We’d like to thank Blocklytics, the creators behind Uniswap analytics tool Pools.fyi, for providing the data for this week’s analytical article. If you’re a liquidity provider, pools.fyi is one of the best places to keep track and manage your Uniswap pools! 

With DeFi’s major milestone yesterday, we’ve decided to explore one of the leading decentralized exchanges in the ecosystem today for this week’s analytical piece.

Uniswap has quickly established itself as the go-to permissionless liquidity protocol for DeFi users, putting it in contentions with its peers over at Kyber Network. In the past year, we’ve seen the liquidity protocol surge to prominence, reaching nearly $60M in total value locked and putting itself within the top 5 on DeFi Pulse.

Total Value Locked (TVL) is a key metric for Uniswap as it highlights the total amount of liquidity available on the protocol. As more users lock assets into its liquidity pools, the total available liquidity rises in parallel. Having launched in November 2018, the past year solidified the importance of Uniswap as a liquidity protocol for permissionless asset exchange within the DeFi ecosystem.

As with the rest of DeFi, Uniswap’s experienced explosive growth as total available liquidity surged 15,275% to reach a peak of $62M. The most recent leg in growth at the start of 2020 is largely due to the combination of the price rise of ETH as well as a fair amount of new liquidity added to the protocol.

Year-to-date, over 36,000 new ETH has been deposited into Uniswap. This is only half the story as for every $1 deposited in ETH, liquidity providers must also deposit another $1 in the other asset pair. Ultimately, this boosted available liqudity by over $10M within the past few weeks alone.

Total available liquidity

Total available liquidity is not the only metric experiencing five-figure percentage growth. Uniswap’s daily volume also saw substantial increases in the past year, surging by over 13,177%. It is becoming apparent that more and more DeFi users are opting towards permissionless assets exchange via the protocol as it offers no KYC, no centralization risks, no withdrawal limits, and minimal fees.

The ease-of-access and composability of the liquidity protocol have allowed permissionless exchanges to proliferate in the past year as Uniswap’s average 90-day volume reached ~$2.5M, growing by over 7,550% from the year prior.

Daily USD volume

Paired with the increased total daily volume, the exchanges’ cash flows from fees reached 7-figures for the first time earlier this year – with $1.6M and counting.

For those unfamiliar, Uniswap charges 0.3% on all asset exchanges on the protocol with the entirety of the fees going to the pool’s underlying liquidity providers. The average 90D daily fees generated reached over $7,500, putting the protocol on track to reach $2.73M in annualized cash flows this year assuming all else constant. With that, it’s unlikely given the trend that the protocol experiences zero growth or negative growth this year.

With the $7,500 in average daily fees earned, this means that liquidity providers earn on-average $0.0001 for every $1 in liquidity supplied to Uniswap today.

Total revenue earned by liquidity providers. Data via Blocklytics

The substantial growth in Uniswap on all metrics signals a growing demand for permissionless asset exchanges. Many prominent DeFi protocol’s are opting towards focusing on increasing liquidity and volume through their respective Uniswap exchanges rather focusing on centralized exchange listings.

We’ve seen two well-known DeFi projects, Synthetix and RealT, both add subsidies/incentives for prospective liquidity providers to deposit assets into their respective exchanges. While RealT is a permissioned tokenized real estate investment platform (thus limiting total liquidity), Synthetix has decided to allocate a portion of the protocol token’s native inflation towards Uniswap incentives for its sETH – ETH pool. As a result, Synthetix’s sETH – ETH  pool is one of the largest in terms of total available liquidity to date.

Total Available Liquidity for major Uniswap pools

Maker has also seen a recent surge in total available liquidity, reaching just over $13M a few days ago. Other major liquidity pools include REP, WETH, USDC, SNX and DAI who all boast low seven figures in total liquidity. Looking forward, it will be interesting to see which other prominent DeFi tokens decide to allocate incentives towards providing liquidity as the broader community continues to choose permissionless exchanges for day-to-day exchanges.

Key Takeaways

Uniswap has quickly established itself as one of the leading DeFi liquidity protocols, providing permissionless asset exchange for the Ethereum ecosystem at large. With last year’s explosive growth, Uniswap has a fairly clear path ahead to reach $1B in total available liquidity.

While this might seem like a long-shot, in order to reach the famed “tres comas”, total available liquidity would only need to grow an additional 1,512% in the next year – substantially less than the >15,000% in growth from the last year. Again – a clear path.

More importantly, the growing narrative for decentralized exchanges will continue to take hold as centralized exchanges charge substantially high-fees, limit withdrawals, and deal with the multitude of hacks on an annual basis. Centralized exchanges aggregate billions in daily volume, therefore it shouldn’t be too crazy for one of the leading liquidity protocols to begin to compete with them as the benefits of permissionless, decentralized asset exchange are realized by the broader community.

With that said, centralized exchanges will always serve as purpose as the primary fiat on and off-ramps for the ecosystem. While Uniswap and other decentralized exchanges will likely be the first choice for existing DeFi users, projects looking to increase awareness for the next wave of users may have to rely on centralized exchanges for on-boarding their native token.

We’re extremely excited to see the proliferation of decentralized exchanges, like Kyber and Uniswap, to continue. The explosive growth of DeFi and permissionless finance at large will act as a catalyst to propel the usage of the liquidity protocol’s higher. As more DeFi applications integrate liquidity protocols on the back-end, providing a seamless user experience, Uniswap and others will realize their potential.

The trend for Uniswap shows that $1B in total available liquidity isn’t out of consideration for 2020. Do not underestimate the growth of the DeFi ecosystem as we continue to march towards the next milestone and continue to build a globally inclusive financial system for the world.

There’s a promising road ahead and we’re extremely excited to be apart of it.