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Decentralized exchanges (DEX) have been a structural development in the decentralized finance (DeFi) industry in 2020. They solved the middleman issue and helped traders swap cryptocurrencies quickly and with minimal fees, specifically through the Automated Market Making (AMM) model to solve liquidity issues. You can consult our previous article on DEX to better understand these platforms.

An automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm.

An AMM works similarly to an order book exchange in that there are trading pairs. However, you don’t need to have a counterparty on the other side to make a trade. Instead, you interact with a smart contract that creates the market for you.

Automated market makers enable essentially anyone to create markets seamlessly and efficiently. AMM solved the primary source of concern for many DEXs — illiquidity. But they also brought a set of new problems, such as high slippage and risks for liquidity providers.


In this case study, we will review the three major AMM’s DEX in terms of market cap: Uniswap, Sushiswap, and Loopring. For the purpose of this comparative case study, we will use a standardized framework to compare these assets and their associated platforms.

We will notably use 3 major ratios to assess the dynamic and attractivity of these networks:

  • Total Value Locked / Market capitalization: it gives a representation of the real usage and utility of the platform compared to its perceived value on the market. A high ratio can represent an undervalued asset compared to its utility value.
  • Held value / Available value: the held value is defined here as tokens held by long-term investors, dedicated to the community or locked through vesting schedules. They are the existing tokens that will progressively flow on the market in the future. This ratio represents the proportion of value held by investors, with the remaining part being associated with platform utility and trading activities. A high ratio means that a small number of tokens is effectively circulating on the market, translating a potential tension on the price. But it also means there are serious risks of massive dumps on the market, as this part of the supply will be progressively flowing on the market.

*This indicator is computed excluding exchange platform’s wallets holdings

  • Price earning ratio (Market capitalization / Yearly earnings): this last one represents how much income the platform is generating compared to the overall value held by its token. A low ratio can represent an interesting asset in terms of yield produced, potentially in an undervalued situation.

*December 2020 earnings have been used here

Three platforms were consulted to get the following data: Coingecko for pricing / market data, DefiPulse and the projects themselves for the Total Value Locked (TVL), and Nyctale’s platform to measure the held / available value.


Uniswap

Sushiswap

Loopring

Market cap*

$1,963,478,810

$1,290,061,487

$610,849,626

Fully diluted market cap*

$9,130,000,000

$1,765,000,000

$673,511,809

Total value locked*

$3,046,385,637

$2,086,813,375

$104,615,787

Value held*

$7,500,000,000

$455,000,000

$400,000,000

Available value*

$8,360,000,000

$1,220,000,000

$500,000,000

TVL / Market cap

155.15%

161.76%

17.13%

Value held / Available value

89.71%

37.30%

80.00%

P/E

4.31

11.83

3,206.56

*Note: figures from 19/01/2021

These three ratios give us an effective comparative framework for these first three DEX. Here are the main insights and conclusions:

  • Sushiswap, and its SUSHI tokens, appears to be the most attractive token amongst these three: the TVL is superior to the fully diluted market capitalization, potential earnings are high and most of the value is still circulating, meaning that with investors consolidating their position, a stronger tension could be felt on the token price in the future.
  • Uniswap and its UNI tokens have a well-established place, but the fully diluted market capitalization and the high held value could be a sign of potential dumps coming in the future. Earnings are good thanks to its leading position, but the overall situation doesn’t seem as attractive as for Sushiswap.
  • Loopring has a very particular situation, with all indicators pointing to an overvalued position. Its price is explained by the promises brought by its innovative approach, but everything remains to be proven regarding its ability to gain a significant market share. For now, earnings and TVL are very low, and a large part of the value is already held by long term investors.

In the coming section, we are going deeper into the analysis of each network and the major KPIs to watch.


Uniswap

Uniswap is the decentralized on-chain protocol on Ethereum that initiated the AMM concept. Anyone can quickly swap between ETH and any ERC20 token or earn fees by supplying any amount of liquidity. And anyone can create a market (i.e., liquidity pool) by supplying an equal value of ETH and an ERC20 token.

Uniswap allows only one market per ERC20 token. The market creator sets the exchange rate, which shifts through trading due to Uniswap’s “constant product market maker” mechanism. When trading reduces one side of the pair’s liquidity relative to the other, the price changes. This creates arbitrage opportunities, encouraging more trading.

Lately, Uniswap had around $3.5B assets locked on its platform, providing liquidity on the different trading pairs available. In late 2020 / early 2021, the daily volume has been around $750M. 1B units of its token will be minted all along the project life, but only 21.5% of this total supply is currently circulating, as tokens keep being distributed to the platform’s user community and as historical investors held a significant part of the supply with a 4-year vesting schedule (40% distributed between team members, investors, and advisors). This is also translated by a ratio held value / available value of almost 90%, which shows that most of the tokens are not circulating.

Source: https://info.uniswap.org/home

In the last quarter, its token UNI has gained +200% to reach +9$, bringing the project market cap to around $2B.

Source: https://www.coingecko.com/fr/pi%C3%A8ces/uniswap

There are currently around 75k wallets with a balance superior to $10, up from 58k wallets 3 months ago, representing a 26.7% quarterly growth rate. Long term investors and locked tokens represent a value of $7.5B, which is almost 4 times the current market cap based on the circulating supply. With the end of vesting schedules and the continuous distribution of tokens to the Uniswap community, the network might experience a significant sell-off pressure over the next few years.

Number of wallets labeled as Holder (see the definition in our analytic methodology)

Source: Nyctale

Total value of Holder’s balance in USD

Source: Nyctale

To compensate for the 4-years vesting schedule, this network needs to attract a significant amount of new investors balancing the progressive flow of new unlocked supply. There are currently around 6.5k wallets per week increasing their balance, for a buying pressure currently climbing around $150M on a weekly basis, the average being around $50M to $100M over the past quarter.

Number of incoming investors

Source: Nyctale

Total value added by incoming investors

Source: Nyctale

On the other hand, we can observe quite the same amount of outgoing investors, progressively cashing out their position (around 5k wallets on a weekly basis). And these ones are also bringing an average selling pressure of around $40M on a weekly basis recently.

Number of outgoing investors

Source: Nyctale

Total value removed by outgoing investors

Source: Nyctale

All over the last 3 months, the wealth concentration of Uniswap has been increasing, representing a consolidation activity of existing investors. 99% of existing tokens are now held by 1.57% of all wallets having interacted with UNI, down from 2.11% a quarter ago.

99%-wealth concentration indicator

Source: Nyctale

The number of new wallets has been somehow stable all along the last quarter, with an average of 10k new wallets on a weekly basis. But the active community has been decreasing from 25.85k wallets to 22.5k wallets in the same period.

Number of active and new wallets

Source: Nyctale

Most of UNI’s investor community is now inactive, holding some tokens or having a residual transactional activity, while the total and average value of transactions is significantly progressing, with a x2 - x3 multiple during the last 3 months.

Total number of wallets and inactive ones

Source: Nyctale

Total and average value of transactions

Source: Nyctale

Looking at all of these figures, Uniswap’s activity seems to be increasingly concentrated around its historical support and early investors. The platform and its native token will need a stronger attractivity and dynamic to compensate for the huge unvested flows that will be released on the market all along the next few years.


Sushiswap

Sushiswap was forked from Uniswap in August 2020. It’s a similar platform with a fully decentralized token incentive program for liquidity providers. Its governance token, SUSHI, is used to attract and remunerate liquidity providers. The supply is capped at 250M tokens, with 73% having already distributed to the platform’s early-adopters and liquidity providers.

The platform is closely following Uniswap growth, having slightly fewer assets locked on its DEX ($2.13B currently) and a reduced on-chain trading volume, around $400M - $500M lately.

Source: https://sushiswap.vision/home 

SUSHI price has experienced significant growth in the last quarter, moving from $0.7 to $7 lately! With a current market cap of around $900M, Sushiswap appears as an interesting challenger to Uniswap, specifically since the project has merged with Yearn.finance, bringing interesting development opportunities and future synergies to the project.

Source: https://www.coingecko.com/fr/pi%C3%A8ces/sushi 

The SUSHI holder community has increased from 9.4 to 13k holders (wallet with a balance above $10 in value), representing a 38.3% quarterly growth. The impressive metrics here relate to the overall value held, compared to the one available in this network. The value held has progressed from $25M to $500M all along the quarter, but it still represents only 37% of the overall value available, sitting at $1.22B. Most tokens are circulating around the platform and on other DEX or centralized exchanges. Its utility value is very high compared to other DEX tokens that are mostly held but not used.

Number of wallets labeled as Holder

Source: Nyctale

Total value of Holder’s balance in USD

Source: Nyctale

The network is attracting more and more investors, with 2.2k wallets labeled as such lately, compared to 620 a quarter ago. They are now bringing a buying pressure of $40M per week, compared to $4M three months ago.

Number of incoming investors

Source: Nyctale

Total value added by incoming investors

Source: Nyctale

In parallel, outgoing investors haven’t increased in the same proportion, moving from around 300 three months ago to 1300 wallets labeled as such currently. Their selling pressure has however reached an impressive high lately, moving from $250k in late October to $18M currently, with a high around $150M a week ago! Early supporters have probably sent tokens on exchanges to take profit after this profitable quarter.

Number of outgoing investors

Source: Nyctale

Total value removed by outgoing investors

Source: Nyctale

The wealth concentration on the SUSHI network has drastically increased recently, from 4.36% to 1.48% lately, which could be linked to a significant withdrawal from centralized exchanges as these wallets are excluded from these figures.

99%-wealth concentration indicator

Source: Nyctale

The number of active wallets is progressing well, more than doubling in size in the last 3 months. And our data shows that it’s not only fueled by new wallets, but the existing community is progressively becoming more and more active on this network. We can see on the total value and average transaction value this significant increase in activity!

Number of active and new wallets

Source: Nyctale

Total number of wallets and inactive ones

Source: Nyctale

Total and average value of transactions

Source: Nyctale

As a conclusion here, we can say that the SUSHI network growth performance is quite impressive! It’s the first time in our analytics that we see a network with such a circulating value within its community, proving its model to be highly efficient in terms of utility value. This should be reflected in the price evolution, and the future looks bright for this platform.


Loopring

Loopring is an innovative type of DEX, using a layer-2 (L2) scaling solution called zkRollup. It increases transaction throughput and decreases cost, while maintaining complete Ethereum security guarantees. Loopring's zkRollup supports token transfers, orderbook exchanges, and AMM (automated market maker) exchanges.

In addition to the open-source Loopring Protocol, Loopring also builds products atop, namely the Loopring Exchange - an orderbook and AMM DEX, and Loopring Wallet - a mobile smart contract wallet. From the perspective of users, Loopring allows instant and gas-free transfers, trades, and liquidity provision.

Currently, more than $100M assets are locked on its DEX, which brings Loopring far behind its major competitors, Uniswap and Sushiswap.

Source: https://defipulse.com/loopring 

But this situation didn’t restrain investors to recognize its native token. LRC moved from $0.17 to $0.48 in a quarter, sitting at a $613M market cap. 90% of its supply is already circulating, being capped at 1,375M units. But 80% of the value is held by existing stakeholders, which translates into quite a low utility value for now.

Source: https://www.coingecko.com/fr/pi%C3%A8ces/loopring 

The number of investors behind the Loopring community has been quite stable the last 3 months, progressing recently from 13k to 18k wallets holding more than $10 in value. Existing investors are currently holding $400M in value.

Number of Holders

Source: Nyctale

Total value of Holder’s balance in USD

Source: Nyctale

During the recent price spikes, the network has attracted around 2k incoming investors on a weekly basis, 4-times more than the average of the previous quarter. Their buying pressure has been around $50M in the last weeks, while it was varying between $2M and $20M during the last quarter.

Number of incoming investors

Source: Nyctale

Total value added by incoming investors

Source: Nyctale

And the recent price spike naturally invites some investors to cash out and take profits - but a smaller proportion than what incoming investors brought. The price volatility has been high lately, and the recent pullback has been quickly inverted, meaning investors are still strongly betting on this platform to emerge as a future success story.

Number of outgoing investors

Source: Nyctale

Total value removed by outgoing investors

Source: Nyctale

This network has also experienced a consolidation phase lately, being now at 2.36% for wallets holding 99% of the network value, down from 3.5% three months ago.

99%-wealth concentration indicator

Source: Nyctale

New and active wallets have been growing well with the latest volatility, but it remains to be seen if this trend will continue and be sustainable in the long term. The average transaction value has significantly increased in the meantime, pointing to the fact that recent price movements could have been largely made by wealthy investors.

Number of active and new wallets

Source: Nyctale

Total number of wallets and inactive ones

Source: Nyctale

Total and average value of transactions

Source: Nyctale

Loopring network is quite speculative, and it reflects the fact that it has a low utility value for now, but a high expectation from investors to become a future leader. This isn’t that surprising, as the innovation brought by this exchange might become a standard in the future. But looking at fundamental metrics, it’s clear that Loopring remains a highly speculative investment for now, with a lot remaining to be done in terms of user acquisition.


Sources:

What Is an Automated Market Maker (AMM)? ; Binance academy, Dec 2020 [1]

Order Book vs. AMM — Which One Will Win? ; MVPWorkshop, Nov 2020 [2]