The monthly turnover is 20 billion US dollars, DEX continues to be strong, this DeFi boom is not over yet
Uniswap is the most popular decentralized exchange on Ethereum, showing explosive growth throughout 2020Q2. In fact, just a few days ago, Uniswap surpassed the world’s largest centralized exchange in trading volume, processing $426 million worth of trades in 24 hours.
Throughout 2019, the decentralized finance (DeFi) market was relatively stagnant. It was not until the concepts of liquidity mining and token governance were widely accepted that DeFi finally showed a blowout outbreak. Liquidity mining is a process in which investors use various encrypted assets to provide liquidity in exchange for DeFi protocol tokens.
In most cases, most of the income of investors comes from governance tokens. Users provide liquidity for the project by depositing cryptocurrencies such as ETH, and then obtain the governance tokens of the project.
For example, Yearn.finance (YFI), in the early stage of the project, users mortgaged encrypted assets to the YFI liquidity pool, and a large number of tokens were distributed to early participants, thus realizing the decentralization of YFI tokens distribute.
For another example, when COMP was launched, Compound’s governance model was already widely known. Compared with YFI when it was first launched, COMP was more attractive and successfully witnessed the explosion and prosperity of governance tokens in the DeFi market.
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Will DeFi trading volume surpass centralized exchanges?
On Uniswap, users can add liquidity to a certain trading pair, or create a new token trading pair, which creates a lot of freedom for token trading.
The rigid demand for DeFi governance tokens triggered by the psychology of getting rich has made Uniswap an indispensable infrastructure in the DeFi ecosystem.
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The Explosion Period of Decentralized Exchanges
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Source: Dune Analytics
In addition, compared with other decentralized exchanges, the growth of Uniswap is particularly significant. From July to September, the trading volume of Uniswap showed explosive growth. The latest data shows that the DEX market handles about 20 billion cryptocurrency transactions per month U.S. dollars, and the vast majority of them come from Uniswap.
In the past 12 months, the trading volume of decentralized exchanges was 44.617 billion US dollars. As October approaches, the DEX market is likely to handle 50% of all cryptocurrency trading volumes, which shows that the DEX field is growing rapidly.
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Uniswap's Governance Token May Improve Long-Term Growth
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UNI 4-hour price chart
The official debut of governance tokens is crucial to the sustainability of Uniswap. Official documents allocate 17.6% of all tokens to the team, but they need to be unlocked in four years.
The tokens allocated to the development team are conducive to the stable development and maintenance of Uniswap. At the same time, these tokens also accept leadership and governance from the community, and their use is not entirely up to the team.
As the Uniswap Token Governance Rules describe:
“The treasury is managed by the community, which creates endless possibilities. We hope that token governance diversity, such as donating to the ecosystem or funding public goods, can promote further growth of the Uniswap ecosystem.”
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Obstacles on the road to DeFi growth and ETH performance problems
As DeFi projects flock to Ethereum, experts warn that the network is not ready for the frenzy.
Mathematician, former hedge fund manager, and founder of the Austrian encryption trading platform Morpher Martin Froller (
Martin Froehler once believed in an interview with Cointelegraph that although Ethereum is the best choice for DeFi projects, the performance of the Ethereum network is really not flattering:
“Ethereum can only process about 15 transactions per second, and even the fastest transactions require at least 15 seconds to confirm, 15 seconds is too long for the financial field. Everyone who interacts with it needs Ethereum, This is also a huge obstacle for Ethereum to enter mass adoption."
Froller also believes that Ethereum is the most decentralized smart contract platform. But since the network still had problems, developers had to find solutions to deal with them.
Froller added:
"The Ethereum sidechain solution proves that people can do a lot of transactions 'without' Ethereum. They don't need to pay any fees, enjoy second-level settlements, and are completely unaffected by Ethereum's congestion."
Many people in the industry believe that Ethereum was not prepared at the very beginning, let alone the DeFi craze. Even ETH2.0 is still not enough to support DeFi.
Sergej Kunz, CEO of the decentralized exchange 1inch, said at the Cointelegraph Chinese DeFi Marathon held on September 3 that the Ethereum infrastructure lacks the ability to support the DeFi environment, and ETH2.0 should be able to Improve performance, but its high gas fee may still scare away new users.
Kunz believes, "You have to rethink everything. You can migrate smart contracts to code, but you can't expand. In order to expand, you have to introduce new protocols based on new sharding architectures."
In addition, at the DeFi marathon event, ParaSwap founder and CEO Mounir Benchemled pointed out that we need to explain to end users how the two-layer network works, but this work is very complicated. In addition, network congestion leads to The risk of not being able to pay users funds immediately is the most worrying issue.
In other words, high education costs for users and network congestion are both problems.
Ben Cide also said that not all DeFi projects will migrate to ETH2.0:
"After ETH2.0 goes online, all applications may need to be migrated to the new platform. Large-scale projects may have reached a consensus and will do so, but for new projects, this may be difficult, and they may choose to build on the new platform , to achieve interoperability."
In short, although people's enthusiasm for DeFi is weakening, the trading volume of DEX has not declined, which shows that this DeFi craze is not over yet, but this DeFi craze has also exposed the insufficient performance of Ethereum, and for ETH2.0 Whether it can finally solve the performance problem, many investors are at a loss.
