Uniswap Founder Hayden: Correlated Trading Pairs Will Drive AMMs into Global Financial Markets

Odaily News Uniswap founder Hayden said on X that correlated trading pairs are emerging. The top five tokenized SPY trading pairs by volume are "bridge" pairs connecting other common base pairs, which then primarily link to highly correlated tokenized stocks. These markets are global, programmable, low-cost, and operate 24/7.

Uniswap founder Hayden said on X:.

I've been working at the frontier of DeFi for 9 years. It's a fascinating field with infinite depth and the potential to transform capital markets.

I've always believed AMMs hold immense potential, but for the past decade, one question has persisted: Can this novel market structure truly become the core engine for all financial markets?

After years of evolution and development, the path for AMMs to achieve global dominance is becoming increasingly clear. To explain this, we need to start in 1976.

Tokenization Changes Market Makers.

Index funds celebrated their 50th anniversary this month. When Jack Bogle launched the index fund in 1976, he hoped to raise $150 million but ultimately raised only $11.3 million. Competitors called it "Bogle's Folly," posting posters claiming index funds were un-American. They argued that a fund making no decisions couldn't possibly beat professionals paid to make decisions. Today, the majority of US fund assets are allocated to passive investment vehicles.

I've been thinking about this recently because tokenization's "folly moment" is ending. The SEC has approved NASDAQ and the NYSE to trade tokenized stocks. DTCC, which handles virtually all US securities settlement, also conducted a live pilot of tokenized trades in July. Nearly all related activity is described the same way: treating tokenization as an infrastructure upgrade.

The same markets, faster, cheaper, and always open. These statements are all true, but I believe the infrastructure upgrade framework obscures a larger change. Tokenization makes markets programmable, changing how markets exist, who makes markets, and what is traded.

In 2018, I created Uniswap, an automated market maker protocol. Anyone can deposit two assets into a shared liquidity pool and earn fees from every trade, while prices adjust along a curve as users buy and sell. Uniswap has operated autonomously since its launch, processing over $4.6 trillion in cumulative volume and increasing DEX spot volume share from under 1% to over 20%.

As AMMs like Uniswap continue to evolve, their liquidity has formed a pattern most financial markets haven't noticed yet: correlated trading pairs.

The Easiest Place to Find Success.

To succeed everywhere, you must first succeed somewhere. AMMs found product-market fit in long-tail markets because most assets previously couldn't attract professional market makers' attention. On Uniswap, anyone can create a market with a single transaction, and issuers and early supporters can become the first liquidity providers.

Then came stablecoin pairs. Take USDC/USDT, for example. A good passive strategy can approach optimal levels, with low capital costs sufficient to cover the difference. This is why professional trading firms no longer bother making markets in these stablecoin exchanges—passive AMMs are simply cheaper.

High Profits and Lack of Competition.

Traditional financial markets are completely dominated by market-making firms. These companies vertically integrate capital, trading strategies, execution technology, settlement, and distribution into one business. This structure exists for good reason: assets reside in separate systems, settlement is slow, and each function requires someone to perform it, so one institution handling everything makes sense.

When scale is sufficient, all fixed costs are covered. Citadel Securities handles about 25% of US stock trading volume and generated a record $12.2 billion in net trading revenue last year on roughly $21 billion in trading capital.

Most people see these numbers as proof the system works; I see them as evidence of market entrenchment.

Breaking Up the Business Bundle.

Blockchain introduces competition at every layer, unbundling previously integrated businesses. Trade execution happens through code, and custody and settlement become shared services anyone can access. What once required proprietary infrastructure is now open-source software.

In AMMs, capital is the scarce input, and the advantage goes to those who can hold inventory at the lowest cost. Trading firms need higher returns to cover their operating expenses, so liquidity providers willing to accept lower returns gain a competitive edge. Most market makers hedge all their price exposure, and hedging costs money, so investors who already hold correlated assets can bear this exposure for free. Asset issuers even have negative capital costs, since they typically pay professional market makers to provide liquidity for their new assets.

In short, DeFi and AMMs lower the barriers to market making, opening markets to more participants. Their advantages may come from various sources: lower capital costs, willingness to hold inventory exposure that professional firms typically hedge away, or even directly from asset issuers themselves.

But it all comes down to one question: Can automated strategies perform well enough to sustain this system?

Liquidity Follows Correlation.

Recently, I was on a call with one of the largest institutions in finance. They asked what the most common base trading pairs in DeFi were. I explained that Ethereum-based assets typically trade against ETH, Solana ecosystem assets trade against SOL, and stablecoins pair with each other, with only a few high-liquidity pairs serving as bridges between these clusters.

This pattern wasn't designed by anyone; it emerged naturally, partly because liquidity providers perform better when their held assets move in tandem. Correlation means lower inventory risk for LPs, allowing them to deepen liquidity. As assets become tokenized, the world's largest markets will reorganize in the same way.

Traditional markets currently can't do this. Out of necessity, settlement in traditional markets overwhelmingly occurs in USD. Assets exist in isolated systems, with fiat rails like SWIFT and Fedwire serving as the glue holding the system together. But blockchain is a more expressive form of glue. Once assets are tokenized, they can share the same settlement layer, allowing any asset to trade directly against any other.

NVDA/USD can become NVDA/SPY, with SPY/USD serving as the bridge to dollars. Oil companies can trade against oil ETFs or tokenized crude. Private credit can trade against tokenized treasury funds. Tokenization also enables markets across different asset types, something extremely difficult or impossible for traditional financial infrastructure.

Delta Neutrality Is an Inefficient Approach.

Traditional market-making firms typically attempt to be "delta neutral." That's trader-speak for denominating in USD and minimizing non-USD risk. When market making for volatile assets, they often pay for options to reduce non-USD risk—that is, hedging. This is one of the most expensive parts of traditional market making.

Grouping assets into low-volatility "correlated pairs" connected by a few high-volatility "bridge" pairs generates several efficiency gains. Most importantly, if market makers genuinely want to hold the correlated underlying assets, market making becomes cheaper and more efficient.

The higher the correlation between trading pairs, the smaller the gap between passive AMM strategies and the most sophisticated active strategies—making it easier to compete with active strategies through lower inventory costs.

Specifically, if someone is long NVDA, they're likely also long SPY. Compared to NVDA/USD, the efficiency gap between passive AMM and active strategies for NVDA/SPY is much smaller.

Connected Liquidity.

If stocks trade against SPY, then all trades starting or ending in USD route through the same pair: SPY/USD. These bridge pairs still require significant expertise, but there are far fewer of them, and they carry enough flow to justify professional firms allocating resources.

DeFi has already proven this. ETH/USDC is one of the deepest on-chain liquidity markets because every cluster routes through this pair. Passive LPs provide liquidity for correlated pairs, while active LPs compete around bridge pairs.

Investors can still buy and sell all assets using USD, as trades automatically route through multiple pools. Liquidity will concentrate where risk is lowest, rather than being forced to stay where traditional infrastructure dictates. This will push the deepest markets toward correlated trading pairs—the very domain where AMMs already have the advantage.

Correlated RWA Pairs Already Exist.

On-chain correlated liquidity initially came from crypto-native assets. But the first correlated markets for tokenized stocks have already emerged: 10 tokenized stocks are trading against SPY in Uniswap pools on Robinhood Chain.

In the first 12 days, these pools generated $33 million in volume from over 11,000 unique traders, with significant activity occurring during US market hours. Some trades went directly from one stock to another, never touching USD along the way.

Notably, we're also starting to see memecoins paired with "correlated" stocks—like Elon-themed memecoins paired with Tesla stock, or hot dog-themed memecoins paired with Costco stock. It's unclear how correlated they truly are in price terms, but I suppose "vibes" can count as another form of correlation.

AMMs Will Succeed.

Correlated trading pairs are only part of the story; the other part is AMM design and customization.

Uniswap v4 Hooks enable comprehensive market customization that can significantly improve LP returns. For example, our recently released DualPool Hook puts passive AMM capital to work earning lending yields when it's not being used for swaps.

Despite Uniswap's roughly $4.6 trillion in volume, I believe AMMs are still in their early stages, with many paths ahead to further improve competitiveness. Both within Labs, with partners, and across the broader ecosystem, there are many initiatives underway to boost LP returns. More to come soon.

In 1976, the argument against index funds was that a fund making no decisions couldn't beat professionals paid to make decisions. Fifty years later, funds making no decisions have beaten roughly 90% of professionals. More importantly, index funds democratized investing and improved lives for everyday people. I believe passive liquidity will follow a similar path to success, with an even greater impact by dramatically lowering the barriers to creating and participating in markets.