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This is essay 3 of 4 for the BanklessDAO Writers Cohort.
As DeFi continues to rise in popularity, decentralized exchanges continue to fight for their share of investor liquidity that has been pouring into the market. The top two decentralized exchanges have a long history of trying to one-up the other by innovating, frequently releasing new features, and upgrading their platforms. Let’s take a closer look at the DEX landscape and how Curve Finance & Uniswap have managed to stay ahead of the pack.
Decentralized exchanges(DEX) play a crucial role in DeFi, especially when it comes to providing liquidity to the crypto economy. Although centralized exchanges are at the forefront regarding usability and crypto trades, decentralized exchanges are fast growing in popularity.
As of 2021, the total value locked (TVL) in DeFi protocols amounted to over $1 trillion, proof that DEXs have not just grown in popularity but have become a force to be reckoned with. Since 2021, the number of DeFi protocols has continued to increase, with notable new protocols coming into existence despite general falling crypto market prices.
Trading digital assets on decentralized exchanges require no intermediary organization and instead relies on self-executing smart contracts to help facilitate the transfer of digital assets, as opposed to centralized exchanges, which rely on institutions to provide liquidity.
Although DEXs were originally formed to address some of the shortcomings of centralized exchanges, they have come a long way from what they used to be. The first generation of decentralized exchanges (Etherdelta, IDEX) operated similarly to CEXs in that they used the order book system. They were typically slow, clumsy, and expensive to use — almost similar to the centralized exchanges they sought to improve.
A major improvement to the centralized order book-like system was the introduction of Automated Market Makers(AMMs). The automated market model uses smart contract-enabled algorithms to price and balance crypto assets efficiently in the liquidity pool, which eliminates the need for intermediaries.
AMMs are the main reasons behind the completely decentralized exchange system that makes liquidity available 24/7. Using Ethereum, Bancor was the first to launch this model, and since then, so many other decentralized exchanges, some of which this article will explore, have come into existence.
Some of the other benefits of using decentralized exchanges include: low trading fees, high scalability of transactions, and assets are easier to manage since users have full control of their assets.
Curve
Uniswap
PancakeSwap
Balancer
SushiSwap
VVS Finance
DeFi chain DEX
DODO
Quickswap
SunSwap
Let’s now examine the two leading decentralized exchanges, Curve and Uniswap, their features, and on-chain activities.
If you’re familiar with decentralized exchanges, then you’re no stranger to Curve. Founded by Micheal Egorov, a physicist, and launched in January 2020, the DeFi protocol quickly rose to prominence. With over $6 billion in total value locked, Curve is the top DEX by TVL.
Curve uses AMMs and employs an approach quite unique from what is obtainable with other decentralized exchanges. The protocol, which originally launched on the Ethereum blockchain to provide liquidity for stablecoins, has, however, expanded to 11 other blockchains, including Polygon, Arbitrum, Avalanche, Harmony, etc. And it now includes the trade of wrapped versions of more volatile assets like Bitcoin (wBTC, wETH); it currently has over 35 different liquidity pools.) This allows users to easily swap or trade stablecoins or wrapped versions of volatile digital assets in a fast and efficient manner.
In catering to stablecoins and assets pegged to other assets, Curve minimizes the effects of common trading risks or challenges faced by other decentralized exchanges, like price slippages and impermanent loss. This makes it more attractive to liquidity providers.
Liquidity pool options: It is now possible to use multiple liquidity pools depending on your risk tolerance and interest in coins.
Lower fees: When compared to other DEXs like Uniswap, you will find that the fees are relatively lower. Curve charges a 0.04% fee for deposits made on the platform.
Wallet compatibility: Curve is compatible with multiple crypto wallets: Metamask, WalletConnect, Coinbase Wallet, e.t.c. Therefore, you can easily connect any of these crypto wallets to the protocol with no hassle.
As mentioned earlier, Curve has now been deployed on eleven other blockchains. Furthermore, it makes use of Cross-chain technology, which is evidence of its interoperability and the fact that it is a multi-chain decentralized exchange.
Although Curve is primarily a decentralized exchange, as part of its journey toward decentralized governance, the Curve protocol launched a decentralized autonomous organization, Curve DAO, in August 2020. The DAO is responsible for the management of growth and potential changes to the protocol and is now governed by its own native token CRV token.
Dubbed the "King of decentralized exchanges," Uniswap is an open-source DEX on the Ethereum blockchain. It was launched in 2018 by Uniswap Companies as a completely decentralized exchange. With over $5 billion in total value locked, the protocol currently holds over 66% of all volumes in the DEX market, making it the second largest decentralized exchange.
As with the general aim of DEXes, Uniswap aims to solve common liquidity problems by allowing users to trade and provide liquidity to the system without the help of any intermediaries. Furthermore, the fact that the protocol is entirely decentralized means users are in full control of their assets and have direct access to financial services they can choose to withdraw without necessarily waiting for their order to be fulfilled through an order book.
Uniswap mainly functions through automated liquidity pools which incentivize users to become liquidity providers. Moreover, it allows users to swap any ERC 20 token. A feature that, when it first launched, was regarded as a major innovation in the Crypto and DeFi space. This means users could now trade unlikely digital assets like ETH/DAI.
As an automated market maker, It is powered by two major smart contracts. A "factory contract" and an "exchange contract" are two major computer applications that execute specific functions when certain conditions are met. For example, new tokens are added to the platform via the "factory" smart contract, and token swaps, or "trades," are carried out via the "exchange" smart contract.
Uniswap is completely open source. This means anyone is free to copy its code. Already, we have seen other protocols that have used Uniswap's code to deploy their decentralized exchange, e.g., SushiSwap.
As mentioned earlier, Uniswap is an automated market maker which allows users to trade different digital asset pairs. It uses a mathematical algorithm to determine asset prices, and transactions on the platform are carried out using smart contracts.
The constant product market maker model guarantees that an asset's price will rise or fall based on the share of its total supply each pool contains.
It creates an opportunity for arbitrage trading. Arbitrage traders observe periods of any slight price differences across various exchanges, thereby capitalizing on those price variations to make a profit. They aim to ensure the prices of assets on the protocol are in tandem with what is obtainable in the general market.
Since its launch in 2018, Uniswap has undergone two major upgrades to its platform, which we shall consider briefly. Asides from these upgrades, Uniswap launched its native governance token in September 2020.
The first significant upgrade was in May 2020, when the protocol announced the release of Uniswap V2. Some of the significant improvements included direct trade of ERC 20/ERC 20 token pairs eliminating the need for wrapped tokens like wBTC, wETH, etc. Flash swaps, price oracles, and other technical improvements. The upgrade was well received by liquidity providers on Uniswap and the entire crypto community.
Another major upgrade came in May 2021 with the launch of Uniswap V3, which introduced "Concentrated Liquidity," a function that increases the functionality of the AMM.
Concentrated liquidity improves price efficiency by offering liquidity providers an opportunity to provide liquidity based on custom price ranges. This allows the LP to determine their desired prices according to their preferences.
The upgrade also introduces multiple fee tiers ranging from 0.05%, 0.30%, and 1.00%. This allows LPs to assess the risk level involved in trading more volatile digital assets. The V3 upgrade also provides easier and cheaper oracles that guarantee that the protocol's data is updated at all times.
Under the V3 model, Liquidity positions are now represented by NFTs but can still be made fungible through partner protocols or peripheral contracts.
Despite the vast population of new decentralized exchanges, it goes without saying that Uniswap has barely scratched the surface in its mission to become the leading decentralized marketplace that provides peer-to-peer permissionless liquidity.
As evident in its constant product update and protocol expansion, the protocol intends to be the one-stop shop for all your digital asset experiences. Recently, news of over $100 million in new funding to cater to new product offers has been circulating.
According to Mary-Catherine Lader, COO of Uniswap Labs, in an interview with Decrypt, explained that the protocol aims to add "several new products" to its offering. One of which will include a feature that will allow NFT trades from a number of marketplaces.
Due to the continued expansion of DeFi, and as more DEXes keep coming up with more innovative features, the battle for the top DEX is most likely to continue.
Connect with me on Twitter.
This is essay 3 of 4 for the BanklessDAO Writers Cohort.
As DeFi continues to rise in popularity, decentralized exchanges continue to fight for their share of investor liquidity that has been pouring into the market. The top two decentralized exchanges have a long history of trying to one-up the other by innovating, frequently releasing new features, and upgrading their platforms. Let’s take a closer look at the DEX landscape and how Curve Finance & Uniswap have managed to stay ahead of the pack.
Decentralized exchanges(DEX) play a crucial role in DeFi, especially when it comes to providing liquidity to the crypto economy. Although centralized exchanges are at the forefront regarding usability and crypto trades, decentralized exchanges are fast growing in popularity.
As of 2021, the total value locked (TVL) in DeFi protocols amounted to over $1 trillion, proof that DEXs have not just grown in popularity but have become a force to be reckoned with. Since 2021, the number of DeFi protocols has continued to increase, with notable new protocols coming into existence despite general falling crypto market prices.
Trading digital assets on decentralized exchanges require no intermediary organization and instead relies on self-executing smart contracts to help facilitate the transfer of digital assets, as opposed to centralized exchanges, which rely on institutions to provide liquidity.
Although DEXs were originally formed to address some of the shortcomings of centralized exchanges, they have come a long way from what they used to be. The first generation of decentralized exchanges (Etherdelta, IDEX) operated similarly to CEXs in that they used the order book system. They were typically slow, clumsy, and expensive to use — almost similar to the centralized exchanges they sought to improve.
A major improvement to the centralized order book-like system was the introduction of Automated Market Makers(AMMs). The automated market model uses smart contract-enabled algorithms to price and balance crypto assets efficiently in the liquidity pool, which eliminates the need for intermediaries.
AMMs are the main reasons behind the completely decentralized exchange system that makes liquidity available 24/7. Using Ethereum, Bancor was the first to launch this model, and since then, so many other decentralized exchanges, some of which this article will explore, have come into existence.
Some of the other benefits of using decentralized exchanges include: low trading fees, high scalability of transactions, and assets are easier to manage since users have full control of their assets.
Curve
Uniswap
PancakeSwap
Balancer
SushiSwap
VVS Finance
DeFi chain DEX
DODO
Quickswap
SunSwap
Let’s now examine the two leading decentralized exchanges, Curve and Uniswap, their features, and on-chain activities.
If you’re familiar with decentralized exchanges, then you’re no stranger to Curve. Founded by Micheal Egorov, a physicist, and launched in January 2020, the DeFi protocol quickly rose to prominence. With over $6 billion in total value locked, Curve is the top DEX by TVL.
Curve uses AMMs and employs an approach quite unique from what is obtainable with other decentralized exchanges. The protocol, which originally launched on the Ethereum blockchain to provide liquidity for stablecoins, has, however, expanded to 11 other blockchains, including Polygon, Arbitrum, Avalanche, Harmony, etc. And it now includes the trade of wrapped versions of more volatile assets like Bitcoin (wBTC, wETH); it currently has over 35 different liquidity pools.) This allows users to easily swap or trade stablecoins or wrapped versions of volatile digital assets in a fast and efficient manner.
In catering to stablecoins and assets pegged to other assets, Curve minimizes the effects of common trading risks or challenges faced by other decentralized exchanges, like price slippages and impermanent loss. This makes it more attractive to liquidity providers.
Liquidity pool options: It is now possible to use multiple liquidity pools depending on your risk tolerance and interest in coins.
Lower fees: When compared to other DEXs like Uniswap, you will find that the fees are relatively lower. Curve charges a 0.04% fee for deposits made on the platform.
Wallet compatibility: Curve is compatible with multiple crypto wallets: Metamask, WalletConnect, Coinbase Wallet, e.t.c. Therefore, you can easily connect any of these crypto wallets to the protocol with no hassle.
As mentioned earlier, Curve has now been deployed on eleven other blockchains. Furthermore, it makes use of Cross-chain technology, which is evidence of its interoperability and the fact that it is a multi-chain decentralized exchange.
Although Curve is primarily a decentralized exchange, as part of its journey toward decentralized governance, the Curve protocol launched a decentralized autonomous organization, Curve DAO, in August 2020. The DAO is responsible for the management of growth and potential changes to the protocol and is now governed by its own native token CRV token.
Dubbed the "King of decentralized exchanges," Uniswap is an open-source DEX on the Ethereum blockchain. It was launched in 2018 by Uniswap Companies as a completely decentralized exchange. With over $5 billion in total value locked, the protocol currently holds over 66% of all volumes in the DEX market, making it the second largest decentralized exchange.
As with the general aim of DEXes, Uniswap aims to solve common liquidity problems by allowing users to trade and provide liquidity to the system without the help of any intermediaries. Furthermore, the fact that the protocol is entirely decentralized means users are in full control of their assets and have direct access to financial services they can choose to withdraw without necessarily waiting for their order to be fulfilled through an order book.
Uniswap mainly functions through automated liquidity pools which incentivize users to become liquidity providers. Moreover, it allows users to swap any ERC 20 token. A feature that, when it first launched, was regarded as a major innovation in the Crypto and DeFi space. This means users could now trade unlikely digital assets like ETH/DAI.
As an automated market maker, It is powered by two major smart contracts. A "factory contract" and an "exchange contract" are two major computer applications that execute specific functions when certain conditions are met. For example, new tokens are added to the platform via the "factory" smart contract, and token swaps, or "trades," are carried out via the "exchange" smart contract.
Uniswap is completely open source. This means anyone is free to copy its code. Already, we have seen other protocols that have used Uniswap's code to deploy their decentralized exchange, e.g., SushiSwap.
As mentioned earlier, Uniswap is an automated market maker which allows users to trade different digital asset pairs. It uses a mathematical algorithm to determine asset prices, and transactions on the platform are carried out using smart contracts.
The constant product market maker model guarantees that an asset's price will rise or fall based on the share of its total supply each pool contains.
It creates an opportunity for arbitrage trading. Arbitrage traders observe periods of any slight price differences across various exchanges, thereby capitalizing on those price variations to make a profit. They aim to ensure the prices of assets on the protocol are in tandem with what is obtainable in the general market.
Since its launch in 2018, Uniswap has undergone two major upgrades to its platform, which we shall consider briefly. Asides from these upgrades, Uniswap launched its native governance token in September 2020.
The first significant upgrade was in May 2020, when the protocol announced the release of Uniswap V2. Some of the significant improvements included direct trade of ERC 20/ERC 20 token pairs eliminating the need for wrapped tokens like wBTC, wETH, etc. Flash swaps, price oracles, and other technical improvements. The upgrade was well received by liquidity providers on Uniswap and the entire crypto community.
Another major upgrade came in May 2021 with the launch of Uniswap V3, which introduced "Concentrated Liquidity," a function that increases the functionality of the AMM.
Concentrated liquidity improves price efficiency by offering liquidity providers an opportunity to provide liquidity based on custom price ranges. This allows the LP to determine their desired prices according to their preferences.
The upgrade also introduces multiple fee tiers ranging from 0.05%, 0.30%, and 1.00%. This allows LPs to assess the risk level involved in trading more volatile digital assets. The V3 upgrade also provides easier and cheaper oracles that guarantee that the protocol's data is updated at all times.
Under the V3 model, Liquidity positions are now represented by NFTs but can still be made fungible through partner protocols or peripheral contracts.
Despite the vast population of new decentralized exchanges, it goes without saying that Uniswap has barely scratched the surface in its mission to become the leading decentralized marketplace that provides peer-to-peer permissionless liquidity.
As evident in its constant product update and protocol expansion, the protocol intends to be the one-stop shop for all your digital asset experiences. Recently, news of over $100 million in new funding to cater to new product offers has been circulating.
According to Mary-Catherine Lader, COO of Uniswap Labs, in an interview with Decrypt, explained that the protocol aims to add "several new products" to its offering. One of which will include a feature that will allow NFT trades from a number of marketplaces.
Due to the continued expansion of DeFi, and as more DEXes keep coming up with more innovative features, the battle for the top DEX is most likely to continue.
Connect with me on Twitter.
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