Photo by André François McKenzie on Unsplash

Bitcoin has slipped 31% to $30k during mid-May. Traders were trying to adjust their positions and trade during the crash. However, many digital asset exchanges like Coinbase, Kraken, Binance, to name but a few, have experienced a service outage, which led to a massive loss for the traders. On the contrary, decentralized exchanges (DEXs) supported trading activities given the high traffic on their blockchain. According to Ashleigh Schap, the growth lead at Uniswap, the business worked flawlessly during the market crash.

Moreover, considering the widening crackdown on Binance from Europe, Hong Kong, and several banks, DEXs have been spotlight again. DEXs allow traders to trade without any centralized party, which means no KYC, exchange downtime, crypto custody, T&C and random account freezing. With that being said, an increasing number of users are adopting DEXs as an alternative towards centralized exchange. According to Yahoo Finance, Pancakeswap surpassed the daily trading volume of Kucoin and FTX combined on 13 April 2021. The DEX to CEX spot trade volume is also increasing tremendously (Ref. Chart 1). Even though the sensation of DEX seems to be cooling off after Nov 2020, the DEX to CEX trade volume has still been up almost 10% YTD. Therefore, this report is going to analyze the leading automated market maker

(AMM) in the defi space, Uniswap. The goal is to provide a holistic overview of Uniswap and to understand the rationale for its success. Below is the outline for the report:

i. Uniswap Background and Edges

ii. DEXs Landscape and Comparison (Curve Finance and Sushiswap) iii. Potential Challenges


A. Uniswap token — UNI

UNI is an ERC-20 token. As the report is being written, the current price of the UNI token is $19.70. It is being ranked at 11 in terms of market cap. The current circulating supply is 587M,d the max collection is 1B UNI token.

B. Uniswap Mechanism

Uniswap is an AMM operating on the Ethereum blockchain. Unlike the traditional order-book model adopted by centralized exchanges, AMM works as a series of pools of 2 assets. The price will not be linked to other businesses, but instead, it will refer to the ratio of support in the pool. Bancor first introduces this idea, yet Uniswap is a more successful implementation of AMM. There are three significant roles in Uniswap:

1. Liquidity Providers (LP)

- Funds the liquidity pool with crypto to facilitate trading

2. Traders

- Trade 2 tokens on Uniswap and pay swap fee

3. Arbitrageurs

- Look for arbitrage opportunities, which can somehow help to maintain the efficient price level at Uniswap

C. UNI Tokenomics

1B UNI tokens have been minted at the genesis block. 60% will be allocated to the community as a reward if the community provides liquidity on ETH/USDC, ETH/USDT, ETH/DAI and ETH/WBTC. 21% allocated to team members and future employees, 18% given to investors and the remaining to advisors.

Chart 2 — Source:

D. Uniswap Governance

Among the 60% UNI tokens allocated to the community, the governance treasury will retain 43% for contributor grants, community initiatives, liquidity mining and other programs. A recent gift from the district is the funding to DeFi Education Fund (DEF). According to Coindesk, the holders of Uniswap’s governance token have voted for granting 500,000 UNI into USDC (around $10M) to DEF. This fund is created to advocate defi-friendly policies globally. Uniswap being one of the most popular DEX, this decision can potentially lower the risk for the crackdown from regulators. With the vast amount of UNI tokens in the community treasury, Uniswap can utilize the fund to foster the growth of the Uniswap ecosystem, which can be beneficial to Uniswap’s long-term development. The holders also voted for the Uniswap Grants Program in December 2020. The grants will be used to sponsor hackathons to fund projects that can help the core protocol develop or grow Uniswap Ecosystem. The budget for each quarter is up to 750k.

E. Uniswap V3

The new version of Uniswap aims to provide better capital efficiency for users and greater capital control for liquidity providers. The latest updates also include more accurate price oracles as well as new tires for the fee schedule. Below is the updated fee schedule and slippage tolerance for liquidity providers on Uniswap V3.


To understand Uniswap’s market position, we will be looking into four aspects: Trading Volume, Total Value Locked (TVL), trading pairs and site traffic.

A. Trading Volume and Trading Pairs

Concerning the data in coingecko, Uniswap ranks №1 in market share

(22.8%) and trading volume. Uniswap V2 also has the most significant number of coins(2283). However, it ranked second in several trading pairs (2,663). Pancakeswap has the most effective teams, being 11,993. It also ranked second in terms of trading volume and market cap (9.5%).

B. Total Value Locked (TVL)

DeBank’s current top 3 DEXs in TVL are Curve Finance with $8.5B, Pancakeswap with $8.0B and Uniswap V2 with $5.1B.

C. Site Traffic

Even though the trading volume in Uniswap is the highest, the number of visits ranks second with 6.5 million visits. The DEX with the most holidays is Pancakeswap, with 17.9 million trips.

Source: Coingecko

To understand the traffic numbers deeper, we use a similar web tool to analyze Pancakeswap and Uniswap. By comparing the traffic sources, Uniswap mainly uses referrals(48.78%) and direct access (44.49%). The referrals especially come from (60%), (13.2%), (7.78%) and coingecko (6%). While dex tools is a trading bot specializing in DEXs, this referral source might suggest that more pros use Uniswap. Hence, the trading volume is higher.

On the other hand, Pancakeswap’s sources are more distributed. Direct access contributes as the most significant traffic source(58.0%) — referrals with 16.35%, advertisements with 15.22% and 7.99 from searches. The major channels for Pancakeswap’s promotions include telegram, Youtube and poocoin. App. While

Uniswap only has a 0.15% traffic source from the advertisement; this shows that Pancakeswap is allocating more resources on online promotions, or their marketing campaigns are more valuable than Uniswap.

By using Google trend, we can also see a significant trend reversal starting in MidApril 2021 by comparing the keywords “Uniswap” and “Pancakeswap.” The rationale could be the congestion of the Ethereum network led to a high gas fee on Uniswap. On the other hand, since Pancakeswap operates on the Binancebrightt chain, they can provide cheaper costs than Uniswap. Thus, it might be a reason that Uniswap traders look for Pancake swap as an alternative.

Image by Google


High Gas Fee

The gas fee has always been a headache for DEXs traders. Earlier in Feb 2021, the

Ethereum blockchain was heavily overloaded. According to an article from Cointelegraph: “DEXs becoming unusable? How to navigate record gas fees ahead of Eth2”, the fees fee can go up to $100 at times on Uniswap or Sushiswap.

For DEXs operating on the Ethereum network, the gas fee ranges from $17 to $24 on average.

Source: Defi Dashboard, 26 July 2021

Comparing to CEX like Binance, they only charge 0.1% on spot trading. The high gas fee on Uniswap has deterred retail traders from using Uniswap for small trades. They may turn to CEX or Pancakeswap as an alternative.

The short-term antidote Uniswap is using is the Optimism layer-two scaling solution. On 13 July 2021, Uniswap V3 has alpha launched on the Optimistic Ethereum mainnet. It can potentially save up to 10 times in transaction cost. However, the solution only provides a limited asset for now.

Another short-term solution to handle the high gas fee is the Ethereum London hard fork. On 4 August 2021, London hard fork will implement different Ethereum Improvement Proposals (EIP). EIP-1559 being one of them, it will change the previous auction-type gas fee structure to a programmatically bidding style. The new fee structure will arrange each transaction at the lowest possible fee.

A mid-term solution the community is discussing is adding another layer-two solution for Uniswap, the Polygon/Matic network. Many Ethereum Defi applications already use magic as their layer two solution solutions Sushiswap and Curve). The community suggests that it will be a low-risk project for Uniswap.

The long-term solution will be the official launch of Ethereum 2.0, which is estimated to launch in 2022. This will convert the blockchain from a Proof-of-work consensus (PoW) protocol to Proof-of-stake (PoS). While PoS includes sharding the network across 64 new chains, Ethereum will run faster and replace miners with staking.



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DarkByte Research

DarkByte Research

Quantitative Research Fintech start-up focused on Blockchain