Currently, mainstream AMMs are not suitable as the main market for RWAs due to mismatched economic models. They should be positioned as a convenience layer for small transactions, while mainstream liquidity should be handled by issuance, order books, and auction mechanisms. This article is based on a piece written by @sanqing_rx and compiled, edited, and authored by Foresight News. (Background: DEX's market share exceeded 25% in May, setting a 'historical high'; is decentralized trading becoming a trend?) (Background supplement: Christie's allowing cryptocurrency to purchase real estate, a new milestone in the RWA track) Real World Assets (RWAs) are becoming a key narrative for Web3 moving towards the mainstream. However, introducing trillions of dollars of real assets onto the chain is only the first step; the real challenge lies in building efficient and robust secondary market liquidity for them. Automated Market Makers (AMMs), as the cornerstone of DeFi, are naturally expected to perform well, but can they be directly applied to the world of RWAs? Summary (three-sentence overview) Conclusion: The current mainstream AMMs (concentrated liquidity, stablecoin curves, etc.) are not suitable to serve as the 'main market' for RWAs. The biggest obstacle is not the curve model, but the economic model of LPs (liquidity providers) that cannot sustain in the low turnover, strong compliance, and slow pricing environment of RWAs. Positioning: Issuance/redemption, KYC order book/RFQ, and periodic auctions should be set as the 'main thoroughfare' of RWA liquidity; AMMs should retreat to the 'convenience layer', only catering to small, daily, and convenient secondary trading needs. Method: By combining 'narrow band market making + Oracle slippage/Hook + yield bridging', the native yields of RWAs (such as coupon payments and rent) can be effectively transmitted to LPs, supported by comprehensive risk management and information disclosure. 1. AMMs should not become the 'main market' for RWAs. RWAs pursue a predictable, measurable, and settleable core financial context. Although the continuous pricing AMM mechanism is highly innovative, it faces three inherent challenges in most RWA scenarios: natural transaction activity is low, information heartbeat is slow, and compliance pathways are lengthy. This makes it seem that LPs relying solely on trading fees for returns are unusually thin, while also being exposed to the risks of impermanent loss. Therefore, our core view is that AMMs should not bear the responsibility of the 'main market' for RWAs, but should serve as the 'last mile' for liquidity. Its role is to allow users to conveniently exchange small assets anytime and anywhere, enhancing user experience, while the core functions of large transactions and price discovery must be entrusted to other more suitable mechanisms. 2. Why do AMMs thrive in the native crypto world? To understand the limitations of AMMs in RWA scenarios, one must first grasp the foundation of their success in the native crypto world: Continuous trading without interruption: A 7×24 global market, combined with permissionless cross-market arbitrageurs, ensures that any price differences are immediately eliminated, creating sustained trading activity. High composability: Almost anyone, any protocol can participate as an LP or engage in arbitrage without barriers, leading to strong network effects and self-amplifying traffic. Volatility equates to business: High volatility brings abundant trading demand and arbitrage opportunities, with trading fees allowing LPs to 'outperform' impermanent losses. When we attempt to replicate these three points in the RWA domain, we find that the entire foundation has changed: transaction frequency has significantly decreased, pricing heartbeat is extremely slow, and compliance thresholds have dramatically increased. 【Local explanation｜Pricing heartbeat】 'Pricing heartbeat' refers to 'the frequency of credible price updates', critical for understanding the differences between RWAs and native crypto assets. Native crypto assets: Heartbeats are usually at the second level (exchange quotes, oracle feeds). Most RWAs: Heartbeats are often at the daily or weekly level (fund net value updates, property valuations, auction closing prices). The slower the heartbeat of an asset, the less suitable it is for maintaining a deep continuous pricing pool over the long term. 3. In the RWA scenario, LP's economic account does not add up. LPs invest capital, and their sense of 'annualized return' mainly depends on three things: transaction fee rates, the turnover intensity of funds within effective price ranges, and the annual repetition of trading rhythms. For RWAs, this calculation is difficult to balance because: Turnover rates are generally low: 'Funds stagnant in the pool' are rarely activated by high-frequency trading, leading to scarce fee income. Opportunity costs are too high: External markets offer considerable coupon payments or risk-free interest rates. LPs using the same principal to directly hold the RWA assets themselves (if possible) often find it more profitable than providing liquidity. Risk-return imbalance: Against the backdrop of low fee income, LPs must also bear impermanent losses (relative to the losses of holding assets on one side) and risks of being 'exploited' by arbitrageurs due to delayed price feeds. Overall, LPs' economic models are inherently at a disadvantage in RWA AMMs. 4. Two structural frictions: pricing and compliance. In addition to the economic model, two structural issues hinder the application of AMMs. Misalignment of pricing rhythms: The net value/valuation/auction of RWAs has a 'slow heartbeat', while AMMs provide instantly tradable quotes. This time lag gives those with the latest information a huge arbitrage window, allowing them to easily 'eat' the price differences of uninformed LPs on AMMs. Compliance cuts into composability: KYC, whitelists, transfer restrictions, and other compliance requirements extend the pathways for funds to enter and exit, breaking the DeFi 'everyone can participate' Lego block model. This directly leads to liquidity fragmentation and insufficient depth. Cash flow 'pipeline engineering': Cash flows from RWAs, such as coupon payments or rents, are either reflected through net value appreciation or need to be distributed directly. If the AMM/LP mechanism is not designed to capture and allocate these yields properly, LPs may miss out on this portion of cash flow or be diluted during the arbitrage process. 5. Applicable boundaries and practical cases. Not all RWAs are incompatible with AMMs; we need to classify and discuss them. More friendly: Assets with short durations, daily updated net values, and high price transparency (such as money market fund shares, short-term government bond tokens, interest-bearing certificates). These assets have clear central prices and are suitable for using narrow-band AMMs to provide convenient exchange services. Less friendly: Assets that rely on offline valuations or low-frequency auctions (such as commercial real estate, private equity). These assets have slow heartbeats and severe information asymmetry, making them more suitable for order books/RFQ and periodic auction mechanisms. Case: Arbitrage window of Plume Chain Nest Background: The nALPHA and nBASIS tokens of the Nest project have AMM pools on Curve and the native Rooster DEX. Initially, their redemption process was fast (about 10 minutes), but the update frequency of the token prices was about once a day, sometimes slower. Phenomenon: Due to the net value being 'daily updated' while AMM 'seconds reported', when the new net value is announced, the AMM price fails to keep up in time, creating an arbitrage window of 'buying low on DEX → immediately applying for redemption from the project → settling at the updated higher net value'. Impact: Arbitrageurs profit while AMM LPs bear all the impermanent losses, especially those LPs providing liquidity in more deviated price ranges, suffering even greater losses. Review and repair recommendations: Review...