Tokenization Paves Way for AMMs to Dominate Global Markets

The founder of Uniswap, Hayden Adams, believes that as traditional assets like stocks become tokenized, Automated Market Makers (AMMs) will have a chance to reorganize global markets. In a recent article, Adams argues that with the rise of tokenization, correlation trading pairs will reduce inventory and hedging costs, making it easier for passive AMMs to enter core markets dominated by traditional market makers.

Adams points out that index funds have become popular over the years, but their growth was initially met with skepticism. The first index fund, launched in 1976, raised only $11.3 million of its target $150 million. However, today most U.S. fund assets are held in passive vehicles.

Adams believes that tokenization will change who makes markets and what counterparties they trade against. He notes that AMMs like Uniswap have grown and formed a pattern where liquidity follows correlation. This means that LPs perform best when the assets they hold move in sync, reducing inventory risk for liquidity providers and deepening liquidity.

As more assets become tokenized, the world's biggest markets will reorganize in the same way. Traditional markets settle in dollars out of necessity, but blockchain is a more expressive glue. Tokenizing assets allows them to share a settlement layer, enabling any asset to trade directly against any other asset.