TL;DR
- Uniswap creator Hayden Adams defended AMM sustainability, citing growth and the upcoming V4 upgrade with “hooks” to improve LP profits.
- He argued AMMs are competitive across asset types, and that many LPs prioritize creating liquidity over maximum profit.
- Uniswap’s “fee switch” activation has generated ~$600k in 10 days, projecting >$24M annually.
Hayden Adams, the creator of Uniswap, countered arguments about the supposed unsustainability of automated market makers (AMMs). A public critique suggested these systems cannot maintain themselves because they structurally underpay liquidity providers.
Adams responded by pointing to continued growth in Uniswap’s liquidity pools as evidence of viability. The developer also noted the upcoming V4 platform upgrade will include ‘hooks’, tools designed to improve provider profitability.
Guess what? All AMMs can't ever be sustainable for a simple reason:
LPs aren't getting paid enough fees. Period.
That deficit is structural: fees scale with realized volatility, but any seller of convexity needs to get paid on implied volatility to survive bc IV>RV https://t.co/lzlHRpVkA1
— GEE-yohm LAMB-bear (@guil_lambert) January 5, 2026
The criticism came from Guil Lambert, who stated AMMs can never be sustainable. Lambert argued fees earned by liquidity providers scale with realized volatility. However, his analysis claims these providers would need payment based on implied volatility, which is higher, to survive. Adams counterargued with concrete data from Uniswap’s current operation.
A Competitive Model Across Different Market Conditions
Adams explained that AMMs remain competitive under various market structures. For low-volatility pairs like stablecoins, AMMs offer steady yield to participants with cheaper capital. This model lets them outprice traditional professional firms. For assets with high volatility and less popularity, AMMs also hold advantages. Other market structures do not scale as effectively for these assets, according to Adams.
Liquidity providers for these pairs are often the projects themselves or their early supporters. Their primary goal is creating liquidity, not executing delta-neutral market-making for maximum profit. Adams considers this approach more practical than paying a market maker with option-like contracts. Additionally, liquidity on an AMM possesses greater composability and can be used as collateral more easily.
Recently, the UNI/USD1 pair listed on Binance, increasing its liquidity. Separately, the rival platform Balancer suffered a $120 million exploit due to a flaw in its code. That same month, Uniswap experienced a positive market reaction. Adams then proposed activating the “fee switch”, a mechanism to share protocol fees with UNI token holders. The proposal increased the token’s price by 35%.
The Fee Switch and Uniswap’s Current Metrics
The implementation of Uniswap’s fee switch began on December 27. In roughly ten days, the protocol generated nearly $600,000 in fees. This figure projects annualized fee revenue above $24 million. The protocol has also burned 96,000 UNI tokens, with an annualized burn rate near 3.893 million UNI.
Omar Kanji, a partner at Dragonfly, noted that since the switch activated, Uniswap’s valuation hit 240 times its annualized fees. The fully diluted value of the decentralized market stands at $540 million, with annual fees around $2.3 million. Meanwhile, the price of the UNI token registered a drop of 5.7% over the last 24 hours and 1% over the past week.
Development of Uniswap V4 continues
The industry watches the promised functionality of ‘hooks’ closely, as they could provide an answer to the long-term profitability question for liquidity providers. Adams concluded the discussion by affirming his agreement on the need to improve returns for these participants. The sustained health of decentralized liquidity depends on resolving this point.
