Uniswap optimizes routing to reduce transaction costs and no longer relies on a single liquidity pool, has dYdX surpassed in trading volume?
The market maker platform Uniswap continues to focus on optimizing its AMM mechanism, introducing an automatic router feature in its recent update, achieving lower-cost transactions. Meanwhile, the emerging derivatives exchange dYdX, its founder posted a screenshot on Twitter showing trading volume surpassing that of Uniswap, with trading volume comparable to Uniswap.
Table of Contents
Optimizing Trading Paths
Trading Paths Across Multiple Pools
Unlike traditional trading routes, when trading on Uniswap after the update, a single transaction can be allocated to up to seven different trading paths. The Auto Router will utilize different liquidity fee rates from pools v2 and v3 to achieve lower-cost transactions.
In the exchange of 1,822 COMP/USDC tokens, Uniswap saved $134,689 by using the trading paths filtered through the Auto Router, which is more than enough to cover gas fees for various paths.
Pool Depth Sharing to Reduce Price Slippage
Due to the nature of Automated Market Makers (AMM), insufficient liquidity can lead to significant price slippage for large transactions, as shown by the traditional router above, where an $80 million USDT/USDC exchange results in a -62.9% price slippage.
In contrast, the Auto Router below completes the transaction with as low as -0.749% slippage through three different liquidity pools.
Uniswap also notes that the Auto Router optimizes gas fees within the user's bid range, with more noticeable effects in small transactions. The router's code has also been open-sourced.
As shown below, the Auto Router in the bottom left corner displays the best trading paths filtered through pools v2 and v3, while the "Settings Icon" in the top right corner allows users to enable or disable the Auto Router.
Currently, Uniswap remains the decentralized exchange with the highest trading volume. However, the founder of dYdX shared a screenshot on Twitter showing trading volume surpassing Uniswap, although data from various DeFi data platforms still varies.
Is dYdX Catching Up to Uniswap in Trading Volume?
dYdX founder Antonio Juliano quoted data from CoinMarketCap on Twitter, showing dYdX surpassing Uniswap by nearly $200 million in 24-hour trading volume.
Now ๐ https://t.co/aKb9qKCDbk pic.twitter.com/29aVINcieJ
โ Antonio | dYdX (@AntonioMJuliano) September 17, 2021
As dYdX is a derivatives exchange, some users question if the trading volume is calculated based on the funds with added leverage. Looking at data from DappRadar and Dune Analytics, the trading volume appears to be significantly lower. This discrepancy could be due to the platforms not including data from dYdX on the Layer 2 scaling solution StarkWare.
However, on the official dYdX website, the trading volume indeed competes with Uniswap.
Uniswap even needs a $4 billion trading volume on v2 to come close to dYdX.
dYdX has introduced the governance token "DYDX" and initiated activities such as retroactive airdrops, trading mining, and liquidity mining, which seem to have had a significant impact. The token price has not faced selling pressure from profit-seeking "farmers." After dropping to $10 on 9/8 due to the airdrop release, the price had risen to $16 at the time of writing.
Zhu Su, the founder of Three Arrows Capital, proposed to reduce market maker incentives in governance proposals. The dYdX market-making team Kronos Research also expressed support, and the proposal has received significant community approval. This action is expected to further reduce potential selling pressure from mining incentives and promote healthier liquidity.
Currently, the crypto derivatives market is still dominated by centralized exchanges (CEX), but dYdX's utilization of trading mining, briefly popular in 2018, along with second-layer solutions to eliminate the high costs of on-chain DEX, seems to be yielding results.