Solana's Hottest Liquidity Secret: PropAMMs Cut Trade Costs While Public Pools Quietly Bleed Returns
Passive Solana liquidity providers are losing ground, and a September 2024 preprint just made it impossible to ignore.
New research confirms that proprietary AMMs, or PropAMMs, are delivering meaningfully cheaper SOL/USDC trade execution during low-volatility market windows compared to public pools. The catch? The same mechanics that benefit traders are systematically compressing returns for passive depositors sitting in those public pools. The two sides of this market are not playing the same game, and most retail DeFi participants do not know which side they are on.
What PropAMMs Actually Do
Unlike standard public AMMs where anyone can deposit and earn fees, PropAMMs are professionally managed liquidity venues. They concentrate capital more precisely, reprice faster, and respond to market conditions in ways that passive, set-and-forget LP positions simply cannot match.
During quiet markets, when spreads are tight and volatility is low, PropAMMs consistently undercut public pool pricing. Traders routing through these venues get better fills. Public pools, meanwhile, absorb the flow that professionals do not want: the toxic order flow, the larger market moves, and the adverse selection that eats into LP returns over time.
The Public Pool Problem
The research makes the accounting clear. Passive depositor returns cannot be evaluated by looking at fee revenue alone. Impermanent loss, adverse selection costs, and the opportunity cost of capital all factor in separately, and when you run those numbers during periods where PropAMMs are skimming the clean flow, public pool net returns look significantly worse.
This is not a Solana-specific problem, but Solana's speed and low transaction costs make the competition between PropAMMs and public pools especially sharp. The chain's architecture allows professional operators to update positions and pricing at a frequency that public AMM designs were never built to match.
What This Means for DeFi Participants Right Now
If you are a trader, the implication is straightforward: routing matters, and PropAMM venues are increasingly worth seeking out during low-volatility windows when the savings are most pronounced.
If you are a passive LP on any major Solana public pool, this research should prompt a real audit of your actual net returns, not just the APY figures displayed on the front end. Fee income and true profitability are not the same number.
The broader signal here is structural. As PropAMMs mature and proliferate, public pool economics will face sustained pressure. The DeFi participants who treat liquidity provision as a passive income source without understanding the competitive landscape are the ones subsidizing everyone else.
Watch how public pool TVL trends on Solana over the next 60 days. If institutional-grade venues keep pulling clean flow, the rotation could accelerate faster than most expect.