As of early 2023, Uniswap remains the largest decentralized exchange in terms of trading volume and liquidity
Although decentralized finance hasn’t been immune from the broader crypto market downturn in 2022, nonetheless, this sector has seen phenomenal growth over the last few years. As is usually the case, the pioneers in any new industry are the ones who play a key role in initial growth and remain a powerful name brand for years to come. In DeFi, it is a decentralized exchange (DEX) called Uniswap.
It operates on the Ethereum blockchain and uses an automated market-making (AMM) mechanism to determine the prices of tokens. In traditional exchanges, buyers & sellers place orders, and the exchange matches them to execute trades. In contrast, Uniswap uses a pool of liquidity provided by users to automatically determine the prices of tokens. Users can swap tokens by sending them to a specific Uniswap smart contract address, which then exchanges the tokens based on the current market price.
Uniswap launched on Ethereum (ETH) in 2018 and faced little competition for the following two years. As Ethereum’s user base grew, so did Uniswap’s, securing its position in the ecosystem. Despite the entry of other DEXs such as Balancer, Curve, and SushiSwap, Uniswap’s network penetration outpaced Ethereum’s active user growth by nearly five times from July 2020 to July 2021 (bottom chart below).
However, as of January 2022, during the latest bear cycle, Uniswap’s share of ETH users reached a peak of about 55% before declining to 46%. This suggests that Uniswap has matured in its product growth phase and that newer users are exploring alternative product use cases. Uniswap’s high level of network penetration has made it more reliant on the growth of ETH itself, with external factors such as the development of Ethereum and the broader market environment largely influencing its growth trajectory.
Other DEXs have been unable to approach Uniswap’s significant market share of users. SushiSwap and Balancer, in particular, struggled to capture more than 5% of Ethereum’s users. To remain competitive in Ethereum’s ecosystem, these protocols need to focus on improving their offerings and creating a more compelling product to attract new users.
While Uniswap has undoubtedly attracted the majority of users on Ethereum, how well has it attracted different types of traders? To assess this, Messari analytics examined the historical average trading volume per user over the past three months and segmented the network-wide data into three user segments: small, average, and high-volume traders (top chart above).
User segments were determined monthly based on the network-wide data, with shrimp representing users over 1 standard deviation below the monthly network average, dolphins within 1 standard deviation of the average, and whales over 1 standard deviation above the average. Across the board, Uniswap has maintained an average retention rate of 83% for shrimp, 87% for dolphins, and 80% for whales compared to its competitors.
Originally Published on Medium
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