I noticed the problem when one larger borrow pushed past the thick part of the liquidity and the rate deteriorated almost immediately. For a second, it looked like the AMM had mispriced the trade. It had not. The order had simply reached the edge of the ranges market makers were willing to defend.

That changed how I looked at TermMax’s custom AMM. The curve is not one shared opinion about the correct rate. It is several market makers placing capital behind different opinions, sometimes overlapping, sometimes leaving uncomfortable gaps. One can stay narrow around fair value. Another can quote wider. A third might only want one side of the flow.

Useful flexibility, obviously. But there is pressure hiding inside it.

A tight range can give borrowers excellent execution until demand moves a little too far. Then that liquidity is effectively gone. A wider curve survives longer, though the capital gets spread thinner. And as maturity approaches, a range that made sense yesterday can become stale without any dramatic market move.

So I would not judge this design by how smooth the quoted curve looks during quiet trading. I’d watch what happens when rates jump and a large order crosses several ranges at once. Do independent market makers fill the space left behind, or did they all draw roughly the same boundary without realizing it?

@TermMax #TermMax