A Dance with Decentralization: Understanding PMMs, RFQs and On-Chain Liquidity

“I know you don’t think of me in that way, to be honest, but it would be nice to show me the same respect that you show the other crypto bros.”

I typed that message to someone I’d known for years after he completely ignored me when I asked what he was building and what stage it was in. I sent it, half-annoyed and half-embarrassed, and immediately felt a familiar wave of imposter syndrome wash over me. Even now, after years in this industry, I still sometimes feel like I’m standing just slightly outside the inner circle of crypto.

But my curiosity about decentralized finance never really fades. In fact, it heightened recently when a member of the Securities and Exchange Commission came to Miami for a series of roundtables and discussions with local crypto teams. With the Market Structure Bill expected to move through the Senate in the next few weeks, a lot of people in crypto are anxiously waiting to see how their businesses will have to change—or whether they’ll be able to survive the new rules at all.

Miami has a reputation for being a flashy, party-driven tourist city. And sure, it is that. But beyond the palm trees and fancy restaurants, there’s a serious and growing crypto scene here. It’s slow but it’s growing, which is why I dedicate a few days out of the week to working out of The Port. A normal day turned into a totally new alpha unlock. The conversation ping ponged from Miami’s hotel scene to current RFQ proposals to node providers, sitting at a table with million dollar founders, marketers, business development people, and attorneys who work with crypto clients.

The block is hot.

The SEC representative walked in wearing a knitted tank top, a button-down skirt, and sneakers. She casually mentioned that she worked closely with Hester Peirce at the Commission. Here was this woman from New York meeting directly with founders who were building intricate financial models on-chain. I was pleasantly surprised to see some actual feminine energy in a space that usually feels overwhelmingly br0ish, but in a good way.

And the conversation wasn’t about hype or lack thereof. There was no talk about NFT floor prices or the latest Bitcoin rally. Instead, it went deeper. The central question of the day became: Who actually controls DeFi? The answer was far more complicated than I expected and so I got out my notepad. First, there’s a quiet illusion of decentralization happening. When people ask me why crypto is popular or what assets they should buy, I usually give the simple, baseline answer: anyone with a crypto wallet can participate. You don’t need to be an accredited investor like in traditional finance where you need at least $250K liquid in your checking account even to be considered net-worth. In theory, decentralized finance is supposed to make wealth transfers more accessible and more democratic.

But the themes that emerged in the discussion revealed a contradiction. Protocols may be decentralized in code, but in practice, the markets themselves are often centralized in liquidity.

We talked about the mechanics that actually make DeFi work:

• Nodes — the infrastructure that validates transactions

• Slippage — the real cost of liquidity and volatility

• Market communication — the signals that drive order flow and price discovery

These are the functional pillars of an equal playing field. Users care about speed: how fast a transaction settles. They care about cost: whether they get the price they expect. And they care about trust: whether the execution is actually fair and high-quality is also on the rubric of quality AMMs. That’s why platforms like Uniswap and Jupiter are so popular right now. Come to find out, regulators care about all of this too, which is why the conversation eventually landed on AMMs—Automated Market Makers. These are the systems and entities that provide liquidity and essentially give tokens their economic weight and stability. When Violet Verse launched its token back in 2022, we needed to gain volume and value from a AMM on Flow to go from 0 to .00000888 VV 0.39%↑ . I essentially acted as my own AMM by depositing $FLOW… I don’t want to get too off topic but if you’re interested in, you can read my Liquidity Lipgloss report here.

As I listened, it all started to sink in. And then it clicked. I’ve seen this dynamic play out firsthand working on some of the top crypto marketing teams ( at one point). Working in the Polkadot ecosystem with StellaSwap—one of the largest decentralized exchanges on the network—I got a front-row seat to how “decentralized” platforms actually function. On paper, StellaSwap was fully decentralized. Anyone with a wallet could buy, stake, or swap DOT or any other token across Polkadot blockchains. But behind the scenes, the activity wasn’t exactly organic. Liquidity didn’t just appear because random token holders decided to deposit millions of dollars. A significant portion of volume was propped up by:

1. Moonbeam incentives

2. Polkadot ecosystem capital via a proposal board

3. Token emissions and grants to smaller projects to run questing campaigns

The strategy included plugging more capital into the smart contract to help out new teams who were launching gaming tokens or meme coins and needed an extra boost. The current state of the crypto grant system is (kind of) off-topic, developers were constantly asking for more funding, and all of this was openly discussed on public forums. None of it was a secret. In essence, it’s technically decentralized. But functionally? It the swap was dependent on coordinated ecosystem actors to stay alive.

And StellaSwap isn’t unique. There are plenty of protocols like this. Some of them eventually fade into what I think of as “vapor blockchains”—projects that looked vibrant on the surface but were really just being kept afloat by incentives.

We took a break for lunch to eat kabobs because our discussion on Prop AMMs was going to be a heavy load. That’s when the discussion shifted from “how decentralized is DeFi?” to “how professional is DeFi becoming?”

I had never heard of PMMs until the discussion but usually they are deployed by small, highly technical teams that provide liquidity using algorithms instead of relying on random (possibly scammy) retail users. Someone argued that PMMs actually improve DeFi because they reduce slippage, tighten spreads, and filter out low-quality actors who drain pools or manipulate prices. In their view, PMMs make markets cleaner and safer. I thought about how this could apply to scenarios where I’m parsing through data or giving feedback to Messari reports and having to note where certain spikes in transactions are attributed to- even if it means negatively shining a spotlight on some APAC team spamming the ecosystem. Moreover, there are campaigns that prevent this from happening. Anyways PMMs sounded reasonable.

But the more I listened, the more I realized the tradeoff hiding underneath that logic. PMMs don’t eliminate power in DeFi, they just curate it. Instead of thousands of individual liquidity providers, you end up with a handful of specialized firms quietly controlling order flow and price discovery. The result is that efficiency goes up, while participation goes down. DeFi starts to look a little less like an open marketplace and a little more like Wall Street, just wearing on-chain clothing. Now is this necessarily evil? No, tt’s just honest.

Double clicking on another file in the conversation, we went deep with RFQ models—Request for Quote systems—where large traders bypass public liquidity pools entirely and get custom prices from professional market makers. Again, this newish feature exist because it’s a better way to execution. But also more gatekeeping-y.

And then came the topic everyone tiptoed around: MEV, the so-called “dark forest” of DeFi. Turns out, the mempool isn’t a neutral space. It’s an adversarial environment filled with bots, searchers, and validators competing to extract value from every transaction. (Side note: With my AI training, Red teaming is a huge part of training various models of adversarial attacks). In theory, decentralization is supposed to level the playing field. In practice, the most sophisticated players win. Sitting there jotting down buzzwords, I again tried to think about how all this relates to my own role as a blockchain operator.

A few years ago, I use to work with Curve Finance team through ApeworX. I saw another version of this power structure. Curve isn’t just a protocol, it’s actually a liquidity engine. ApeworX provided the infrastructure rails that allowed that engine to scale across ecosystems from Ethereum to other L2s and beyond! Although we were so early in this solution, liquidity still needed this tooling. And in turn, tooling needed liquidity. Together they shaped what DeFi users could actually do. I haven’t worked with ApeWorX in years, but judging from the open-source repo, they are vary much supplying the engine for many beloved and important DeFi teams today.

I digress, DeFi isn’t really a flat, democratic system at all. It’s layered. By the end of the day, I had sketched out something in my notebook I started calling a “DeFi Power Map.” At the top is liquidity power—the PMMs, trading firms, and ecosystem treasuries that decide which markets live or die. Then there’s infrastructure power—the tooling platforms, RPC providers, and aggregators that determine what’s usable.

Below that sits design power—protocol teams and governance structures that set incentives. Next comes execution power—validators and MEV actors who control transaction ordering. And finally, there’s legitimacy power—regulators and institutions who decide what gets to operate at scale. I want to be clear that DeFi doesn’t remove intermediaries, it just creates new ones.

And that, I realized, is probably why the SEC representative was so intrigued by the organic process. And she wasn’t there to shut anything down, everyone was learning and open to sharing their experiences. She was there to understand who actually pulls the levers, how transactions get across the finish line without rug pulls.

Walking out of The Port that afternoon, I felt less like an imposter and more like a student who had just unlocked a new level of education. I don’t pretend to understand every mechanism in DeFi yet. But I do understand this much that decentralization is not a switch you flip on. It’s a spectrum shaped by money, incentives, and power. It’s dance with centralization. If you’re a retail trader trying to navigate this world, that matters more than any token chart ever will.