Analyzing Uniswap’s Scalability Solutions’ Adoption, Usage and Revenue
Throughout the past year we have seen many Ethereum mainnet protocols start deploying on more scalable chains. There are many reasons for protocols to follow this route. Some of the major pros include: reducing fees for users, bringing in more participation from the retail category and fast, reliable transactions. On the negative side, an important risk factor involved with scalability solutions is the security aspect. This varies from chain to chain and depending on whether it is a layer 2 rollup scalable solution or a sidechain. In the case of Uniswap it has both: Arbitrum and Optimism being a layer 2 rollups and Polygon working as a sidechain. Finally, another issue involved is the trouble of bridging the assets there, which adds an extra step for users, in order to be able to freely move their assets across the new chain.
In this article, we will explore Uniswap’s scalable solutions deployment ecosystem. Specifically, the adoption, usage, and revenues generated by the protocol on the Arbitrum, Optimism, and Polygon chains.
The base metric to gauge the adoption of a protocol in a new chain is its total value locked (TVL). TVL can be measured differently between DeFi’s protocols; in the case of Uniswap and most DEXes, it stands for the value of liquidity providers’ deposits in the protocol. Fundamentally we are comparing the amount of liquidity provided across Uniswap’s different scalability solutions
The graph depicts Uniswap’s TVL on Arbitrum, Optimism and Polygon chains since deployed. Notably, Uniswap launched in Polygon in mid-December and recently received a high influx of capital compared to Uniswap’s L2 deployments. This high influx of capital is likely due to the different chains’ state of maturity. The protocol which recently surpassed the $120 millions on Polygon has positioned itself among the top 6 protocols in the chain ranked by TVL, showing promising signs within a short time.
Uniswap’s Arbitrum and Optimism deployment have not received as much liquidity compared to Polygon in part due to the liquidity available on the chain. Polygon is the biggest one out of the three with $5.59 billion in TVL, followed by Arbitrum and then Optimism having $2.24 billion and $375.58millions respectively. Taking all of this into account the one with more traction within its own chain would be Optimism’s deployment which is ranked 3rd by TVL.
Another important metric to keep into account is their usage. In the case of DEXes, usage is best measured by the value of the transactions processed by the protocol.
This indicator portrays the volume processed by Uniswap’s Arbitrum, Optimism and Polygon protocols since inception. It shows the extensive utility provided by the Arbitrum protocol which was the first one out of the three to be implemented. Being able to process more than $600 million in a week during November 2021, more recently the protocol recorded a decrease in volume, partially due to new competitors rising within the chain. In Polygon’s case as with the TVL indicator, we can see the fast traction gained, having recently been deployed it already managed to process more than $600 million during the week of January 23rd.
Trading on scalability solutions has quickly gained traction, mainly due to their low costs. DEXes have also contributed in this aspect, with Uniswap launching trading pools with fees that go as low as 0.05%. From this perspective, users are really benefiting from a low-cost environment on the scalable solutions chains. For this reason trading adoption on scalability, solutions are expected to continue increasing.
The revenue that these protocols are generating can be derived by the volume being processed. Uniswap charges a small fee, depending on the pool, for every transaction processed. These fees are later on distributed to its liquidity providers as a form of revenue.
The metric above shows the weekly fees generated by each protocol in its respective chain. The percentage fee was calculated in a weighted average of the top 10 pools by the 7-day volume of each protocol. An interesting relation noticed, is that even though Uniswap’s Polygon protocol is processing more volume than the Arbitrum one, it is still generating less fees. This is due to the fact that Polygon’s weighted average fee was 0.07% while Arbitrum’s one was 0.25%. In addition, we also need to consider that Polygon’s TVL is higher than that of Arbitrum’s which means that the liquidity providers fee generated is distributed among a larger group.
In conclusion, the scalable solution ecosystem keeps expanding, attracting more volume with time and offering a better service to its users. DeFi is a nascent and complex ecosystem that shows great potential. Its scalable solutions characteristics have the capability to attract many users from centralized exchanges looking to benefit from the low transaction cost and the opportunities to generate yield on their assets.
