Bull or Boo: What’s Next for DEXs?

As the saying goes, every crisis is an opportunity. In response to new rules imposed by regulators, more than $200 million worth of BTC-dominated funds were transferred to, and from, the Eastern Asia region in the last seven days, surpassing other regions. Where did the capital go? 

Source:Chainanalysis

DEX Rose to Stardom Briefly

Decentralized exchanges (DEX) rose to stardom briefly during the regulatory tightening cycle. The percentage of DEX to centralized exchanged (CEX) spot trade volume was at 9% in June, which was the peak of the regulatory crackdown. 

Source: IntoTheBlock

dYdX, a DEX built on StarkWare Layer 2 integrations, also recorded an $11.6 million spike in revenue in August — leading to a higher adoption rate of DEX.

Source: TokenInsight

Aggregators Outshone DEX

DEX’s aggregators are also a major driver in spurring the growth of DEX. Dubbed as the Google of DEX, aggregators lower gas fees through the provision of swap rates and liquidity pools. Data aggregators represent 20% of DEX’s total trading volume and are constantly growing.

Source: Dune Analytics
Source: IntoTheBlock

1inch is leading the DEX aggregator race, followed by ParaSwap. With a $2 billion market cap, 1inch’s governance and utility token 1INCH is one of the most traded DEX tokens. Feeling tempted to dip your hands into aggregators? Pencil this down: A significant correlation between Ethereum gas fee and aggregators transactions suggests that an increase in gas fee will result in more network usage on the aggregator. 

Source: IntoTheBlock

Nevertheless, is DEX’s meteoric rise short-lived? DEX trading volume has been waning since July 2021. Despite its brief moment of fame, dYdX TVL vs. annualized revenue ratio is at 115, outranking other top crypto projects such as Compound Finance.

Next Up: DEX

dYdX overtook the daily trading volumes of leading crypto exchanges Coinbase and Uniswap, following the echoes of regulatory tightening last week. Although the spike in dYdX volume may be regional, the DEX protocol has been on a stable increase since the integration of Layer 2 network, signifying that the market demand for L2’s scalability and efficiency has a net positive effect on the entire blockchain ecosystem.