Token Terminal Report: Data Analysis on Recent DEX Developments

Original Author: Tokenterminal

Compilation of the original text: Deep Tide TechFlow

This article will focus on the cryptocurrency exchange (DEX) market segment and analyze it against the designated dashboard on Token Terminal to reveal the most interesting charts and trends within it.

Overview

The daily trading volume and total value locked (TVL) of the top projects in the exchange (DEX) market space over the past 180 days are shown in the chart below.

Volume and TVL have been relatively stable over the past 180 days, with the exception of mid-March. DEX trading volume peaked at $16.2 billion on March 11, 2023, more than eight times the daily average trading volume of $2 billion over the past 180 days. The TVL of DEX also fell by 14% between March 9 and 12, from $14 billion to $12.1 billion.

The decoupling of USDC was the main reason for the huge change in transaction volume and TVL in mid-March. On March 10, after Circle announced that it held as much as $3.3 billion in exposure to the troubled Silicon Valley Bank, it led to the decoupling of the USDC it issued from the US dollar. As a result, users who hold USDC switch to other tokens, leading to an increase in the transaction volume of DEX. TVL in DEXs also dropped sharply, partly due to the reduced value of USDC in DEX liquidity pools. For example, the USDC-WETH trading pair on Uniswap had over $450 million in liquidity on March 9, but only $300 million was left on March 12. In contrast, the TVL of the WETH-USDT trading pair was relatively stable over the same period.

Macroeconomic and regulatory actions have a significant impact on the DEX market space and the cryptocurrency industry as a whole. These external factors can cause sudden changes in trading volume and the value of liquidity positions held by users. Investors and market participants should keep these influencing factors in mind when analyzing market dynamics and making financial decisions.

DEX volume is shifting from Ethereum to other chains

Since the beginning of 2023, DEX volume share on Ethereum has dropped from 72% to 54% due to growth on Arbitrum. Meanwhile, Arbitrum has grown from 3.3% of total DEX trading volume to 23.3% over the same period. The transaction volume shares on Polygon, Optimism and BNB Chain are relatively stable.

Arbitrum's peak in terms of DEX volume share occurs when the ARB token is launched on March 23, 2023. On launch day, ARB traded over $480 million on Arbitrum’s leading exchange, Uniswap. This surge was likely driven by users converting their ARB airdrop rewards into other tokens. While DEX volumes on Arbitrum have declined slightly since the end of March, Arbitrum is still the second-largest chain after Ethereum when measured by DEX volume.

Increased user demand for token trading on Arbitrum has led to the launch of the new DEX. While Uniswap remains the current market leader on Arbitrum with over 3.38 million trades completed in the past 90 days, some newer DEXs native to Arbitrum have also started to emerge as competitors. A notable example is Camelot, a relatively new DEX on Arbitrum that has completed nearly 1 million transactions in the past 90 days.

Case study: well-known DEX expands outside the native chain

Uniswap and Trader Joe have successfully scaled beyond their native chains, while PancakeSwap is facing poor momentum on Ethereum. Although Uniswap has long remained on Ethereum, PancakeSwap on BNB Chain, and Trader Joe's on Avalanche C-Chain, all three DEXs have since expanded to other chains. Currently, 40% of Uniswap and Trader Joe's trading volume comes from chains other than Ethereum and Avalanche C-Chain. In contrast, PancakeSwap’s trading volume outside of the BNB Chain only covers 4.2% of the total trading volume.

Onboarding to new chains is a driver of daily active user growth for both Uniswap and Trader Joe’s. Most of Uniswap's growth came from new traders on Polygon and Arbitrum, while Trader Joe's active users also grew on Arbitrum.

By expanding to Arbitrum, Trader Joe captured users making larger trades. 40% of Trader Joe's trading volume and 25% of active users come from activity on Arbitrum. The increased volume per user shows that Trader Joe is able to attract traders with larger average trade sizes on Arbitrum than on Avalanche C-Chain.

The DEX market space on Ethereum has become more competitive and challenging, and more difficult for new entrants. The above comparison of DEXs shows that expansion should be targeted at chains with growing market share, such as Arbitrum.

Trending

Interesting trends for some projects in the DEX market space are showcased below.

Over the past 180 days, Trader Joe, Quickswap, KyberSwap, and ParaSwap were the top-performing projects in the DEX market space, with volume growth of 237.2%, 91.8%, 61.8%, and 38.6%, respectively.

Over the past 180 days, Trader Joe's daily active users have quadrupled, surpassing competing platforms QuickSwap, KyberSwap, and ParaSwap. QuickSwap, KyberSwap, ParaSwap, and Trader Joe's trading volumes and trends over the past 180 days are also similar. The number of daily active users has also remained at a similar level, with Trader Joe's daily active users nearly tripling by the end of March.

The growth in Trader Joe's active user base was primarily attributable to the release of the new Liquidity Book solution and the expansion of Arbitrum. Trader Joe's released a new Liquidity Book solution (v2 and v2.1) with improved token pricing and reduced slippage.

Trader Joe's v2.1 also improves the user experience by automatically reinvesting the fees earned by liquidity providers into their liquidity positions. The launch of these new releases has also benefited from an overall increase in activity on Avalanche C-Chain and Arbitrum.

Future DEX development is expected to prioritize improving token pricing, slippage, and user experience. We expect future DEX releases to focus on better pricing, lower slippage, custom fee tiers, availability of liquidity positions, and automatic management of user positions. We can see examples of these trends in the latest update to Uniswap v4, which introduced more customizable liquidity pools via Hooks.

Other key highlights in the field

After discovering and fixing the vulnerability, KyberSwap restarted its Elastic contracts.

On April 17, 2023, KyberSwap discovered a smart contract vulnerability. The related liquidity pool contracts were suspended, causing KyberSwap’s trading volume and total value locked (TVL) to drop sharply. The new KyberSwap Elastic contract was deployed and the protocol restarted operations at the end of May. While volume and TVL have yet to return to pre-pause values, a 200% increase in 30-day volume suggests that KyberSwap Elastic is regaining traction.

Centralized liquidity solutions saw faster adoption thanks to the expiry of the Uniswap v3 license.

Uniswap v3 was launched under Business Source License 1.1 (BUSL 1.1). This license restricts commercial or production use of the v3 source code until April 1, 2023. After the license expires, the license is converted to the General Public License, meaning that the code can be forked by the public as long as it remains open source. Since the license expired, both PancakeSwap and SushiSwap deployed their centralized liquidity solutions using existing code from Uniswap v3.

Prior to the license renewal, KyberSwap, Trader Joe, QuickSwap, Zyberswap, and Thena had developed alternative centralized liquidity solutions. Additionally, Biswap will launch its centralized liquidity solution in the coming weeks.

Velodrome released the v2 version.

This new version offers an update to the user experience, support for custom pool fees, single-token liquidity positions, and an upgraded governance voting mechanism.