What in the world are Web3 market makers?

Alright then, before we dive into Web3 market makers, let’s get to know what the whole market makin’ business is about in the first place. Ya see, market makers are like matchmakers between buyers and sellers in any market. For example, let’s say we’re farmers with ten units of milk but no bread. Eons ago, people like us would probably roam around all over town looking for bread makin’ folks to barter their bread for our milk. However, some smart rascals took on the task to organize this barter situation into a trading market. They’d deal in a bunch of goods or assets, like milk and bread, and let us know the prices at which they’d buy or sell stuff for. And of course, the sellin’ price would be higher than their buying one so these fellas could pocket a few bucks as well for their market making work. So if they’re buying your milk at 10 bucks per unit, they’d probably be selling it to someone else for 12 bucks. Same for the bread they’re selling, if the price for you is 20 bucks then they likely bought for lower than that.The real art of market makin’ lies in the ability to read both sides of the market and figure out how much folks would be willing to buy and sell their assets for. It’s all about price discovery. That’s the core of the market makin’ show, even across TradFi stock markets of Earth. These TradFi trading’ arenas are all orchestrated by centralized matching agents or intermediaries who help buyers and sellers settle at a fair price across the market. And the market participants, the buyers and sellers, folks like you and I, we got no option but to trust these centralized market makers to show us the fair value and price for the assets we wanna trade. Though I bet you can already see why this setup simply won’t cut it in the decentralized tradin’ markets of Web3. Heck, I ain’t tradin’ a penny in DeFi land unless it’s fully trustless. That’s exactly why the whole concept of Automated Market Makers popped up across Web3 a few years ago.Automated market makers, or AMMs as everybody calls ‘em, help bring the whole tradin’ game on-chain. AMMs live at the heart of smart contract-based decentralized exchanges, or DEXs, like Uniswap and Balancer. Now, instead of relying on any centralized market makers, these AMMs are powered by liquidity providers and nifty price discovery algorithms to help folks like us buy or sell our digital coins and tokens at a fair market value based on the market’s demand and supply. At the end of the day, DeFi traders like us get a fair price and trade on-chain, fully decentralized — and the AMM liquidity providers get a cut of the fees generated from the trades. By running these trades through smart contracts, AMMs completely eliminate the need for a centralized matching agent.Hold up though, ‘cause the market making story don’t end there. Despite powering the DeFi trades for millions of users, the AMM model ain’t all hunky-dory. It still comes with a few drawbacks and risks that hold DeFi back from growing to a billion users. I’m talking about stuff like high slippage, impermanent loss, and less than ideal risk mitigation protocols that keep our growth at bay. Here comes some real alpha now — you see, I poked around the Supra research labs and came across a file called, “The evolution of AMMs.” This document is literally jam packed with alpha about this new on-chain market making model that they’re building called the Dynamic Function Market Maker. I’ll save all the cool DFMM alpha for our next mission, it’s about time for y’all to go ahead and take the quiz. Until next time, this is Alpha Dog, signing out.