Currently mainstream AMMs are not suitable as the main market for RWA due to economic models misalignment; they should be positioned as a convenience layer for small transactions while mainstream liquidity should be managed by issuance, order books, and auction mechanisms. This article is derived from a piece written by @sanqing_rx and is organized, translated, and authored by Foresight News. (Background: DEX market share exceeded 25% in May, reaching a historical high; is decentralized trading becoming a trend?) (Background supplement: Christie's allows purchasing real estate with cryptocurrency, marking a new milestone for the RWA track.) Real World Assets (RWA) are becoming a key narrative for Web3's mainstream adoption. However, bringing trillions of dollars of real assets on-chain is only the first step; building efficient and robust secondary market liquidity for them is the real challenge that determines success or failure. Automated Market Makers (AMM) are naturally seen as a cornerstone of DeFi, but can they be directly transferred to the world of RWA? Summary (Overview in three sentences) Conclusion: Current mainstream AMMs (concentrated liquidity, stablecoin curves, etc.) are not suitable to serve as the 'main market' for RWA. The biggest obstacle is not the curve model, but the economic model of LPs (liquidity providers) which cannot sustain in a low turnover, highly compliant, and slow pricing RWA environment. Positioning: Issuance/redeeming, KYC order books/RFQ, and periodic auctions should be set as the 'main arteries' of RWA liquidity; AMMs should retreat to a 'convenience layer' that only caters to small, daily, and convenient secondary trading needs. Method: Through a combination of 'narrow-band market making + oracle slippage/hook + yield bridging', the native yields of RWA (such as coupons and rents) should be effectively transmitted to LPs, supplemented by robust risk management and information disclosure. 1. AMM should not become the 'main market' for RWA RWA pursues a core financial context that is predictable, measurable, and liquid. Although the continuous quoting AMM mechanism is highly innovative, it faces three inherent challenges in most RWA scenarios: naturally low trading activity, slow information heartbeat, and elongated compliance pathways. This makes it particularly difficult for LPs to rely solely on trading fees for returns while being exposed to the risk of impermanent loss. Therefore, our core viewpoint is that AMMs should not take on the responsibilities of the 'main market' for RWA 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 can AMM thrive in the crypto-native world? To understand the limitations of AMMs in RWA scenarios, we first need to understand the foundational elements of their success in the crypto-native world: Continuous trading: A 24/7 global market, combined with permissionless cross-market arbitrageurs, instantly eliminates any price discrepancies, creating continuous trading activity. Highly composable: Almost anyone and any protocol can become an LP or participate in arbitrage without barriers, creating powerful network effects and self-reinforcing traffic. Volatility is business: High volatility brings a significant demand for trading and arbitrage opportunities, generating transaction fees that allow LPs to 'outperform' impermanent loss. When we try to replicate these three points in the RWA domain, we find that the entire foundation has changed: transaction frequency significantly decreases, pricing heartbeat becomes extremely slow, and compliance thresholds rise sharply. 【Localized explanation｜Pricing heartbeat】 'Pricing heartbeat' refers to the 'frequency of reliable price updates' and is key to understanding the differences between RWA and crypto-native assets. Crypto-native assets: Heartbeat is typically in seconds (exchange quotes, oracle feeds). Most RWA: Heartbeat is often daily or even weekly (fund net asset value updates, property valuations, auction prices). The slower the heartbeat of an asset, the less suitable it is for long-term deep continuous quoting pools. 3. In RWA scenarios, LP's economic calculations do not add up LPs invest capital, and their sense of 'annualized returns' primarily depends on three factors: trading fee rates, turnover intensity within effective price ranges, and the annual frequency of trading cycles. For RWA, it is challenging to balance this equation because: Generally low turnover: 'Funds sitting in the pool' are rarely activated by high-frequency trading, leading to meager fee income. High opportunity cost: External markets offer substantial coupons or risk-free rates. LPs holding RWA assets directly (if possible) often find this more profitable than providing liquidity. Risk-return imbalance: Against a backdrop of low fee income, LPs also bear the risk of impermanent losses (relative to the losses from holding the asset unilaterally) and the risk of being 'exploited' by arbitrageurs due to price feed delays. Overall, LPs' economic model is inherently at a disadvantage in RWA AMMs. 4. Two major structural frictions: pricing and compliance Besides the economic model, there are two structural issues hindering the application of AMMs. Misalignment of pricing rhythm: RWA's net asset value/valuation/auction has a 'slow heartbeat', while AMMs provide instant tradable quotes. This time difference creates a significant arbitrage window for those with the latest information, allowing them to easily 'exploit' the price differences of LPs who are unaware. Compliance cuts into composability: KYC, whitelists, transfer restrictions, and other compliance requirements elongate the pathways for capital to enter and exit, breaking the DeFi model of 'everyone can participate'. This directly leads to fragmented liquidity and inadequate depth. Cash flow 'pipeline engineering': Cash flows such as RWA's coupons or rents must either be reflected through increases in net asset value or directly distributed. If the AMM/LP mechanism is not well designed to capture and distribute these yields, LPs may miss out on this part of the cash flow or get diluted during the arbitrage process. 5. Applicable boundaries and practical case studies Not all RWAs are incompatible with AMMs; we need to classify and discuss them. More friendly: Assets that have short durations, can update net asset values daily, and have 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 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/RFQs and periodic auction mechanisms. Case study: Arbitrage window of the Plume chain's 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 (approximately 10 minutes), but the frequency of token price updates was about once a day, sometimes slower. Phenomenon: Due to the net asset value being 'updated daily' while the AMM 'quotes in seconds', when the new net asset value is announced, the AMM price fails to keep up promptly, creating an arbitrage window of 'buying low on DEX → immediately applying for redemption from the project party → settling at the updated higher net asset value'. Impact: Arbitrageurs profit while AMM LPs bear all the impermanent losses, especially those LPs providing liquidity in more off-price ranges, who suffer greater losses. Review and restoration suggestions: Review...