AMM-correlated-pairs debate turns on permission

Hayden Adams's first blog post since 2019 landed late Monday with a big-picture prediction: automated market makers will take over the world's largest markets once tokenized assets trade against each other instead of against dollars. By Tuesday afternoon a former XTX Markets trader had fired back that AMMs are going to zero. The Defiant's account of the exchange notes Adams's post — 'Correlated Pairs: How AMMs Win the Biggest Markets' — drew 229,000 views in 19 hours.

The two sides actually agree on the core mechanic. Onchain liquidity already collects around reference assets — Ethereum tokens against ETH, Solana tokens against SOL, stablecoins against stablecoins — because liquidity providers lose less when the assets they hold move together. Adams's leap is that tokenization transplants that pattern to equities: NVDA/USD becomes NVDA/SPY, with SPY/USD as the bridge back to dollars. He tied the thesis to the index fund's 50th anniversary. Jack Bogle's First Index Investment Trust closed its offering Aug. 31, 1976, after courting $50 million to $150 million and raising about $11.3 million by Bogle's own account. Index funds and ETFs now hold $21.88 trillion versus $18.83 trillion in active funds, a 53.7% share, per the Investment Company Institute.

The argument rests on cost of capital. Hedging price exposure costs a market maker money; an investor who already wants to hold NVIDIA and the S&P 500 takes that exposure free. Adams expects passive liquidity to displace professional market making the way passive investing displaced active funds. His exhibit is Citadel Securities, which trades near 25% of U.S. equity volume — a figure president Jim Esposito cited in November — and, according to Bloomberg reporting that cited people familiar with the firm, took in a record $12.2 billion in net trading revenue on roughly $21 billion of trading capital. Citadel Securities publishes no financials. Adams wrote of the numbers: 'Most people read those numbers as proof the system works. I read them as entrenchment.'

The rebuttal's most telling feature is how much it concedes. Most of the pushback The Defiant gathered accepted that correlated pairs reduce liquidity-provider risk. The dispute came down to demand and permission: whether anyone wants these pairs, and whether the institutions expected to supply liquidity are allowed to. The permission half is the binding constraint. Adams can design the trading curve, but the counterparties who make it matter need a gate that is not his to open.