Author: 0XNATALIE
Recently, Hasu, the strategic director of Flashbots, pointed out that on the Solana chain, most of the trading volume is actually completed through the automated market maker (AMM) rather than the central limit order book (CLOB, or simply the order book model). This conclusion is surprising because many people once believed that one of the important reasons for Solana's success in the market was its ability to support CLOB. As Feng Liu said, "One of the core selling points of Solana was that it could finally do order book dex on it, and that 'order book trading is the future of dex'."
It is worth noting that the debate between AMM and CLOB did not start recently. This competition has been going on for a long time. Since DeFi Summer, AMM has quickly become the core of decentralized trading with its algorithm-driven asset pricing method, while CLOB is considered a more mature market mechanism due to its dominant position in traditional finance and centralized exchanges. This competition has promoted their continuous innovation on various blockchain platforms. Especially on Solana, which focuses on speed and low cost, Phoenix successfully made CLOB the focus for a time.
Is the reason why AMM dominates the market just because of long-tail assets?
Hasu's discovery quickly sparked widespread discussion within the community. In this regard, Kyle Samani, partner of Multicoin Capital, explained that in the market of long-tail assets, there is a lack of real market makers (MM) to provide liquidity, and the emergence of AMMs has made up for this deficiency, thus forming the current AMM-dominated situation. Solana's success does not only rely on CLOB, but also because it can provide a consistently fast and low-cost trading experience and can provide support for various types of assets. In addition, Solana's no bridging mechanism is also an important factor in its success, because users generally have a negative attitude towards cross-chain bridging.
Udi Wertheimer, founder of Taproot Wizards, also believes that AMM has unique advantages in supporting long-tail assets and can help small communities quickly start liquidity for long-tail assets. There are a large number of memecoins on Solana, and AMM is a very suitable choice for these assets.
Krane further divides the market into three types: memecoin, major assets (such as SOL/USDC), and stablecoins. He pointed out that AMMs excel in the memecoin market because these assets require good passive liquidity, while CLOBs perform poorly in this regard. For major assets, although CLOBs have a certain position in some cases, AMMs are still competitive. In the stablecoin market, the application of CLOBs has not yet been widely popularized.
However, Doug Colkitt, founder of Ambient, put forward a different view and refuted it 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 (such as SOL/USDC), AMM's trading volume far exceeds CLOB. For example, Orca's trading volume in 24 hours was as high as 250 million US dollars, while Phoenix's trading volume was only 14 million US dollars. Even if the most favorable assumptions for CLOB are adopted (using Phoenix's 7-day average daily trading volume instead of the lower trading volume of the day, and counting CLOB's trading volume as much as possible), AMM's trading volume on major trading pairs is 50% higher than CLOB, and if these assumptions are not adopted, the gap will even widen to 10 times.
Community View: CLOB development is limited by blockchain performance
The reason why AMM dominates on Solana is not just because of long-tail assets, but the deeper reason lies in the limitations of blockchain performance. Many community members believe that the development of CLOB is limited by the performance bottleneck of the blockchain. Sam feels that the inherent challenges faced by the blockchain (high latency, high gas fees, poor privacy protection, etc.) make CLOB unsuitable for effective operation in the current blockchain environment. In contrast, AMM is more adaptable to the characteristics of the blockchain, especially in price discovery and liquidity provision.
Enzo holds a similar view, believing that CLOB faces limitations of high latency, expensive gas fees, and low throughput on Layer 1, but these limitations can be overcome in Layer 2 solutions, making CLOB more competitive in these environments. On the current Layer 1 chain, AMM is still a more practical choice.
In fact, similar views were mentioned in the article "Death, Taxes, and EVM Parallelization" published by Reforge Research in April. The article points out: When implementing CLOB on blockchain platforms such as Ethereum, high delays and high transaction costs are often caused due to limitations in platform processing capabilities and speed. However, with the introduction of parallel EVM, the processing power and efficiency of the network have been greatly improved, the viability of CLOB has also increased, and DeFi activity is expected to increase significantly.
