The return of price discovery mechanisms in the era of high throughput.

null Article Author: Prince

Article compiled by: Block unicorn

One of the biggest issues in the cryptocurrency space is rarely discussed. In order to achieve a permissionless market, we have replaced the natural price discovery mechanism with formulas. This has made trading continuous and accessible, but it has also removed the elements that maintain price fairness.

Price discovery has always been a natural component of market operations. Buyers and sellers trade openly, and prices are formed during the transaction process. It does not require any formulas or fixed curves; it is merely a way for the market to reach a consensus.

With the development of decentralized finance (DeFi), this process has begun to change. Automated market makers have opened trading pairs to everyone, replacing buy and sell quotes with curves. Liquidity has become stable, and the market can operate without the need for counterparties. This undoubtedly improves the convenience and speed of trading, but in the process, some important factors have also changed. Prices are no longer formed through interaction, but are instead derived from formulas.

Virtual AMMs further advance this concept. They price perpetual contracts through formulas and oracle data rather than actual trades. The market becomes predictable, but it is increasingly disconnected from the demand and risk flows that once defined the market. Factors that used to drive market dynamics now exist solely within the code.

Uniswap v3 has added new tools to improve precision. Liquidity providers can concentrate their funds within narrower ranges, thereby increasing efficiency. This has a significant effect on increasing trading volume, but it also makes the price discovery process fragmented. Each range reflects only a part of the market, rather than the whole. Liquidity becomes specialized, and the collective pricing mechanism disappears.

The Hidden Side of Credit

The development path of the lending market varies. Although the trading has undergone several design iterations, the lending market remains largely unchanged. Each protocol creates its own liquidity pool, which has a fixed yield curve and parameters controlled by governance mechanisms. Interest rates automatically adjust with changes in fund utilization, but these adjustments rarely reflect changes in other markets.

The borrower compared data across different protocols, but the results always failed to reflect the full picture. Each market operates independently, with its own rules and liquidity. The reason capital stagnates is that it lacks competitive pathways. What appears to be an efficient mechanism from the outside often seems stagnant to its users.

Anyone who has borrowed or provided funds in these markets knows this well. You open several applications to compare interest rates, yet you still can't determine which rate reflects the true market demand. Sometimes, you'll find that different markets under the same protocol yield completely different results. The system functions normally, but it feels lacking in coherence.

Lessons from Hyperliquid

Hyperliquid proves that markets can regain autonomy without sacrificing efficiency. Its on-chain order book directly ties trading activity to prices. Every buy, sell, and cancellation contributes to a real-time view of demand. Prices begin to reflect trading participation once again.

This result reminds builders that minor inefficiencies are not problems to be eliminated, but signals. The gap between bids and asks, changes in bid depth, and the time required for price adjustments all reveal information. These differences indicate how the market reaches agreements.

Avon structure

Avon applies the same philosophy to the credit field. Each strategy functions like an HLP vault: an independent lending market with its own logic and liquidity. Above these strategies, there is a coordination layer, namely the on-chain order book, which connects all strategies by sharing information rather than a pool of funds.

When someone deposits, borrows, or repays, the shared layer updates immediately. All strategies can observe these changes. Liquidity will naturally gravitate towards more favorable conditions. Interest rates are not set by regulatory or external bodies, but are continuously formed by activities within the network.

It is this mechanism that allows Avon to operate without external market makers. The coordination layer itself becomes the balancing mechanism. Every transaction updates the market in real-time, enabling liquidity to respond to changes in all strategies.

Over time, lending began to operate like trading. The market reflects participants' valuations of risk and return as the market environment changes. Credit has become part of the real-time system that constitutes the modern trading system.

Consistency Regression

MegaETH has timely restored coordination by centralizing all activities onto a shared sequencer. Its high throughput and Giga Gas limit make it possible to coordinate complex systems entirely on-chain. For the first time, the lending market can operate a continuous order book without sacrificing transparency or performance.

Avon has developed on this basis. The shared environment of the network allows the credit market to quote prices in real-time and respond to each other. Prices are openly formed within the same block space that records each transaction. The discovery process becomes visible again.

When the discovery process is transparent, pricing will be fairer. Fair pricing can attract deeper liquidity and higher quality capital. Institutional funds that rely on transparency can participate smoothly. Various forces that once led to market fragmentation now begin to reinforce each other. Liquidity flows faster, terms are better, and the market is more favorable for all participants.

This is the possibility brought about by the era of high throughput: a system that discovers, coordinates, and operates fairly within the same block space.