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The DEX Brief No. 15

What's in store for DEXs and DeFi following the FTX fiasco?

Written by

Mark Lurie

Published on

December 13, 2022

Top of Mind at Shipyard:

The crypto community has always appreciated the adage “not your keys, not your coins”. This is wisdom earned from hard lessons like Mt Gox. Every time a major exchange goes bankrupt, half its users are pushed away from crypto for 5+ years while the other half are pulled deeper down the rabbit hole. Following the FTX fiasco, we saw LedgerX have its best sales day ever and new users flock to DeFi in droves.

TradFi tends to blame the problems of CeFi broadly on crypto, continuing to question why anyone would use DeFi when centralized exchanges are often much faster and cheaper. But the tide may finally be turning. Shipyard CEO Mark Lurie’s recent op-ed in the Wall Street Journal made the case that The FTX fiasco has finally flipped the script. The question now is why should people entrust their money to a third party if they don’t have to?

While the point is important and the op-ed worth reading (if we do say so ourselves), perhaps its most notable aspect was that the WSJ chose to print it at all! FTX seems to have finally driven the point of DeFi home and TradFi is starting to take note. That bodes well for the future of DeFi and hopefully provides ammo for crypto natives who must explain “real use cases” for DeFi to their families over the holidays. Non-custodial exchange is an obvious use case, one that the FTX fiasco drives home and to which the WSJ now lends credence. The future of DeFi is bright.

Shipyard Insights: 

  • Proof of Reserves Is A Hoax, Says Crypto Industry Leaders: In the wake of the FTX collapse, amid other recent scams, hacks, and crises in the space, a solid argument can be made for proof-of-reserves simply not being enough. Mark adds his two cents in this article, arguing for better and more independent audits.
  • The Best DEX LP Performance Benchmark: The Daily Rebalanced Portfolio: The best way to evaluate the profit potential of a DEX pool is to compare its returns against a common benchmark. This piece explains the three main misconceptions LPs fall victim to when attempting to evaluate DEX performance and why a daily rebalanced portfolio is a more reliable benchmark.
  • DEX Aggregators: Gas Costs, Slippage, and AMMs: In this episode of WTF, Crypto, Mark chats with Matt Deible from Semiotic Labs about DEX Aggregators. Tune in for a deep dive into what traders need to know to stay safe and informed when it comes to DEXs.
  • How Media Works in Crypto: Co-founder of DeCentral Media, Matthew Leising talks about the role the media plays in crypto as well as the important role sources and incentives play in the stories the media tells.

DEX Headlines That Caught our Attention:

What We're Reading:

Loyal DEX Brief readers, if you enjoyed the October issue’s “What We’re Reading” piece on dynamic fee policy for AMM liquidity pools, the author is back with a new series on Uniswap liquidity pools, concentrated liquidity, and fee dynamics. This first installment discusses the usage of markout–a popular high-frequency trading metric for analyzing a strategy’s profitability–to demonstrate that Uniswap V3 LPs’ susceptibility to toxic order flow cost them potentially as much as ~$100 million over the past year. DEX liquidity providers take note. A very interesting read.

Clipper Updates: 

  • Clipper’s Data Dashboard Now Shows Comparable LP Returns! Ever wonder how much impermanent loss you’re avoiding by being a liquidity provider on Clipper versus other DEXs like Uniswap? Clipper’s data dashboard now includes a feature that shows you exactly that–check out the blog post for details on how it works and how Clipper is able to avoid impermanent loss. 
  • Clipper is Now Live on Arbitrum! Clipper has expanded to Arbitrum! This new integration means Clipper users now have even more options for cheap, lightning-fast swaps and better access to Ethereum’s vast, increasingly scalable ecosystem.
  • Where Clipper’s LP Returns Come From: Because Clipper’s FMM design is novel, it generates LP yields differently than other DEXs. This post breaks down how modern portfolio theory informed Clipper’s architecture and why it’s a game changer for LP returns. 

Written by

Mark Lurie

Published on

December 13, 2022

January 13, 2023

New concepts for DEX return benchmarking + more

December 12, 2022

What's in store for DEXs and DeFi following the FTX fiasco?

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