Aerodrome vs. Uniswap - Getting Toxic

Primer

As Aerodrome’s growth on Base continues to surge, the DEX has faced increasing criticism from its competitors.

Two weeks ago, a discussion broke out on Twitter when Austin Adams, an advisor at Uniswap, posted a thread titled: “On AMMs, not all volume is equal”.

Austin spotlights an ongoing debate around toxic flow and loss versus rebalancing (LVR) which we’ve highlighted previously in our report on “Mitigating Loss Versus Rebalancing”. To summarize the key definitions involved:

• Toxic flow refers to the arbitrage activity within AMM DEXs, driven by either information asymmetry or stale pricing compared to CEXs where price discovery predominantly occurs.
• LVR represents the opportunity cost for LPs that arises from the latter, where LPs are forced to transact at outdated prices vs. running a similar rebalancing strategy on a CEX.