The Shift to Layer 2: A Potential Disruption Catalyst for the AMM Ecosystem

Currently all significant AMMs (automated market makers) reside on Ethereum layer 1 and life has been relatively simple, albeit expensive. As discussed in our previous daily Are Airlines the AMMs of Crypto, as the number of AMMs grew and liquidity fragmented, their role became increasingly commoditized as users began interacting with aggregators like 1inch and Debank to save themselves the headache of finding best trade execution.

If liquidity is further fragmented we’d expect AMM protocols to become more and more the lower layer building blocks which are integrated by frontends and aggregators.

However, currently aggregators can aggregate because everything is on the same layer and is highly composable. With any future shift to layer twos this changes and threatens the impor