Pricing Economics

Documentation Index

Fetch the complete documentation index at: https://docs.hyfi.finance/llms.txt

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This page explains, mechanically, when and why HyFi quotes a better price than a passive Uniswap-style pool — and where the edge actually comes from. HyFi’s pricing advantage over passive AMMs has two distinct sources:

1. CEX liquidity — HyFi MMs can quote against deep CEX order-book depth, with their own pricing curves, instead of being trapped on a x * y = k bonding curve.
2. Toxic flow / stale prices — HyFi quotes move continuously with the market, while passive AMM prices only update when someone trades against them.

The rest of the page walks through each in turn, then summarises the conditions where HyFi’s edge is largest.

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CEX Liquidity

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Why passive AMMs have bad slippage

A Uniswap V2-style pool is a x * y = k bonding curve, and a V3/V4 pool is a piecewise version of the same. Either way, the slippage a trader sees is entirely determined by the depth of the pool: thin pool → wide curve → bad slippage. Every LP in the pool quotes the same price and the same slippage as every other LP, because the pool itself is the price function. LPs cannot compete on slippage even if they wanted to. CEXes have a different structure: deep central limit order books, with market-makers competing on price and size. Slippage on a major CEX pair is routinely an order of magnitude tighter than slippage on the equivalent on-chain pool.

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How HyFi fixes it

Consider a hedged market-maker LPing on Uniswap with 1 ETH and 2,000 USDC as their position.

• A trader buys 0.5 ETH from the pool → the MM has effectively sold 0.5 ETH and is now short 0.5 ETH versus their target exposure.
• To stay flat, the MM immediately buys 0.5 ETH back on a CEX (spot or perps).

Because CEX slippage is much tighter than AMM slippage, the ETH price the MM paid to rehedge on the CEX is a little bit better than the price they sold to the trader at on Uniswap. That gap is value the MM captures — value that, in a more competitive venue, they would happily share with the trader to win flow. On HyFi, MMs can compete on price and slippage. A HyFi market-maker is not bound by any bonding curve — they define their own quote (flat, curved, asymmetric, inventory-dependent, whatever they want), referencing real CEX order-book depth. That means their strong incentive is to tighten their quote all the way down to roughly the slippage they themselves experience on the CEX, in order to attract flow. Whichever MM gives the trader the best price wins the trade.

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Where HyFi’s edge is biggest: large trades

The size dimension follows directly:

• For small trades, a deep passive pool can still be competitive, because the bonding-curve slippage on a small fill is tiny.
• For large trades, the passive pool’s slippage is dictated by the (thin) liquidity sitting in the pool, while a HyFi MM is pricing against real CEX order-book depth.

So HyFi’s CEX-liquidity edge is largest on big trades, and it grows over time as passive AMM TVL bleeds out (see the self-reinforcing loop in The propAMM Thesis). If the price on AMMs was in sync with the price on CEXes, HyFi would have better pricing 100% of the time because of the lower slippage.

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Toxic Flow

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The core asymmetry: who updates the price?

A passive AMM pool only changes price when someone trades against it. If the true market price moves, the pool’s price does not update until an arbitrageur shows up to extract the difference. HyFi has the opposite property: the quoter is fed a live off-chain price (typically a CEX top-of-book), so its quote moves continuously with the market.

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The fee-tier deadband

Concretely, consider a Uniswap V3 pool with a 0.30% fee tier. An arbitrageur will only step in once the off-chain price has moved at least ~0.30% away from the pool’s marked price — because anything less wouldn’t cover the fee. That means there is always a deadband of up to one fee-tier in width around the pool’s current price where the pool is mispriced relative to the world. During an uptrend:

• The pool’s ask (sell-to-buyer price) is below fair value → buyers get a great deal from the pool.
• The pool’s bid (buy-from-seller price) is also below fair value → sellers get a worse deal from the pool than they would elsewhere.

During a downtrend the asymmetry flips.

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What this means for HyFi vs the pool

HyFi’s quote is always live (so HyFi’s ask and bid are always at fair value). Compared against a passive pool: The intuition this table captures:

• HyFi tends to have the better bid during an uptrend, because the stale pool is too cheap to sell into.
• HyFi tends to have the better ask during a downtrend, because the stale pool is too expensive to buy from.
• Most of the time HyFi wins, it wins on trades that go against the prevailing price trend — exactly the trades passive LPs would otherwise extract maximum value from.

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Why this is also why passive LPing is unprofitable

The same mechanism makes constant-product LPing structurally lossy: while the pool sits inside its deadband, informed flow extracts value until it catches up. This is variously called loss-versus-rebalancing (Milionis et al., 2022), adverse selection, or opportunity cost — same cause: passive LPs quote yesterday’s price into today’s market. A propAMM on HyFi requotes every block.

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Where HyFi’s edge is biggest: crab markets and against the trend

In trending markets, HyFi has the best price counter to the trend almost always — passive LPs systematically misprice exactly those trades. In crab (range-bound) markets, the AMM isn’t consistently mispriced too high or too low, so it’s much easier for HyFi MMs to compete with AMMs on slippage.

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Best Conditions

HyFi quotes better prices than a passive AMM most of the time, in most market conditions — the bonding-curve and stale-price disadvantages are baked into how passive AMMs work, and they don’t switch off. That said, HyFi’s edge is particularly large when:

• Trade size is large — CEX-depth pricing dominates the passive pool’s bonding-curve slippage.
• The market is trending and the trade goes against the trend — passive LPs systematically give users worse prices on exactly these trades; HyFi doesn’t.
• The market is range-bound (crab) — AMMs aren’t consistently mispriced one way, so HyFi MMs can compete with it cleanly on slippage.

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Empirical view

The exact crossover points (trade size and market regime where HyFi beats each fee tier of V3/V4) are measured continuously by our benchmark tooling. See Analysis for the live numbers.