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A big attraction of DeFi was the insane yields that were promised. This was driven by bull market token prices, VC subsidies, and ponzi schemes. Even in the beark market, yield aggregators were able to provide higher yields by composing trading strategies to eek out a few more basis points.
Well now, treasury yields are higher than offered by the top yield aggregators, so what's the incentive to park your passive assets in a yield aggregator?
A big source of liquidity for a lot of yield aggregators was trading fees from DEXs. However, with the introduction of Uniswap V3 and more sophisticated market players, that's another lemon without juice left to squeeze.
Why does this happen? Because the primary trades happening on Uniswap V3 is arbitrage volume, and they all pay a standard swap fee regardless of the MEV extracted.
A lot less liquidity is required to bootstrap a TWAMM protocol compared to a traditional DEX because arbitrageurs effectively source liquidity from external venues when a long-term order is placed.
Sophisticated traders should want to be large LPs because they want to trade against the unsophisticated flow. When a large volume of long-term orders is guaranteed, liquidity providers compete to give them the best fill.
There is still room for active LP activity in the TWAMM protocol. The intuition behind any form of opportunistic liquidity providing is that you want to be providing to the unsophisticated flow while avoiding the toxic (arbitrage) flow.
The incentives section explains how TWAMMs leverage arbitrageurs and re-distribute MEV to LPs:
Now that we have a DeFi protocol that has built-in MEV extraction and novel trade execution for large uninformed order flow, we are finally able to even the playing field for passive LPs.
Sophisticated market makers have been hedging the downside of providing liquidity in DEXs by arbitraging the very same pools. With our TWAMM implementation, passive LPs will be able to hedge against impermanent loss by collecting and automatically re-investing MEV rewards from arbitrageurs.