The War of DEXs
How network effects strengthen Uniswap's dominance in the DEXs space
Hey DEFI TIMES community,
Competition is one of the best drivers for innovation and prosperity. It incentivizes companies to keep researching, iterating and improving. Companies that don’t keep up with the competition will fail to retain their market share.
Some industries are less competitive than others. For example, well-established industries with big players usually have less competition.
However, small and fast-growing niches tend to be highly competitive. Crypto is a perfect example of a high-competition market. You either innovate or you die - simple as that!
That’s not true for every crypto niche, though. Bitcoin, for example, will thrive even if it stays the same. On the other hand, if you look at smaller crypto niches, like DeFi, you will notice that we see one of the most intense competition environments in the world.
DeFi protocols can rise and fall within a couple of weeks…
Developer teams find it so hard to keep their leadership position in the DeFi space that it’s almost impossible for them to stay on top for years.
However, one particular protocol has managed to stay on top of the DeFi food chain for years now: Uniswap!
Let’s take a look at probably the most competitive niche in the world: The DEX space!
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The War of DEXs
$3.48 billion!
That’s the total amount of DEX volume in the last 24 hours - Quite a lot when you consider that the total daily volume was around $30 million exactly one year ago.
That’s more than a 100x increase!
It’s safe to say that the DEX space is one of the fastest-growing industries in the world. But which protocol dominates this industry?
Uniswap captures around 60% of all DEX volume
When you look at the monthly aggregated DEX volume, you notice a clear winner: Uniswap!
In fact, Uniswap processes around 60% of all DEX volume - it’s the undisputed winner since DEXs took off in the first place. Since the beginning of 2020, Uniswap has never lost significant amounts of market share to other DEXs. Even when SushiSwap appeared in August/September 2020, which was definitely the most dangerous competitor, Uniswap was able to keep its dominant position!
But how can one protocol stay on top of the fastest growing industry for such a long time?
In DeFi summer 2020, new DEXs were launched every single day! The more competitors there are, the harder it is to stay on top! However, Uniswap was always the go-to place for DeFi Degens to swap their tokens!
Why Uniswap is the market leader
The DEX space is clearly a winner-takes-it-all industry. Why is that so? Here are three reasons why Uniswap kept its dominant position in the past and why this will be the case in the medium-term future:
Innovation: One of the reasons Uniswap is the leading DEX is that it always shipped the most advanced technology regularly. In May 2020, the second version of Uniswap was launched. Among other features, v2 introduced token to token swap. For example, USDT could be directly swapped to USDC. While this swap was possible before, it required ETH as a step in between, which meant additional fees and slippage. V2 also introduced flash swaps, which are very similar to flash loans, pioneered by Aave. One year later, Uniswap introduced its third version, which is just as revolutionary as the second one. V3 essentially brought concentrated liquidity, a stop loss mechanism to prevent impermanent loss after a certain point. It will also launch an optimistic rollup, making token swaps cheap, fast, and scalable for the world! No other DEX could keep up with Uniswap´s flood of innovation! Every single upgrade was revolutionary to this point, and people are already speculating on a possible version 4!
Network Effects: Everyone uses Uniswap because everyone else also uses it! Network effects are one of the most powerful forces in technology: Liquidity begets liquidity! People provide liquidity to Uniswap, which leads to better prices, leading to more volume. More volume leads to more liquidity… and the cycle repeats.
Strong Brand: At this point, everyone in crypto knows Uniswap - their brand has become huge! Uniswap’s logo can be easily remembered: the Unicorn. The Unicorn is a creative and memorable logo because it stands for magic, efficiency, and wealth! Up until now, most people in DeFi remember Uniswap as something positive and innovative, even though people keep complaining about high gas fees! That’s how Uniswap has developed a powerful brand over the years!
Uniswap leverages network effects and its potent brand to keep its dominant position in the DEX industry. They always ship the best technology, which is why every single upgrade draws lots of attention!
Over the years, Uniswap leveraged all these things to continue to be the leading protocol… in one of the most competitive industries in the world!
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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
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