ON–035: DEXs

This is issue #35 of the on-chain analytics newsletter that reaches nearly 4000 crypto investors every week 📈

In case you missed it, earlier this week I published a thread on some of my favorite DeFi fundamental indicators:

This week our contributors cover DEX projects: Curve, Uniswap, Kyber, and 0x.

• Automated liquidity protocol, Uniswap, supported $1.5bn volume the week of August 10, up 88% week-on-week and 9,853% year-to-date. For perspective, Coinbase Pro saw $7bn volume over the same period. Uniswap single-handedly commands 57% decentralized trading volume market share.

• Uniswap (v2) continues to attract tens of thousands of new traders on a weekly basis despite record high Ethereum network gas fees. The week of August 10 saw the addition of over 28,000 new traders for a total of 76,636 unique traders, up 32% week-on-week. Just 20 days into August, Uniswap has attracted over 116,000 unique traders and is the number one Ethereum-based application by gas consumed.

• Uniswap continues to serve as the de facto home for long tail assets, supporting 5,306 unique assets across 5,264 pairs: Dune Analytics-integrated trading platforms support 2,828 assets combined. Yet Uniswap similarly dominates short-tail markets. For example, between August 10-17, Uniswap commanded close to 68% market share across ETH-USDC swaps.

• Despite rapidly increasing competition for capital and the absence of a proprietary liquidity mining program, Uniswap v2 continues to see net positive liquidity inflows on a monthly basis: $16.6m liquidity was deposited in July, and $11.7m has been deposited in the first 20 days of August. Uniswap v2 now contains over $259m liquidity across all pools, producing a gross LP annualized yield of over 90%.

Editor’s note: source for all queries is Teo via Dune Analytics Pro

• At the end of June, 0x labs announced Matcha, a simple interface for trading Ethereum tokens powered by 0x API. Since the public launch, Matcha has grown by leaps and bounds both in terms of traders and volume, now reaching over 600 traders per week and ~$25M in weekly volume.

• A Matcha feature that has ramped up in popularity recently is limit orders. Users who don’t wish to trade at the current market price can place an order that is distributed by 0x mesh, which can then be consumed later by a market order on Matcha or by any other trader who discovers the order using mesh. Limit orders can be helpful when a market’s liquidity is not yet deep to avoid large amounts of slippage. Indeed, limit orders were very popular for CRV pairs shortly after it became available when liquidity was relatively low and the market price was uncertain.

• Since 0x API, which powers Matcha, is a DEX aggregator, for every market order Matcha searches for the best possible price (net of fees) among 8 distinct liquidity sources, and it has used each source heavily since going live. Curve has been used extensively in July due to the recent popularity of stablecoin conversions and Curve’s deep liquidity for those pairs.

• Additionally, 0x API doesn’t just search for the best price using a single liquidity provider. It will split the order across multiple liquidity sources if it is best for the trader to do so (net of fees). This is more likely to be useful for larger orders, since these orders are more likely to incur slippage, and fixed gas fees matter less compared to slippage for larger orders. Higher gas prices tend to decrease the likelihood of doing so, since splitting a market order across will increase the amount of gas used. Despite the recent spike in gas prices, split orders accounted for nearly 20% of Matcha trades for the most recent week, and accounted for over 25% of volume (since these orders tend to be larger).

• TVL and volume growth. On the 13th of August, total value locked (TVL) on Curve Finance peaked $263m. As the news of the CRV launch spread, TVL grew rapidly to reach a new all time high of $825m by the next day and eventually to $1b three days later to make Curve Finance the 3rd DeFi protocol to reach the milestone. Curve Finance also crossed $2.5b in cumulative volume. (Source)

Circulating CRV distribution after launch. The goal of CRV is to incentivise liquidity providers on the Curve platform and get those users involved in governance of the protocol. CRV inflation schedule below shows that it will be distributed in perpetuity to liquidity providers.

After less than a week, there are over 5,500 CRV holders and over a million CRV locked into the voting escrow in spite of gas prices making it difficult for smaller liquidity providers to claim and lock their CRV. (Source)

• Reaction of Compound pool on weight-voting. One of the base features of the Curve DAO is to be able to choose where the daily CRV inflation is being distributed. The mechanism helps the Curve DAO direct liquidity to pools that need it. After it was enabled, a large CRV holder directed their voting power to the Compound pool helping it receive a larger part of the CRV inflation and making the pool reach APYs of over 1000%. As liquidity providers realised the difference in returns, they started moving their liquidity to the Compound pool, bringing back its APY on par with the other pools in just a few hours. (Source)

• Lock voting. The CRV token will allow its holders to participate in the Curve governance. One of the biggest incentives to vote locking CRV is to receive a boost on your provided liquidity. This boost will start from the 28th of August. After only one week and before the boost would even start, 7.4% of the supply of the total CRV supply was already locked into voting escrow. (Source)

• Inflation. On top of governance, CRV also exists to make the Curve protocol more attractive to liquidity providers to ensure it stays the stable coin exchange with the lowest fees and slippage. The inflation mechanism was chosen to make sure CRV would keep being distributed for years to come. (Source)