Limit Order Book
As liquidity enters the market, the AMM will become one of many participants in a LOB.
Arrow's AMM is designed to attack the problem of liquidity - by transforming the liquidity of the underlying market, the AMM can synthesize liquidity at the level of the option contracts. In a liquid market, price discovery can be carried out via matching. The more risk the AMM can delegate to the traders, the less directional exposure its liquidity providers have to take. To organically transition into a matching-based market as liquidity comes into decentralized derivatives, Arrow is designing an embedding so that the AMM participates in an LOB as a buyer or a seller. In the limiting case, the AMM provides all the liquidity in the LOB and the behavior is identical to the case without an LOB. However, as liquidity comes in, the AMM becomes one of many participants, thus organically transitioning into a matching market structure.