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The DEX Brief No. 9

Crypto markets are re-focusing on the fundamentals as Clipper launches a new product!

Written by

Mark Lurie

Published on

June 6, 2022

Top of mind at Shipyard

As the speculative fever of the latest crypto cycle fades, attention is turning to the fundamentals. In the case of DeFi, that tends to mean ‘fees’. In particular, is now the time for Uniswap to turn them on and monetize? There’s already been some discussion on whether distributing fees to token holders would implicate securities laws. However we think this is a red herring, and ultimately irrelevant, because Uniswap can’t turn on fees for competitive reasons. 

Here’s why: Uniswap is designed such that each transaction would remit a fee to its DAO. That means every swap has an extra ‘send’, which not only increases fees but also…drumroll…costs gas. It depends on the specific swap, but turning on Uniswap DAO’s “fee cut” would increase gas by 10-30k gwei for every swap. For context, gas for a Uniswap V3 swap currently costs 110k-120k gwei, and only 95k gweifor Clipper; which means Uniswap would increase its gas costs by 10-25% by turning on fees (Crypto.com estimates are even higher). At today’s Ethereum price, that’s roughly between $2 to $5. That might not seem like a lot, but on DEX aggregators like 1inch, the price difference between the #1 and #2 ranked DEX on trades under 1 ETH is about $1. And when gas prices spike, the extra gas cost can reach a double-digit USD value - which makes a big difference for smaller trades. Moreover, Uniswap V3 already accounts for 5% of all Ethereum gas usage, so adding 10% to its usage alone would significantly affect network-wide gas prices. DeFi is a competitive market, and small changes can cause enormous shifts in volume. If Uniswap turns on fees, all it may do is decrease its own trading volume and drive the most profitable segment of the market - retail trade flow - to its competitors.

If we are to turn our attention to fundamentals, then we should focus on the reality of profitability and excess yields (unit economics), not headline vanity metrics like $ volume that may never be monetizable. Ultimately, it’s the unit economics that matter.

Shipyard Insights

Crypto is still a relatively new industry and investment class, but many people aren’t looking to the past to define their futures. Mark’s thoughts on why younger investors are turning to crypto for wealth generation were recently published by Nasdaq, and the article does a great job of breaking down different generations’ financial starting points.

2022 has been a turbulent year for crypto investors, and recent events like the Terra Luna implosion highlight the need for proactive portfolio protection. To that end, the latest episode of the “WTF, Crypto” podcast dives into Insurance for Your Crypto Assets with Krishna Sriram, the Managing Director of Quantstamp.

DAOs are increasingly changing everything about how we organize people and resources, but many people still have a hard time wrapping their heads around what exactly they are. If you want some clarity into this topic, and why it matters, then you’ll love this “WTF, Crypto” episode on DAOs with Adam Miller, the founder of MIDAO.

DEX headlines that caught our attention

What we're reading

A recent study revealed that Uniswap v3 has deeper liquidity for leading ETH pairs than several major centralized exchanges. This finding supports the argument that AMM market structures can surpass order-book exchanges and transform existing financial markets in a way that is more liquid, stable, and secure. This bodes well for supporters of DeFi-native solutions who believe that future financial instruments will not necessarily mirror the past.

Messari recently published an overview of DODO, a DEX and liquidity aggregator that allows users to create, trade, and fragmentize NFTs. We're always excited to see genuine innovation within the DeFi space, and DODO's exchange, which uses a proactive market maker that actively forcasts market movements and adjusts LP metrics accordingly, is a great example!

Clipper Product Updates:

From the beginning, Clipper was designed to offer the lowest priced trades for small swaps. Now, Clipper is expanding beyond its core assets to any asset with the launch of Clipper Coves – a new Clipper DEX feature that offers unlimited token swap options across Polygon and Moonbeam! 

In other words, you can now use Clipper for all your trades while enjoying the best trading prices on the market. The participants of Clipper’s second Adventure were the first to dive into the exciting new opportunities Coves allows, but this feature is now open to anyone who wishes to execute low-fee trades between any Polygon/Moonbeam token pairs and earn yields from Clipper trades.

Written by

Mark Lurie

Published on

June 6, 2022

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