PMM Paradigm Cycle: DODO's Regret is Being Fixed on Robinhood RWA DEX

Liquidity follows the oracle, price timeliness, and market closure mechanism, with two evolutionary paths of Metric and Note System.

Written by: Lao Bai

It seems that Robinhood Chain Infra is poised to enter the next phase.

Recently, I came across two DEXs, one is @metricxyz and the other is @notesystems.

The common point between the two: they price using real prices from external oracles, not the traditional AMM of x*y=k like Uni.

It suddenly reminded me of @BreederDodo, who invented PMM during DeFi Summer.

For those who haven't experienced DeFi Summer, PMM - Proactive Market Maker might sound a bit unfamiliar, so let me briefly introduce it.

PMM - By introducing oracles to obtain external market reference prices, it actively gathers a large amount of liquidity around the current market price. When a certain asset in the pool is bought and reduced, PMM automatically raises the quote for that asset, attracting arbitrageurs to fill the missing asset back. This design can significantly improve capital utilization, reduce trading slippage, and minimize impermanent loss risk.

Back then, Dodo lost completely to Uniswap, and the reasons should be twofold:

• First, the prices of mainstream coins on CEXs like Binance were slower than the oracles, allowing arbitrageurs to exploit this window against LPs.
• Second, the main battlefield of DeFi Summer was long-tail coins, many of which had neither CEX nor oracle support, relying solely on AMM for price discovery. PMM naturally couldn't tap into this segment.

However -

The situation with RWA is different now!

Let’s talk about the previous version - we invented Meme pairing Stock and even created hits like AMC, with a dream of “letting on-chain trading influence the real world.”

You see, with this month’s downturn, hasn’t that dream been completely forgotten?

Because it was just a dream, and even if it were realized, it could only affect a few obscure stocks that no one cares about, like the 7 Sisters, which is simply impossible.

What might the next version be? The price of AAPL is already discovered on NASDAQ; on-chain DEXs are inherently price takers. Letting the pool discover stock prices itself is a fundamental error. The prices of on-chain AMMs are just noise plus arbitrage costs.

DODO's design was somewhat mismatched for crypto assets at the time, but now it suddenly feels just right for RWA.

Finally, let’s discuss the characteristics of the two DEXs, many designs differ from Dodo.

Metric - Liquidity Follows Price

Separating “pricing” and “liquidity”: pricing is handled by oracles (Chainlink, Pyth), while the pool is only responsible for providing liquidity.

The liquidity of LPs is not tied to a fixed price range but is linked to “deviation from reference price x%.” When the reference price moves, the entire liquidity shifts accordingly, never leaving the range. Those who have used Uni V3 or Meteora should understand; no more daily manual rebalancing.

Details like Robinhood's stock token dividend adjustment have separate oracles to handle them; otherwise, prices would drift after each dividend or stock split.

In short: DODO gathers liquidity around the oracle price, while Metric lets liquidity follow the oracle price.

NoteSystem's Swap - What to Do When Prices are Old or Market is Closed

The engine is called S-DAMM, which I personally feel is a complete version of DODO PMM:

Reference price + inventory adjustment + unilateral LP, these three elements are all present in DODO.

It adds a time dimension: if the price hasn’t been updated for about 5 seconds, the confidence level halves, and the quote automatically widens, with depth decreasing. DODO back then was unaware of how outdated its prices were, which led to being eaten by arbitrageurs.

Specifically designed for US stock market closures: withdraw regular inventory 60 minutes before market close; during nights and weekends, only use a dedicated Continuous inventory with wider quotes; enter Discovery mode when there are no new prices; re-evaluate based on real prices at market open before accepting new orders.

LP layering: Senior USDG vault, plus a junior Backstop that bears initial losses. LPs during the DODO era were left exposed.

In short: DODO only knows what the price is, while Note also knows how old that price is and whether the US stock market is open.

Metric is already running on the mainnet with decent data, and many foreign KOLs are farming. Note is still in the testnet phase, but it’s worth keeping an eye on (by the way, the options for StonkBroker that were previously highlighted still haven’t come out; it feels like it’s going to flop...)

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