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How Does a Centralized exchange’S Market Maker Differ from an AMM’s Liquidity Provider in Managing Price Risk?

CEX MMs actively hedge using derivatives; AMM LPs passively accept formula-driven price risk (impermanent loss).
Greeks.Live20.11.25

How Does a Centralized Exchange’s Market Maker Differ from an AMM’s Liquidity Provider in Managing Price Risk?

A centralized exchange (CEX) market maker (MM) actively manages inventory and quotes prices using order books, often employing complex algorithms and hedging strategies, such as futures or options. An Automated Market Maker (AMM) liquidity provider (LP) passively supplies capital to a formula-driven pool.

The AMM formula automatically adjusts prices and rebalances, exposing the LP directly to impermanent loss, which is essentially the cost of providing liquidity via the formula.

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