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In Week 2 of Covalent’s Data Alchemist program, I’ve chosen to analyze the Uniswap V2 and Sushiswap liquidity pools for LINK/WETH on Ethereum. Uniswap is DeFi’s leading DEX and Sushiswap is one of its original competitors.
We will be going over Reach, Retention, and Revenue metrics for each month over the past year to determine which pool has proved more beneficial for the Chainlink project. Additionally, we will use this information to identify how $100,000 in liquidity rewards could best be deployed between these two pools.
Note: This analysis covers the Uniswap V2 LINK/WETH pool, not V3.
Number of Trades
There is a similar trend between the number of trades in each pool over the past year. However, Uniswap’s LINK/WETH pool consistently outperforms Sushiswap’s.
The difference between the most and fewest trades for each pool over the past year is interesting to note. We see greater shifts in the Uniswap pool, with a difference of 3,505 trades from lowest month to highest, while Sushiswap maintains a total number of trades within a tighter range, with a difference of 1,875 trades from its lowest to highest month.
Number of New Traders
Each pool has a comparable number of new traders each month over the past year.
The trend is also similar between them with the exception of January and February, where Uniswap sees more usage from new traders entering the year before declining more sharply in May.
Aside from January and February, September is another notable month for Uniswap over Sushiswap. July is the only month Sushiswap sees a notable increase of new traders over Uniswap.
Number of Active Traders
Number of active traders shares a similar pattern but there is a similar effect seen in number of trades where Uniswap’s activity drops more greatly than Sushiswap’s when market conditions decline.
The decline mentioned above is most obvious in April, which is also the month with the fewest trades for each pool
Takeaway
Uniswap is more popular than Sushiswap and sees more trades during time periods of more trading activity.
However, it also loses more trading activity as market conditions decline while Sushiswap maintains more of a balance in its trading activity.
Uniswap’s notoriety could be the reason it sees greater activity over Sushiswap during bullish or active market conditions.
Both DEXes seem to maintain a percentage of active users even in bearish or declining market conditions.
Stickiness Ratio (DAU/MAU)
With the exception of March, Uniswap’s LINK/WETH pool has seen a higher percentage of daily active users from its monthly active user base.
MoM Trader Cohort Retention
Both Uniswap and Sushiswap’s LINK/WETH pools see high retention rates from the cohorts in the first two months of the year. Sushiswap outperforms Uniswap’s retention over this period.
As expected based on previous charts, they each see a sharp decline from the March cohort going into April.
Uniswap shows more consistent retention for the remainder of the year with a sharp decline in the most recent cohort.
On the other hand, Sushiswap shows greater dips in retention over the course of the year with a major increase from the most recent cohort.
Net Liquidity vs Market Volatility
The LINK/WETH pools for Uniswap and Sushiswap see few add liquidity and remove liquidity events. As a result, I’ve decided to analyze each pool’s net liquidity, which is a function of liquidity added subtracted by liquidity removed. (e.g. liquidity_added - liquidity_removed)
In both cases, we see more liquidity being removed than added each month. The only exception is February for Sushiswap.
Contrarily, February was the month that Uniswap saw the most liquidity being removed.
The price of LINK token declines over the course of the year in line with the downturn in the larger crypto market.
Both liquidity activity and the price of LINK decrease consistently with the drop in the crypto market over the past year.
Takeaway:
Despite the larger crypto market declining into a bear market after notable bearish events (Three Arrows, Terra Luna), both the Sushiswap and Uniswap LINK/WETH pools see a relatively consistent number of daily active users from their monthly active user base.
With the exception of a couple months for Sushiswap, both DEXes show consistent month-over-month trader cohort retention with Sushiswap seeing a surge in the most recent cohort.
Total Volume
Both pools have the same trend over the course of 2022. There’s a significant amount of volume from the tail-end of the 2021 bull market that sharply drops off as we enter the 2022 bear market.
Uniswap’s LINK/WETH pool consistently has more volume than Sushiswap’s with the exception of April and July.
Median Liquidity Added Over Time
The median liquidity added over each month displays how active LPs were in supplying liquidity over that period. Both pools show major spikes in liquidity added over the year.
The spikes in added liquidity for Uniswap’s LINK/WETH pool is far more sporadic than Sushiswap.
Sushiswap’s added liquidity sees similar dropoffs as Uniswap but it’s more consistent towards the end of the year.
Both pools overall have a comparable amount of liquidity added over the course of the year with Uniswap’s LINK/WETH pool receiving $37,401 in liquidity and Sushiswap receiving $36,636 in liquidity.
Percentage of Volume from Top 1% of Traders
A significant portion of volume comes from the top 1% of traders within each pool.
This volume seems to behave inversely between each pool, however, with Sushiswap’s LINK/WETH pool seeing a huge increase during the end of the year while Uniswap’s pool sees a decrease over the same time.
The top 1% of traders in the Uniswap pool is more consistent and close or more than half of the trading volume for most of the year until late summer.
In Sushiswap’s pool, the top 1% of traders are consistently less than half of the volume, often closer to a quarter of the volume, until late summer.
It seems possible that the top 1% of traders in each of these pools participate in both, which could result in activity declining in one as it rises in the other.
The difference in behavior between these pools doesn’t seem to reveal much about the greater crypto market.
Takeaway:
Total volume shows a decline in line with the bear market the rest of the crypto market experiences over 2022.
LPs adding liquidity doesn’t seem to share a connection with the overall bear market as median liquidity added over the year seems sporadic and each pool has little correlation with each other.
The volume from the top 1% of traders from each pool seems to have an inverse correlation with each other. In which, we see the volume of one pool from this group of traders increase at the same time the other decreases. There doesn’t seem to be much correlation with the overall bearish market activity.
The purpose for launching a liquidity mining reward program is to incentivize LPs to provide more liquidity so the pool has sufficient funds to satisfy a large volume of trading at the best price. This allows a token to be highly liquid within a given pair which in turn makes it more valuable since it can easily be bought and sold across a market.
Despite the 2022 bear market, there is a cohort of active traders across these pools still participating in the market. The current liquidity in these pools has been sufficient for the volume of trades on each. However, a plan can still be made in preparation for the next bull market where we can expect to see much greater volume.
Overall, Uniswap’s LINK/WETH pool tends to have greater numbers across these metrics than Sushiswap’s. Uniswap’s pool also tends to having more exposure to trading activity during a bull market. As a result, it would be more beneficial for Chainlink to initiate a liquidity mining program for LPs by deploying the majority of the $100,000 in liquidity on Uniswap than Sushiswap.
January’s total volume shows data most relevant for a bull market with Uniswap’s pool having just under 60% more total volume. This being the case, a minimum of 60% of the funds for the liquidity mining reward should be allocated to the Uniswap pool with the remainder going to the Sushiswap pool.
In Week 2 of Covalent’s Data Alchemist program, I’ve chosen to analyze the Uniswap V2 and Sushiswap liquidity pools for LINK/WETH on Ethereum. Uniswap is DeFi’s leading DEX and Sushiswap is one of its original competitors.
We will be going over Reach, Retention, and Revenue metrics for each month over the past year to determine which pool has proved more beneficial for the Chainlink project. Additionally, we will use this information to identify how $100,000 in liquidity rewards could best be deployed between these two pools.
Note: This analysis covers the Uniswap V2 LINK/WETH pool, not V3.
Number of Trades
There is a similar trend between the number of trades in each pool over the past year. However, Uniswap’s LINK/WETH pool consistently outperforms Sushiswap’s.
The difference between the most and fewest trades for each pool over the past year is interesting to note. We see greater shifts in the Uniswap pool, with a difference of 3,505 trades from lowest month to highest, while Sushiswap maintains a total number of trades within a tighter range, with a difference of 1,875 trades from its lowest to highest month.
Number of New Traders
Each pool has a comparable number of new traders each month over the past year.
The trend is also similar between them with the exception of January and February, where Uniswap sees more usage from new traders entering the year before declining more sharply in May.
Aside from January and February, September is another notable month for Uniswap over Sushiswap. July is the only month Sushiswap sees a notable increase of new traders over Uniswap.
Number of Active Traders
Number of active traders shares a similar pattern but there is a similar effect seen in number of trades where Uniswap’s activity drops more greatly than Sushiswap’s when market conditions decline.
The decline mentioned above is most obvious in April, which is also the month with the fewest trades for each pool
Takeaway
Uniswap is more popular than Sushiswap and sees more trades during time periods of more trading activity.
However, it also loses more trading activity as market conditions decline while Sushiswap maintains more of a balance in its trading activity.
Uniswap’s notoriety could be the reason it sees greater activity over Sushiswap during bullish or active market conditions.
Both DEXes seem to maintain a percentage of active users even in bearish or declining market conditions.
Stickiness Ratio (DAU/MAU)
With the exception of March, Uniswap’s LINK/WETH pool has seen a higher percentage of daily active users from its monthly active user base.
MoM Trader Cohort Retention
Both Uniswap and Sushiswap’s LINK/WETH pools see high retention rates from the cohorts in the first two months of the year. Sushiswap outperforms Uniswap’s retention over this period.
As expected based on previous charts, they each see a sharp decline from the March cohort going into April.
Uniswap shows more consistent retention for the remainder of the year with a sharp decline in the most recent cohort.
On the other hand, Sushiswap shows greater dips in retention over the course of the year with a major increase from the most recent cohort.
Net Liquidity vs Market Volatility
The LINK/WETH pools for Uniswap and Sushiswap see few add liquidity and remove liquidity events. As a result, I’ve decided to analyze each pool’s net liquidity, which is a function of liquidity added subtracted by liquidity removed. (e.g. liquidity_added - liquidity_removed)
In both cases, we see more liquidity being removed than added each month. The only exception is February for Sushiswap.
Contrarily, February was the month that Uniswap saw the most liquidity being removed.
The price of LINK token declines over the course of the year in line with the downturn in the larger crypto market.
Both liquidity activity and the price of LINK decrease consistently with the drop in the crypto market over the past year.
Takeaway:
Despite the larger crypto market declining into a bear market after notable bearish events (Three Arrows, Terra Luna), both the Sushiswap and Uniswap LINK/WETH pools see a relatively consistent number of daily active users from their monthly active user base.
With the exception of a couple months for Sushiswap, both DEXes show consistent month-over-month trader cohort retention with Sushiswap seeing a surge in the most recent cohort.
Total Volume
Both pools have the same trend over the course of 2022. There’s a significant amount of volume from the tail-end of the 2021 bull market that sharply drops off as we enter the 2022 bear market.
Uniswap’s LINK/WETH pool consistently has more volume than Sushiswap’s with the exception of April and July.
Median Liquidity Added Over Time
The median liquidity added over each month displays how active LPs were in supplying liquidity over that period. Both pools show major spikes in liquidity added over the year.
The spikes in added liquidity for Uniswap’s LINK/WETH pool is far more sporadic than Sushiswap.
Sushiswap’s added liquidity sees similar dropoffs as Uniswap but it’s more consistent towards the end of the year.
Both pools overall have a comparable amount of liquidity added over the course of the year with Uniswap’s LINK/WETH pool receiving $37,401 in liquidity and Sushiswap receiving $36,636 in liquidity.
Percentage of Volume from Top 1% of Traders
A significant portion of volume comes from the top 1% of traders within each pool.
This volume seems to behave inversely between each pool, however, with Sushiswap’s LINK/WETH pool seeing a huge increase during the end of the year while Uniswap’s pool sees a decrease over the same time.
The top 1% of traders in the Uniswap pool is more consistent and close or more than half of the trading volume for most of the year until late summer.
In Sushiswap’s pool, the top 1% of traders are consistently less than half of the volume, often closer to a quarter of the volume, until late summer.
It seems possible that the top 1% of traders in each of these pools participate in both, which could result in activity declining in one as it rises in the other.
The difference in behavior between these pools doesn’t seem to reveal much about the greater crypto market.
Takeaway:
Total volume shows a decline in line with the bear market the rest of the crypto market experiences over 2022.
LPs adding liquidity doesn’t seem to share a connection with the overall bear market as median liquidity added over the year seems sporadic and each pool has little correlation with each other.
The volume from the top 1% of traders from each pool seems to have an inverse correlation with each other. In which, we see the volume of one pool from this group of traders increase at the same time the other decreases. There doesn’t seem to be much correlation with the overall bearish market activity.
The purpose for launching a liquidity mining reward program is to incentivize LPs to provide more liquidity so the pool has sufficient funds to satisfy a large volume of trading at the best price. This allows a token to be highly liquid within a given pair which in turn makes it more valuable since it can easily be bought and sold across a market.
Despite the 2022 bear market, there is a cohort of active traders across these pools still participating in the market. The current liquidity in these pools has been sufficient for the volume of trades on each. However, a plan can still be made in preparation for the next bull market where we can expect to see much greater volume.
Overall, Uniswap’s LINK/WETH pool tends to have greater numbers across these metrics than Sushiswap’s. Uniswap’s pool also tends to having more exposure to trading activity during a bull market. As a result, it would be more beneficial for Chainlink to initiate a liquidity mining program for LPs by deploying the majority of the $100,000 in liquidity on Uniswap than Sushiswap.
January’s total volume shows data most relevant for a bull market with Uniswap’s pool having just under 60% more total volume. This being the case, a minimum of 60% of the funds for the liquidity mining reward should be allocated to the Uniswap pool with the remainder going to the Sushiswap pool.
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