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 by the author and compiled and written by PANews.
Table of Contents:
1. Trading Volume & Market Share
2. DEX Capital Efficiency
3. DEX Multi-Chain Deployment
4. Comparison of DEX and CEX Market Shares
5. DEX Mechanism Innovations
6. Major Events in DEX
7. Product Updates
8. Governance Tokens
9. User Experience
10. Hacker Attacks
11. Summary and Outlook
The footsteps of spring are on the muddy path. 2023 has been a year of challenges and opportunities. We witnessed the release of Uniswap V4 and UniswapX, as well as the emergence of new DEX newcomers like Curve. In this volatile market environment, DEXs have not only faced technical challenges but also increasing competitive pressure. Nevertheless, many DEXs continue to innovate and introduce safer and more efficient trading mechanisms, attracting a large number of new users.
Over 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 is a culmination of DODO Research team’s detailed observations and analysis of the market throughout the year, delving into significant trends and important findings in the field of DEX 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 a low level during the rest of the time, showing a certain positive correlation with the overall market trend. Starting from October, influenced by the expected approval of ETFs, the total trading volume of DEX showed a more significant increase. There are clear signs of market volume recovery, and it is expected to continue growing in 2024.
From an individual trend perspective, Uniswap has maintained a stable performance throughout the year, occupying a major market share. Other DEXs have shown impressive performance driven by events, such as Pancakeswap’s launch of V3 on the BNB chain and Ethereum chain in April, which increased capital utilization and reconstructed fee results, leading to a significant short-term growth in monthly trading volume and market share.
Starting from the end of October, the market style gradually changed from Uniswap’s dominance to a pattern of “one superpower, multiple strong players.” Influenced by the active ecosystems of major public chains like SOL and AVAX, these top-tier DEXs contributed a considerable trading volume, surpassing traditional mainstream DEXs on the Ethereum chain (see Weekly Brief for details). According to Defillama’s data, on December 15th, the trading volume of DEX on the Solana chain exceeded $1.2 billion, surpassing Ethereum’s dominance for the first time.
The pie chart shows the market share ranking of the top 20 DEXs, which accounts for approximately 89% of the total DEX market share. Uniswap maintains its dominant position as the top player with 47% market share, while the overall DEX market maintains a “tiered” pattern. Uniswap is in the first tier with its rich products 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, and others, while the remaining DEXs are classified as the fourth tier.
The second-tier DEXs are 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 in early 2023 with its automatic balancing liquidity mechanism. Thorchain’s unique minting mechanism has also gained momentum in the market recovery.
Represented by the top 20 TVL, the overall TVL of DEX has not experienced a cliff-like decline similar to 2022. After showing some recovery at the beginning of the year, the rate of decline in TVL gradually slowed down and reached a turning point in October, indicating a possible reversal. The overall TVL is around $9 billion.
The majority of TVL is locked in top-level exchanges such as Curve, Pancakeswap, and Uniswap. Uniswap’s TVL has remained stable, while Curve’s TVL has shrunk significantly after experiencing a hacker attack, and Pancakeswap’s TVL is not far behind. Thorchain’s TVL has performed well.
DEX Capital Efficiency:
In terms of overall capital efficiency, the DEX sector has shown a recovery, transitioning from regional activity to global activity, with improved capital efficiency and a warming market. Looking at individual DEXs’ capital efficiency, DODO (represented by the yellow line) has led the market throughout the year, with Curve (represented by the gray line) remaining active in the beginning. Starting from August, Maverick (represented by the green line) has emerged as a rising star and performed well during market fluctuations.
DEX Multi-Chain Deployment:
Overall, major DEXs are actively expanding to EVM-compatible public chains and L2 solutions. This not only helps diversify the user base but also reflects DEX’s utilization of L2 solutions to reduce Ethereum-related costs and congestion (processing 4.5 times more transactions per second and saving 10 times the cost). Solana, due to its different underlying infrastructure, has higher deployment costs, and currently, fewer DEXs support it. Raydium and Orca are the main DEX platforms for exchanges on the SOL chain.
However, the Solana chain has characteristics of high throughput and low transaction costs, so we have seen more cross-chain solutions emerging, allowing assets to transfer seamlessly between different blockchains. The cross-chain platform ThorChain provides native asset exchange and has performed well in Q4. Cosmos’ IBC framework enables interoperability between different blockchains and is also a potential solution for DEX’s multi-chain deployment.
We listed the multi-chain development of common exchanges on Ethereum in the top 20 market share:
DEX vs. CEX Market Share Comparison:
The market share of spot trading in DEX rose in the first two quarters, reaching a record high of 21.31% and then stabilizing around 15%. This continues the trend from the previous year, where the trust crisis caused by the collapse of FTX forced users to migrate 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 wallet apps.
The most significant difference between DEX and CEX is that DEXs perform programmatically defined tasks: providing permissionless trading. In the days when centralized entities like FTX, BlockFi, Celsius, and Voyager collapsed, DEX’s trading volume surged, setting a record for daily trading volume. The collapse of SVB (and its detachment from USDC) led to a peak daily trading volume of ~$19.7 billion in DEX.
DEX’s Mechanism Innovations:
MEV and widespread adoption remain challenges for DEX, and many innovations have been introduced by DEX this year. Notable ones include Uniswap X, which allows users to sign orders offline and utilizes a Dutch auction mechanism for execution. Maverick offers four modes, allowing automatic price following or one-way or two-way liquidity adjustments. DODO V3 allows LPs to entrust their funds to professional market makers for active market making and increased returns.
Uniswap V4’s Hook enables the customization of pool functions, providing an innovative platform for more possibilities in DEX. Based on this, the DODO team developed Aggregator_Hook, which establishes a system to accurately reflect liquidity positions from various DEX platforms in Uniswap V4 quotes, simplifying LP operations and enhancing user experience and market liquidity.
Major Events in DEX:
Product Updates:
Uniswap launched V4 and Uniswap X; Trader Joe introduced AutoPool; Balancer is about to release V3, and more.
Uniswap implemented front-end fees, starting from October 17th, charging a 0.15% fee for certain token transactions, which caused significant controversy in the community.
Curve issued crvUSD stablecoins, with a current total supply of ~$150 million.
Uniswap and Paraswap launched their wallet apps.
DODO’s Hook aggregator, Aggregator_Hook, won the Best Hook Utilization Award at the Istanbul Hackathon.
Governance Tokens:
DODO temporarily suspended DODO emissions in the vDODO staking pool and reduced the vDODO withdrawal fee to 0%.
Pancakeswap introduced veCake’s token governance model, enhancing the governance rights of $CAKE.
Sushiswap proposed a new SUSHI economic model regarding transaction fees, routing fees, staking fees, and partnership relationships.
User Experience:
DODO will introduce intelligent slippage prediction functionality.
Matcha introduced a historical transaction query feature.
Sushiswap automatically detects “tax tokens.”
Trader Joe’s Quick-Picks provides intelligent recommendations for popular tokens.
Pancakeswap’s Dumb mode allows automatic closing after expiration.
Hacker Attacks:
On July 30th, Curve suffered a hacker attack due to vulnerabilities in its underlying code version, 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 ~$238k and ~$87k, respectively.
On November 23rd, KyberSwap was attacked, resulting in a loss of approximately ~$4.8 million worth of cryptocurrencies.
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 backbone of various protocols in the DeFi ecosystem. TVL and trading volume reflect market activity, while capital efficiency reflects the utilization of funds by different DEX mechanisms. This year may be a turning point for the market.
DEX has proven its execution without permission and regulation in the market. Each DEX is making colorful and unremitting efforts to address crises and market pain points, constantly innovating. However, DEX still faces challenges in its development, such as hacker attacks, MEV, and widespread adoption. Nevertheless, the market always welcomes newcomers who shine.
DEX has been constantly developing and never stops. It is poised to achieve a decentralized experience of trustless and barrier-free market making.
Why choose a CEX as your next exchange when there are DEXs available?
Related Reports:
– CEO of Thodex Sentenced to 10,000 Years! Turkish Exchange Defrauds 400,000 Investors
– Tracking CEX and DeFi Fund Flows! International Settlement Bank Cooperates with Multiple European Central Banks to Develop ProjectAtlas
– Bitcoin Inscription Ban Storm: A Game of Calculation Among Miners, Exchanges, and Developers