trade against SPY, then every trade that starts or ends in dollars routes through the same trading pair: SPY/USD. These bridge trading pairs will still require professional expertise, but there will be far fewer of them, and they'll carry so much flow that professional attention is worthwhile.

DeFi has already proven this. ETH/USDC is one of the deepest markets on-chain because every cluster routes through it. Passive LPs provide correlated trading pairs, while active LPs compete on bridge trading pairs.

Investors can still buy and sell everything with dollars because cross-pool routing is automatic. Liquidity will concentrate where risk is lowest, not where legacy plumbing requires it to sit. This pushes the deepest markets toward correlated trading pairs—the terrain where AMMs are already strongest.

Correlated RWA Trading Pairs Already Exist

On-chain correlated liquidity started with crypto-native assets. But the first correlated markets for tokenized stocks already exist: ten tokenized stocks in Uniswap pools on the Robinhood chain trade against SPY.

In the first 12 days, these pools completed $33 million in volume from over 11,000 traders, with a significant portion occurring during US market close hours. Some trades go directly from one stock to another, without ever touching dollars.

It's also worth noting that we're starting to see memecoins paired with "related" stocks: Elon memecoins against Tesla stock, hot dog memecoins against Costco stock. It's unclear how correlated these actually are in price, but I suppose "vibes" count as a form of correlation.

AMMs Will Win

Correlated trading pairs are only part of the puzzle. The other part is AMM design and customization.

Uniswap v4 hooks enable comprehensive market customization that can significantly improve LP returns, such as our recently released DualPool hook—which puts passive AMM capital to work earning lending yield when it's not being used for swaps.

Despite Uniswap having processed roughly $4.6 trillion in volume, I believe AMMs are still in their infancy, and there are many other paths that will enhance their competitiveness. There are many other promising approaches to improving LP returns being built both internally at Labs and externally by our partners and ecosystem. More to come!

The argument against index funds in 1976 was: a fund that makes no decisions can never beat professionals paid to make decisions. Fifty years later, funds that make no decisions beat about 90% of professionals. More importantly, index funds democratized investing and improved ordinary people's lives. I believe passive liquidity will win with a similar strategy and have an even greater impact—by dramatically lowering the barrier to creating and participating in markets.

Crypto KOL Perspective

Hayden Adams' article has also sparked discussion in the Chinese community. Crypto KOL Cody (@Cody_DeFi) subsequently provided further analysis of the "correlated trading pairs" concept from the perspective of practical market-making and historical backtesting. I think it's a solid interpretation and analysis of the Uniswap founder's original design thinking. The original post is also included below:

It feels like nobody in the Chinese crypto community is paying attention to the Uniswap founder's masterpiece "How to Use AMMs to Replace Traditional Market Makers for On-Chain Stocks." Is DeFi just not being followed anymore?

The founder @haydenzadams actually raised a core point: if you're willing to actively hold an asset and deliberately maintain a long exposure to it, your market-making costs are far lower than traditional market makers', because you don't need to hedge against price fluctuations. Traditional market makers do need to—they maintain so-called delta neutrality, which carries high hedging costs.

Because of the AMM mechanism, it can loosely be viewed as an asymmetric fee-based grid trading system. If you hold a long position—say NVDA—and want to use an AMM to market-make the NVDA-USDC pair, you face the risk of selling off your upside: as NVDA's price rises, your USDC balance grows while your NVDA shrinks. These losses are commonly referred to as "impermanent loss."

To solve this sell-off risk, Hayden introduced the concept of "paired AMM market-making." Simply put, ordinary people don't need to deploy an NVDA/USDC AMM pair; instead, they can deploy a correlated pair like SPY/NVDA. This reduces impermanent loss while maintaining long exposure to a class of correlated assets and earning fees.

This idea stems from his observation of the mainstream deep liquidity pairs in crypto: ETH and SOL serve as primary trading pair assets for tokens within their respective L1 ecosystems, just as the cover image of this article illustrates.

Finally, he argues that this strategy—market-making for those willing to hold long spot positions—will eventually dominate an increasing share of tokenized stock market-making strategies, just as Uniswap's AMM pushed on-chain spot volume from 0 to around 20% of centralized exchange volume over the past few years.

Coming back to my personal view, what I resonate with most is that AMMs genuinely provide an opportunity for ordinary people willing to hold inventory to market-make. Because if you're willing to hold a certain asset, you truly can run a market-making strategy without hedging.

Beyond that, Hayden raised a third advantage: paired stock token LP strategies offer greater benefits than simply holding the stock. I ran a simple backtest on this using NVDA and SPY, using historical data from the past 3 years. The impermanent loss came to approximately -10.8% of principal at the end of the period. Assuming fees are not reinvested, you'd need roughly 11.5% per year just to make up for this loss by the end of the period.

Looking at current on-chain liquidity and fee structures, that's hard to achieve. Stock tokens generate almost no fees outside of trading hours, there are very few SPY/NVDA trading pairs, and those that exist have very low APYs. This can only be solved by time.

Finally, compared to paired LP strategies, what I personally do on-chain is USDC/NVDA and USDC/CRCL style strategies. The core idea is using fee-based grids combined with traditional financial valuation models to run LP strategies, converting traditional stock-holding returns into a hybrid of holding gains + fees + grid-based buy-low/sell-high profits.

This strategy is still being validated in live trading, and the cycle could be quite long. But I do believe AMM market-making strategies fill a genuine gap in current stock token market-making. The core theory remains: if you want to hold a position anyway, your market-making costs don't require hedging. However, in practice, you need to account for impermanent loss—this is a gap that remains to be explored.