James Ding
Jan 19, 2026 22:40
Proprietary AMMs use predictive price feeds to rival centralized exchange efficiency on-chain. Here’s how they work and why they’re controversial.
Professional market makers have found a way to operate on Solana (SOL) with near-Binance efficiency—and it’s changing how DeFi liquidity actually works.
Proprietary Automated Market Makers, or PropAMMs, solve a problem that’s plagued decentralized exchanges since Uniswap launched in 2018: passive liquidity providers consistently lose money to arbitrageurs. The fix involves pushing predictive price feeds on-chain and encoding sophisticated trading logic into smart contracts.
The Core Problem With Traditional AMMs
Market makers survive by constantly updating their quotes. When Bitcoin drops from $100,000 to $98,000, they cancel old orders and post new ones at current prices. Miss that update, and informed traders will pick you off—buying your stale $100,000 quote when the real price is $98,000.
On Binance, placing and canceling orders costs nothing. On-chain, every transaction burns fees. Even Solana’s cheap gas adds up when you’re updating quotes hundreds of times per second.
Uniswap’s x*y=k formula eliminated order management entirely, but created a different problem: the AMM has no idea what the real market price is. If Uniswap quotes Bitcoin at $100,000 while every other exchange shows $98,000, arbs drain the pool until prices converge. Liquidity providers eat the loss.
Uniswap v3’s concentrated liquidity helped capital efficiency but didn’t fix the fundamental issue. LPs still get picked off unless they manually rebalance—which brings back the transaction fee problem.
How PropAMMs Actually Work
PropAMMs flip the model. Instead of waiting for trades to move prices, they:
- Maintain predictive price models off-chain
- Push minimal price updates on-chain (often just 8 bytes)
- Let smart contract logic calculate quotes in real-time
When a trader hits a PropAMM, the contract checks current market price, volatility, counterparty identity, recent trade history, and how fresh the last update was. Then it quotes accordingly.
The efficiency gain is substantial. Updating a single price variable costs a fraction of replacing 10+ orders on an on-chain order book. PropAMMs can update multiple times per Solana slot while remaining profitable.
The Centralization Trade-off
Here’s where it gets controversial. As industry analysts noted in October 2025, PropAMMs “echo the same structures crypto once sought to escape.”
Unlike Uniswap pools where anyone can deposit, PropAMM liquidity comes mainly from the operators themselves. The smart contracts are closed-source. Integration with aggregators like Jupiter requires permission. Users can’t verify they’re getting the best available price.
There’s also a validator problem unique to Solana. Some block producers run their own PropAMMs and may prioritize their own price updates while delaying competitors’. Others extract MEV by including updates as late as possible to maximize stale-price arbitrage.
The Anza team is reportedly working on fixes (referenced as “MCP”), but for now, PropAMM performance varies depending on which validator is producing blocks.
What This Means for Traders
PropAMMs currently handle significant volume on major Solana pairs, particularly through Jupiter routing. For liquid assets, they often provide tighter spreads than traditional AMMs.
But they won’t work for everything. The transaction fee floor means long-tail tokens with thin volume can’t be profitably market-made this way. And the closed-source, permissioned nature means users are trusting black boxes operated by anonymous teams.
The technology works. Whether DeFi should embrace these trade-offs is a different question—one the Solana ecosystem is actively debating as PropAMMs capture more market share from transparent, permissionless alternatives.
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