Overview of the Development of Mainstream DEXs in 2022

The year 2020 is known as the year of DeFi, and 2021 is the year of the explosion of NFTs. So how should we define 2022? This question may be difficult for many people to answer.

Originally anticipated to be the year of DAO in 2022, the cryptocurrency industry has struggled with innovation due to the Federal Reserve's tightening policies and multiple black swan events. However, with frequent explosions in centralized exchanges and the comprehensive development of DeFi applications, the concept of decentralized finance has been further strengthened. This article will review the development of mainstream DEXs in 2022, analyzing their performance during the bear market and future plans.

Uniswap

Uniswap was established in November 2018 and is one of the most representative DEXs in the DeFi space. In 2022, Uniswap Labs completed a $165 million Series B funding round, reaching a valuation of $1.66 billion. Uniswap is a protocol for token trading and automated market making on Ethereum and its layer 2 networks, allowing users to trade tokens directly in liquidity pools through smart contracts.

Over the past four years, Uniswap's monthly active users have shown a fluctuating growth trend. From 8,300 monthly active users in December 2019, it surged to 272,000 in December 2020, a year-on-year increase of 3,200%, becoming a significant driver of DeFi's explosion. By December 2021, the monthly active users reached 668,000, a year-on-year increase of 146%. As of the end of December 2022, Uniswap's monthly active users were approximately 356,000, a year-on-year decrease of 46%.

Even in a bear market, Uniswap still maintains over 300,000 monthly active users. The multi-chain development strategy and the introduction of the 1bp fee tier are key to retaining users. Currently, except for Arbitrum, users can trade tokens on most networks with a transaction fee of 1 basis point (0.01%). This policy aims to compete with Curve Finance for stablecoin liquidity. In the future, Uniswap will also deploy to networks such as Aurora, zkSync, and Boba Network.

As a leading liquidity provider with a market share exceeding 65% for a long time, Uniswap needs a larger potential market to expand its influence. Recently, Uniswap collaborated with deposit and withdrawal service providers, allowing users to purchase cryptocurrencies through credit/debit cards or bank transfers on its App, which is expected to bring more users to Web3 and DeFi.

In addition to DeFi, Uniswap has expanded its business by acquiring the NFT marketplace aggregator Genie(, now renamed Uniswap NFT). With the latest universal router, NFT traders can purchase NFTs with lower Gas fees. In 2021, the transaction volume on NFT platforms exceeded $41 billion, with approximately 28.6 million wallets participating in the transactions.

Recently, there have been rumors in the market that the Uniswap team is developing version V4. With the V3 license nearing expiration, we may soon see how Uniswap continues to innovate to maintain its leading position.

SushiSwap

SushiSwap was established in 2020 as a fork of Uniswap. The platform went live by copying Uniswap's open-source code and transferring funds from Uniswap to SushiSwap. However, before the transfer, the founder withdrew $13 million from the liquidity pool, which sparked controversy. Ultimately, it was resolved by handing over control to SBF and refunding the funds.

Unlike Uniswap, SushiSwap has been struggling for a long time, with its current TVL even lower than the levels in December 2020. One reason is its poorly performing token incentive program, which incurred a loss of $30 million. The new CEO Jared Gray pointed out that SushiSwap's current financial deficit affects the sustainability of the project. Although the annual spending budget has been reduced from $9 million to $5 million, the treasury funds are only enough to last for about a year.

Due to a lack of innovation and a slow response to market changes, SushiSwap has almost lost its first-mover advantage in the DEX competition. Currently, its AMM market share is less than 3%, and it has made no significant achievements in the DEX aggregation market. To turn the situation around, an optimized token economics proposal was released at the end of last year, introducing a time-lock layer and a burn mechanism, as well as reallocating transaction fees, in an attempt to rebuild the relationship between xSushi holders and LPs.

The recently released 2023 roadmap focuses on user experience, including the launch of a DEX aggregator in the first quarter; authorizing brands to launch independent funding projects through a decentralized incubator; and plans to release a governance dashboard showcasing budget audit results, among others. Jared Gray stated the plan to increase market share by 10 times in 2023 and to enhance liquidity, sustainability, community ownership, and funding diversification through new token economics.

Curve Finance

Curve Finance was launched in January 2020, aiming to facilitate efficient stablecoin trading through a simple AMM formula. The V2 version supports the trading of non-stablecoin tokens while retaining the core concept of V1. Curve's unique AMM model allows stablecoin traders to efficiently exchange large amounts of funds.

Interestingly, Curve Finance's monthly active user count has been quite stable over the past three years. Although there were only about 10,000 monthly active users in December 2022, Curve's TVL ranked fourth in DefiLlama, even higher than Uniswap. This unique situation may stem from the fact that most users on Curve are stablecoin whales, who remain in the ecosystem due to its underlying mechanisms like locking and governance (. The tokenomics design of Curve is considered revolutionary, indirectly altering the governance structure of most DeFi protocols. In short, users can obtain veCRV by locking CRV tokens, and the longer the locking period, the more veCRV they earn. Locking CRV also yields higher returns ) up to 2.5 times (. The combination of voting, staking, and acceleration mechanisms in veCRV and CRV tokens is one of the key factors that allows Curve to maintain a high TVL.

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Like Uniswap, Curve Finance is also actively improving to remain competitive. In November last year, a new decentralized stablecoin )crvUSD( white paper was released, explaining how it operates under an innovative algorithm. crvUSD will use a novel lending liquidation AMM algorithm )LLAMMA( to protect borrowers whose collateral falls below the liquidation price. LLAMMA allows for continuous partial liquidation when collateral is below a specific range, to better manage collateral risk. With the launch of the new stablecoin, Curve Finance will be able to carve out a share in the stablecoin market to maintain its leading position in the DEX space.

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GMX

GMX is one of the most prominent emerging DEXs, launched on Arbitrum in September 2021 and deployed on Avalanche in January 2022. GMX is a decentralized spot and perpetual exchange with low slippage, low fees, and other features. Trading is supported by a multi-asset pool that generates revenue from market making, trading fees, and leveraged trading. It employs a dynamic pricing mechanism supported by Chainlink oracles.

As of December 2022, GMX had over 20,000 monthly active users, an increase of more than 1300% year-on-year, which is impressive. GMX's TVL has nearly quadrupled, platform fees have more than doubled, making it the leading decentralized derivatives exchange with the highest TVL on Arbitrum. Its success is partly attributed to its unique payment mechanism and a leverage of up to 50 times. For LPs, GMX's mechanism is considered low-risk friendly with almost no impermanent loss.

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The reasons for GMX's steady growth in TVL throughout the year include:

1. Provide high APR to the earn pool by staking GMX) governance tokens( and/or GLP) LP tokens(.
2. GLP serves as a basket of assets, aimed at hedging various blue-chip assets, with stablecoins accounting for 50%.
3. All transaction fees are allocated to the stakers of the two types of tokens, forming a good token staking compound interest mechanism.

Currently, the GMX team is still actively developing the X4 model ), a PvP AMM mechanism (, and is seeking multi-chain deployment. In November 2022, the proposal to create GMX Labs was passed with over 98% approval. The development of the new organization is worth looking forward to.

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Conclusion

The performance of the aforementioned DEX is somewhat predictable. Some projects are actively innovating, while others struggle to survive in a bear market. As the crypto industry evolves, people's expectations for DEX will extend beyond basic AMM functionalities. Multi-chain development, complex token models, high capital efficiency AMM models, vertical scaling, etc., will all become the development directions for DEX. In this industry, "survival of the fittest" remains the general rule.