2023 is coming to an end, and this article will delve into the significant trends and important findings in the field of decentralized exchanges (DEX) in 2023. This article is sourced from DODO Research, authored by PANews.
Table of Contents
1. Trading Volume & Market Share
2. DEX Capital Efficiency
3. Multi-Chain Deployment of DEX
4. Comparison of DEX and CEX Market Share
5. Mechanism Innovations of DEX
6. Major Events in DEX
7. Product Updates
8. Governance Tokens
9. User Experience
10. Hacking Attacks
11. Summary and Outlook
The year 2023 has been a year of challenges and opportunities. We witnessed the release of Uniswap V4, UniswapX, and the emergence of new DEX players like Maverick. In this volatile market environment, DEXs have not only faced technical challenges but also increasing competition. However, many DEXs have continued to innovate and introduce more secure and efficient trading mechanisms, attracting a large number of new users.
In the past year, the DEX Weekly Brief column closely monitored and reported on the latest trends and key data in the decentralized exchange (DEX) market. The DEX annual report consolidates the DODO Research team’s detailed observations and analysis of the market throughout the year, delving into the significant trends and important findings in the DEX field in 2023 for reference.
Trading Volume & Market Share
The total trading volume of DEX in 2023 remained high at the beginning and end of the year, while fluctuating at low levels during the rest of the time, showing a certain positive correlation with the overall market trends. Starting from October, influenced by the expected impact of ETF approval, the total trading volume of DEX showed a significant increase. There are clear signs of market volume recovery, and it is expected to continue growing in 2024.
Looking at individual trends, Uniswap has maintained stable performance throughout the year, occupying the major market share. Other DEXs have shown impressive performance in event-driven situations, such as Pancakeswap’s launch of V3 on the BNB chain and Ethereum chain in April, which improved capital utilization and restructured fees, resulting in a significant short-term increase in monthly trading volume and market share.
Starting from the end of October, the market style gradually changed from Uniswap’s dominance to a “one superpower, multiple strong” pattern. Influenced by the active ecosystems of major public chains like SOL and AVAX, these top-tier DEXs on these chains have contributed significant trading volumes, surpassing the traditional mainstream DEXes on the Ethereum chain (see Weekly Brief for details). According to Defillama’s data, on December 15th, the trading volume on the Solana chain surpassed $1.2 billion, surpassing the first-ranked Ethereum chain for the first time.
The top 20 DEX market share rankings are shown in the pie chart, with these DEXes accounting for approximately 89% of the total DEX market share. Uniswap maintains its dominant position as the top player with 47% market share, and the overall DEX market maintains a “tiered layering” pattern.
Uniswap is in the first tier, with a rich product offering and widespread reputation, occupying half of the market share. The second tier includes Pancake, Curve, and DODO, accounting for 25% of the market share. The third tier includes Balancer, Maverick, TraderJoe, Thorchain, etc., while the remaining DEXes are classified as the fourth tier.
The second tier consists of well-established exchanges with long operating times and mature and stable products. The third tier includes newcomers like Maverick, which has frequently entered the top 5 market share since its launch at the beginning of the year. Thorchain’s unique minting mechanism has also gained momentum in the market recovery.
Represented by the TVL of the top 20 DEXes, the overall TVL of DEX has not experienced a cliff-like decline similar to 2022. After showing some signs of recovery at the beginning of the year, the rate of decline in TVL has gradually slowed down and reached a turning point in October, indicating the possibility of a reversal. The overall TVL is around $9 billion.
The majority of TVL is locked in top-tier exchanges like Curve, Pancakeswap, and Uniswap. Uniswap’s TVL has shown stable performance, while Curve’s TVL has shrunk significantly after the hacking incident, with little difference from Pancakeswap’s TVL. Thorchain’s TVL has performed relatively well.
DEX Capital Efficiency
In general, the capital efficiency of the DEX sector has shown signs of recovery, transitioning from regional activity to global activity, leading to improved capital efficiency and market recovery.
Looking at the capital efficiency of individual DEXes, DODO (represented by the yellow line) has led the market throughout the year, with only Curve (represented by the gray line) maintaining activity at the beginning of the year. Starting from August, Maverick (represented by the green line) has emerged as a strong contender and performed well during market fluctuations.
Multi-Chain Deployment of DEX
Overall, major DEXes have actively expanded to EVM-compatible public chains and L2 solutions. This not only helps diversify the user base but also reflects the DEX’s utilization of L2 solutions to reduce costs and congestion associated with the Ethereum chain (processing 4.5 times more transactions per second, saving 10 times the cost). Solana, due to its different underlying infrastructure, has higher deployment costs and currently has limited DEX support. Raydium and Orca are the main DEX platforms for exchanges on the SOL chain.
However, Solana’s high throughput and low transaction costs have led to the emergence of more cross-chain solutions, allowing assets to seamlessly transfer between different blockchains. The cross-chain platform ThorChain provides native asset exchange and has performed well in Q4. Cosmos’ IBC architecture enables interoperability between different blockchains and is also a potential solution for DEX’s multi-chain deployment.
We have listed the multi-chain development of common exchanges on Ethereum among the top 20 market share:
DEX vs. CEX Market Share Comparison
The market share of DEX spot trading increased in the first two quarters, reaching a peak of 21.31%, setting a new historical high. It then stabilized around 15%, continuing the trend from the previous year, where the trust crisis caused by FTX’s collapse forced users to transfer their assets to DEX. At the same time, the user experience of DEX has been further optimized, with platforms like Uniswap and Paraswap launching their own wallet apps.
The most important difference between DEX and CEX is that DEXs allow permissionless trading. In the days when centralized entities like FTX, BlockFi, Celsius, and Voyager collapsed, DEX trading volumes surged, setting new records for daily trading volume. The collapse of SVB (and the detachment from USDC) resulted in a peak daily trading volume of DEX reaching around $19.7 billion.
Mechanism Innovations of DEX
MEV and mass adoption remain challenges for DEX, and many innovative mechanisms have been introduced by DEX this year.
Notable innovations include Uniswap X, which allows users to sign orders offline and utilizes a Dutch auction-style bidding execution. Maverick provides four modes that allow for automatic price following and one-way or two-way liquidity adjustments. DODO V3 allows LPs to delegate their funds to professional market makers for active market-making and increased returns.
Uniswap V4’s Hook allows for customizing pool functionality, providing a platform for more innovative possibilities in DEX. Based on this, the DODO team developed Aggregator_Hook, which establishes a system that accurately reflects the liquidity positions on various DEX platforms on the Uniswap V4 quote, simplifying LP operations and enhancing user experience and market liquidity.
Major Events in DEX
Product Updates
Uniswap released V4 and Uniswap X; Trader Joe launched AutoPool; Balancer is about to release V3, and more.
Uniswap introduced front-end fees, starting from October 17th, charging a 0.15% fee for certain token transactions, which sparked significant controversy in the community.
Curve issued crvUSD stablecoin, with a current total supply of around $150 million.
Uniswap and Paraswap launched wallet apps.
DODO’s Hook aggregator Aggregator_Hook won the Best Hook Usage Award in the Istanbul Hackathon.
Governance Tokens
DODO temporarily halted DODO emissions in the vDODO staking pool and reduced the vDODO withdrawal fee to 0%.
Pancakeswap introduced the veCake governance token model, enhancing the governance rights of $CAKE.
Sushiswap proposed a new SUSHI economic model for transaction fees, routing fees, staking fees, and partnerships.
User Experience
DODO will launch intelligent slippage prediction.
Matcha introduced a feature to view historical transaction queries.
Sushiswap automatically detects “tax tokens.”
Trader Joe’s Quick-Picks provide intelligent recommendations for popular tokens.
Pancakeswap’s Dumb mode allows for automatic liquidation after expiration.
Hacking Attacks
On July 30th, Curve suffered a hacking attack due to vulnerabilities in the underlying code, resulting in a minimum TVL drop of 51% and a loss of $62 million. Approximately 79% of the funds have been successfully recovered.
On September 20th and November 18th, Balancer and Trader Joe’s front-ends were attacked, resulting in losses of approximately $238k and $87k, respectively.
On November 23rd, KyberSwap was hacked, resulting in the loss of approximately $4.8 million worth of crypto assets.
Summary and Outlook
DEX is the core infrastructure of DeFi, serving as a bridge for the circulation of different tokens, and LP assets are the cornerstone of various protocols in the DeFi ecosystem. TVL and trading volume reflect market activity, while capital efficiency reflects the utilization of capital by different DEX mechanisms. This year may be a turning point for the market.
DEX, with its permissionless and unregulated execution, has withstood the test of the market. Each DEX is making colorful and relentless efforts to address crises and market pain points, constantly innovating. However, DEX still faces challenges in its development, such as hacking attacks, MEV, and large-scale adoption. Nevertheless, the market always has newcomers that shine.
DEX is always evolving and never stops. It is poised to achieve a decentralized experience of trustless and barrier-free market-making.
Why settle for a CEX as your next exchange?