DEX Brief No. 26

Top of Mind at Shipyard

• CEXs are currently beating DEXs in terms of perps trading volume and available markets. But the derivatives DEX space is expected to grow this year. 

• For DEXs to challenge CEX dominance, they’ll need to figure out the long-tail. 

If, like me, you’ve spent the past couple of weeks reading the roundup of 2024 thesis reports from usual suspects like The Block, Messari, Delphi Digital, etc., you’ve likely noticed that many have similar theses on trends in the space. Something that stood out to us was that derivatives DEXs received the most attention of all the verticals in the DeFi. Decentralized perps in particular are expected to grow this year. 

Looking at CoinGecko’s Top Derivative Exchanges list, it’s clear the gap between CeFi and DeFi is only widening when it comes to perps markets. Just a couple of months ago, Binance and OKX had 213 and 126 perps markets respectively. Those numbers have since risen to 301 (Binance) and 194 (OKX), while Bybit takes the cake with 324. DeFi protocols are lagging—dYdX only has 38 perps markets, ApeX 32, Drift 22, and Aevo 52 (and that’s before accounting for low leverage caps). How has DeFi fumbled the very edge that drove Uniswap to success? 

If DeFi is going to penetrate derivatives, it’s going to need to figure out the long-tail. That will require an architectural paradigm shift, not a replication of TradFi order books on-chain.

- Shipyard CEO, Mark Lurie

Below DEX

Shipyard Software's 2023 LP Report

In December, we released a comprehensive analysis of the DeFi landscape, based on data-driven surveys and detailed interviews with LPs across the space. 

Key Insights 👀

• Many LPs decided to sit out 2023: Top reasons cited for not LPing include impermanent loss, low returns, and useless reward tokens.
  
  
• LPs showed a major preference for pools with highly correlated assets and little appetite for more speculative pairs. 68% of respondents preferred pools with correlated pairs, especially ones incorporating stablecoins.
  
  
• The majority of LPs surveyed (56%) reported RoCs for LPing in the range of net neutral and +20%.
  
  
• No single asset emerged as the dominant benchmark for measuring LP returns.
  
  
• There was considerable agreement among surveyed LPs regarding which trends they believe will drive blockchain technologies forward in 2024 (up to 5 responses were accepted). ‍

           - L2 advancements: 89%

           - AI linking up with blockchain: 85%

           - End of winter/Upcoming bull run: 78%

           - BTC halving/ETFs: 76%

           - ZKs: 71%

Around DeFi

What we’re reading: Key industry figures DeFi predictions for 2024.

• Trader Joe launches new Mantle-based DEX Merchant Moe, with accompanying MOE token. 

• PancakeSwap passes a proposal to reduce CAKE token supply by 300 million. 

• Solana DEX transaction volumes eclipse Ethereum’s for the first time.‍‍‍

Community Updates

• Types of Loss: Impermanent Loss and Its Compatriots

• Polychain Capital LP v. Shipyard Software, Inc. Lawsuit Settled