What you described is how you bet against retail traders. The bet is that they have no edge so it’s safe to run tight spreads and nice pure market making algos that assume random behavior at volume.

Feels weird to call it a 'bet against' when the other side can (potentially) benefit from the tighter spread you offer.

But yes, the market maker doesn't run the risk of trading with someone with knowledge and a lot of capital to apply it.

Yeah, I don’t like the phrase either, but market making in these pools is quite literally taking the other side of their trades.