#14 - Matchmakers vs eHarmony

Market makers and order books are core to how modern financial exchanges work. They're how we ensure there's a buyer for every seller and a seller for every buyer.

It's a model that works well in big markets. Jane Street, a premier market maker, traded over $17 trillion in 2020 and generated $1.6 billion in revenue. But the model fails in small markets. Jane Street's margin was just 0.009%. It's not profitable to be a middleman when trading volumes are low.

Automated Market Makers change the game. They can operate - profitably - in small markets. The model ensures there's always a price - buyers can always buy and sellers can always sell. It's a powerful new invention that's beginning to transform markets as we know them.

We explore how exchanges and market makers work, where the model fails, and the innovation unlocked by automated market makers. Shoutouts to Jane Street and Uniswap.

Check out this week's letter for the full story. Follow @FatTailThoughts on Twitter and your co-hosts @KleeBeard and @StevenDickens3 for more content.