Token Terminal Report: Recent Developments in DEX Data Analysis
Original author: Tokenterminal
Original translation: Deep Tide TechFlow
This article will focus on the decentralized exchange (DEX) market and analyze the most interesting charts and trends based on the specified dashboard on Token Terminal.
Overview
The daily trading volume and total locked value (TVL) of top projects in the decentralized exchange (DEX) market over the past 180 days are shown in the following figures.
Over the past 180 days, the trading volume and TVL of DEX have been relatively stable, with only an exception in mid-March. The trading volume of DEX reached a peak of $16.2 billion on March 11, 2023, which is more than eight times the daily average trading volume of $2 billion in the past 180 days. The TVL of DEX also decreased by 14% from $14 billion to $12.1 billion between March 9 and 12.
The major reason for the significant changes in trading volume and TVL in mid-March was the decoupling of USDC. On March 10, Circle announced that it held up to $3.3 billion in exposure to the troubled Silicon Valley Bank, leading to the decoupling of the USDC it issued from the US dollar. As a result, users holding USDC switched to other tokens, resulting in an increase in trading volume for DEX. The TVL in DEX also dropped sharply, partly due to the decrease in the 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 it dropped to $300 million on March 12. In contrast, the TVL of the WETH-USDT trading pair remained relatively stable during the same period.
Macro-economic and regulatory actions have a significant impact on the DEX market and the entire cryptocurrency industry. These external factors can lead to 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 trading volume shifting from Ethereum to other chains
Since the beginning of 2023, the share of DEX trading volume on Ethereum has decreased from 72% to 54% due to growth on Arbitrum. During the same period, Arbitrum's share of total DEX trading volume has increased from 3.3% to 23.3%. Meanwhile, the trading volume shares on Polygon, Optimism, and BNB Chain have remained relatively stable.
The peak of Arbitrum's share in DEX trading volume occurred when the ARB token was launched on March 23, 2023. On the launch day, trading volume of ARB on the leading exchange on Arbitrum, Uniswap, exceeded $480 million. This surge was likely driven by users converting their ARB airdrop rewards into other tokens. Although DEX trading volume on Arbitrum has slightly declined since the end of March, Arbitrum remains the second-largest chain after Ethereum when measured by DEX trading volume.
The increased demand for token trading on Arbitrum has led to the launch of new DEXs. While Uniswap remains the current market leader on Arbitrum, completing over 3.38 million transactions in the past 90 days, some newer DEXs native to Arbitrum are also emerging as competitors. One 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 DEXs expanding off their native chains
Uniswap and Trader Joe have successfully expanded beyond their native chains, while PancakeSwap on Ethereum is facing a lack of momentum. Although Uniswap has long been on Ethereum, PancakeSwap on BNB Chain, and Trader Joe on Avalanche C-Chain, these three DEXes have all later expanded to other chains. Currently, Uniswap and Trader Joe have 40% of their trading volume coming from chains other than Ethereum and Avalanche C-Chain. In comparison, the trading volume of PancakeSwap outside of BNB Chain only covers 4.2% of the total trading volume.
Entering new chains is a driving factor for the growth of daily active users for Uniswap and Trader Joe. Most of Uniswap's growth comes from new traders on Polygon and Arbitrum, while Trader Joe's active users also grow on Arbitrum.
By expanding to Arbitrum, Trader Joe captures users who conduct larger trades. 40% of Trader Joe's trading volume and 25% of its active users come from activity on Arbitrum. The increase in trading volume per user indicates that on Arbitrum, Trader Joe is able to attract traders with larger average trade sizes, outperforming on Avalanche C-Chain.
DEX markets on Ethereum have become more competitive and challenging, especially for newcomers. The comparison of the above DEXs indicates that expansion should target chains with growing market share, such as Arbitrum.
Trends
Below are interesting trends in the DEX market space.
In the past 180 days, Trader Joe, Quickswap, KyberSwap, and ParaSwap have been the top-performing projects in the DEX market space, with volume growth of 237.2%, 91.8%, 61.8%, and 38.6%, respectively.
In the past 180 days, Trader Joe has doubled its daily active users, surpassing competing platforms QuickSwap, KyberSwap, and ParaSwap. QuickSwap, KyberSwap, ParaSwap, and Trader Joe have also shown similar trends in trading volume during the past 180 days. The number of daily active users has remained at a similar level until the end of March when Trader Joe's daily active users almost tripled.
The growth in Trader Joe's user base can be attributed to the release of the new Liquidity Book solution and expansion onto Arbitrum. Trader Joe has launched new versions of the Liquidity Book solution (v2 and v2.1), improving token pricing and reducing slippage.
Trader Joe's v2.1 also automatically reinvests fees earned by liquidity providers into their liquidity positions, enhancing the user experience. The launch of these new versions has also benefited from increased overall activity on Avalanche C-Chain and Arbitrum.
The future development of DEX is expected to prioritize improvements in token pricing, slippage, and user experience. We anticipate that future versions of DEX will focus on providing better pricing, lower slippage, customizable fee tiers, liquidity position availability, and automated management of user positions. We can see examples of these trends in the latest updates to Uniswap v4, which introduces more customizable liquidity pools through Hooks.
Other Key Highlights in the Field
After discovering and fixing the vulnerability, KyberSwap relaunched its Elastic contract.
On April 17, 2023, KyberSwap discovered a smart contract vulnerability. The related liquidity pool contract was temporarily paused, resulting in a sharp decline in KyberSwap's trading volume and total locked value (TVL). A new KyberSwap Elastic contract has been deployed, and the protocol resumed operation at the end of May. Although the trading volume and TVL have not yet recovered to pre-pause levels, a 200% increase in trading volume in 30 days indicates that KyberSwap Elastic is regaining attractiveness.
Centralized liquidity solutions have been adopted faster, thanks to the expiration of the Uniswap v3 license.
Uniswap v3 was launched under the Business Source License 1.1 (BUSL 1.1), which restricts the use of v3 source code in commercial or production environments until April 1, 2023. After the license expires, the license converts to the Universal Public License, which means the code will be open to public forking as long as it remains open source. Since the license expiration, PancakeSwap and SushiSwap have used the existing code of Uniswap v3 to deploy their centralized liquidity solutions.
Prior to the license update, KyberSwap, Trader Joe, QuickSwap, Zyberswap, and Thena have already developed alternative centralized liquidity solutions. Additionally, Biswap will launch its centralized liquidity solution in the coming weeks.
Velodrome has launched its v2 version.
This new version provides updates to user experience, supports customizable pool fees, single token liquidity positions, and an upgraded governance voting mechanism.
