Not All LPs Are Equal: The Active-Passive Gap in Automated Market Maker Liquidity Provision

RESUMO

Liquidity provision in automated market makers is typically analyzed at the pool level, implicitly assuming LP homogeneity. This aggregate view can hide how outcomes differ between LP strategies, particularly as concentrated liquidity AMM designs on high-performance blockchains allow liquidity to be actively repositioned around trades. A markout-based framework decomposes Uniswap LP profitability into active and passive components using a LIFO subtraction approach and an infinitesimal LP benchmark. Across Uniswap v2, v3 and v4 pools on Ethereum, Arbitrum and Base, passive profitability materially differs from aggregate pool profitability: in v2 pools overall and passive markouts are nearly identical, but concentrated-liquidity pools show a systematic gap where passive LPs underperform aggregate measures, wider on Ethereum than on L2s. Passive LPs generally perform better in higher-fee pools. Adverse selection in AMMs is distributed unevenly among LP strategies, with implications for LP strategy and DEX market-quality assessment.