Despite a significant downtrend in the price of most major digital assets this past week, major DEXs like Uniswap reported the highest volumes they’ve ever seen, a signal that usage is likely increasing.
Our previous all time high was $6.2M last May. Back then the volume breakdown was:
85% MKR + DAI, 15% other
Today's volume of $7.9M was
56% MKR + DAI + SAI, 44% Other
This demonstrates the huge growth in the long tail of assets in Uniswap liquidity pools! pic.twitter.com/rr8i6V47GW
— Uniswap 🦄 (@UniswapExchange) November 22, 2019
In addition to Uniswap, other prominent DEXs like Kyber also saw over 100% growth in volume in the past week. For a breakdown on usage and how they stack up against one another, we recommend checking out this tracker.
Why Does This Matter?
DeFi has prompted a shift towards trustless tools to complete basic financial services such as swapping different digital assets. Whereas 2017 was dominated by centralized exchanges such as Binance, it appears that DeFi has helped many users recognize the value and ease of use presented by DEXs like Uniswap.
First and foremost, these solutions are non-custodial, meaning that throughout the course of trading your assets, you never give up control or ownership. Similarly, there is no risk of a centralized third-party being at fault for losing what is yours in a hack or exit.
Secondly, DEXs are finally starting to offer competing liquidity, a hurdle that plagued usage for the past few years. Whereas the primary reason for using a centralized exchange was due to the lack of slippage, we’re now seeing that many tools are being created to pool liquidity, meaning that DEXs are finally starting to offer competitive price spreads to some of the largest exchanges on that market.
Lastly, DEXs are becoming composable. Using PoolTogether as an example, applications can bake the exchange directly into their front-end, meaning that users can quickly and easily swap digital assets directly in-app, without ever having to navigate to another site. As this trend continues to evolve, it’s likely that UX will continue to improve, further adding to why someone would choose to use a DEX over a CEX (centralized exchange).
— CryptoDad.ismoney.eth (@CryptoParent) November 15, 2019
DeFi’s Role In DEX Usage
One trend that’s interesting to note is that many of DeFi’s most prominent digital assets (MKR, SNX, DAI and NXM being good examples) are actually opting out of pursuing major exchange listings. Whereas listing on Binance was once deemed the “holy grail” for crypto communities, it’s refreshing to see that many of these projects are shying away from large listing fees in favor of product development.
As such, many DeFi assets are doing their best to discourage speculation in favor of true usage. One of the better aspects of DEXs is that markets are self-made, meaning that for the most part, the issuer plays a very small role in secondary demand. As such, passionate community members can actually capture upside regardless of size by providing liquidity for their favorite projects (a role that was previously undertaken by exchanges and prominent market makers as a paid service).
Moving forward, it’s likely that DEX usage will continue to rise with the proliferation of DeFi as a whole. As we continue to see more tools that allow for liquidity to be shared across different exchanges, it’s likely that the role of centralized exchanges will need to adapt. We’re now seeing that may centralized exchanges are starting to offer staking as a service, a signal that these companies may actually be leveraging custodianship as a value add, rather than as something they try not to talk about.
If one thing is for certain, DEX usage is becoming exponentially easier. With projects like Ren starting to allow for assets to be exchanges across different chains, we’re also seeing that usage is no longer limited to trading only Ethereum-based assets, one of the few disadvantages to Uniswap as it currently stands.
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Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.