Understanding AMMs in DeFi
Automated Market Makers (AMMs) are the backbone of DeFi, powering DEXs and enabling users to trade crypto without intermediaries. Instead of matching buyers and sellers through an order book, AMMs use smart contracts and liquidity pools to facilitate swaps.
While most traders are familiar with public AMMs, which are open to anyone, a new model is emerging: private AMMs. Both approaches play a unique role in the blockchain ecosystem, especially on high-performance networks like the Solana blockchain, where low fees and high transaction speeds allow for innovative DeFi design.
What Are Public AMMs?
Public AMMs are open and permissionless. Anyone can add liquidity, swap tokens, or interact with the pools. This model democratizes access to finance and fuels much of the innovation we see across DeFi.
Advantages of public AMMs include:
- Accessibility: Anyone with tokens can participate.
- Deep liquidity: Open participation attracts more users, resulting in larger liquidity pools.
- Transparency: All transactions are visible on the blockchain.
However, public AMMs also come with challenges. Open access can lead to impermanent loss, high exposure to volatility, and competition from arbitrage bots.
What Are Private AMMs?
Private AMMs take a different approach by restricting access. They allow only a select group of participants — for example, institutional players, DAOs, or curated communities — to provide liquidity or trade within the pool.
Advantages of private AMMs include:
- Controlled liquidity: Only approved participants can add tokens, reducing risk from malicious actors.
- Custom strategies: Pools can be tailored for specific needs, such as stablecoin swaps or institutional DeFi trading.
- Reduced volatility: By limiting access, private AMMs often experience less market manipulation.
The trade-off is lower liquidity compared to public AMMs, since fewer participants are allowed to contribute.
Public AMMs vs Private AMMs: Key Differences
| FEATURES | PUBLIC AMMs | PRIVATE AMMs |
| Accessibility | Open to everyone | Restricted to select participants |
| Liquidity | Broad and deep | Controlled and curated |
| Risk Exposure | Higher, due to bots and volatility | Lower, but less decentralized |
| Use Cases | General trading, DeFi experimentation | Institutional or community-specific use |
On ecosystems like Solana, both public and private AMMs can thrive thanks to the blockchain’s scalability. Public AMMs benefit from Solana’s low fees, while private AMMs can leverage its speed for specialized trading environments.
stabble’s Role in AMMs
Projects such as stabble demonstrate how AMMs can evolve to meet user needs. Built on the Solana blockchain, stabble specializes in stablecoin liquidity pools and concentrated liquidity market makers (CLMMs), reducing volatility and slippage.
While stabble operates primarily in a public AMM framework, its design allows for advanced strategies that could be applied in private AMMs as well. For traders and liquidity providers, this means more predictable returns and improved efficiency in both public and private models.
Conclusion
The debate between private AMMs and public AMMs highlights the diversity and innovation within DeFi. Public AMMs remain the cornerstone of decentralized trading, offering open access and massive liquidity. Private AMMs, meanwhile, bring tailored strategies and controlled environments suited for specialized needs.
On fast and scalable blockchains like Solana, both models can coexist, giving traders and liquidity providers more options than ever. Platforms like stabble continue to push the boundaries of what AMMs can do, shaping the future of decentralized finance.
