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Decentralized Exchanges or DEXes as they are called in the cryptoverse are your non-KYC alternative to Centralized Exchanges or CEXes. DEXes are also your go-to resource for participation in Decentralized Finance, or DeFi as…you guessed it.

As the Decentralized Exchange (DEX) sector has matured, two of the largest DEXes, Uniswap (UNI) and Sushi (SUSHI) have begun to differentiate in a big way. Uniswap has become solely focused on spot trading on Ethereum (ETH) and layer two protocols (L2’s), while Sushi is moving towards a DeFi suite of products across multiple chains and L2’s.

These two DEXes differ in more than just their products; they have massively different user bases as well. To explain, let us look at how each DEX has performed since the mid-May drawdown.

As prices declined in May and June, DeFi usage temporarily tanked, and this is where the differentiation began. From peak to trough, SUSHI’s weekly volumes fell -85% while UNI’s volumes fell just -68%. This is a relatively large underperformance from Sushi.

But, that does not tell the full story. In that same time period, SUSHI’s transactions were only down small double digits and users down only single digits.

These dynamics lead us to believe that during the price drawdown, SUSHI users were yield farming and consistently selling tokens that they earned rather than trading. That makes sense with transactions staying high, but not translating into high trading volumes.

Yield Farming lets you lock up funds and earn rewards in the process. The locked up funds are lent out via DeFi protocols to earn a fixed or variable interest. These rewards can far exceed traditional investment. However, always remember, greater rewards come with greater risk!

SUSHI users also differ from UNI users in terms of trading size. Sushi’s average volume per user is significantly higher than Uniswap’s – this could mean that Sushi’s user base is predominantly DeFi power users rather than a larger retail user base.

But just as the exchanges differentiated during the drawdown, they have differentiated during the market recovery in July and August. From the bottom to current market conditions, SUSHI volumes have grown 169% while UNI volumes have grown 97%; a massive outperformance from Sushi.

SUSHI weekly traders have actually grown +40% from the May trading volume high while UNI user base is down -72%. Again, a massive outperformance for Sushi.

This can be attributed to the differentiated user base. Since SUSHI’s user base was still actively participating in the market, they were quicker to move back to trading. UNI retail user base has been slower-moving to get off the sidelines.

What about Sushi’s DeFi suite of products beyond the DEX? With products like MISO not collecting revenues, and others not taking off compared to stand-alone counterparts, why are these additional products valuable?

It’s simple –They offer new ways to interact with the SUSHI platform, driving revenues and increasing customer stickiness. Using the Bit DAO sale on MISO, the sale has generated more than $250MM in volumes on SushiSwap, which drives more compounded finance to xSushi holders.

But even more importantly, SUSHI saw a 27% growth of weekly unique traders the week following the Bit DAO sale. A large portion of this was likely due to the sale. However, this will likely pale in comparison to the number of new users Shoyu NFT has the ability to onboard.

To date, three sectors have found a Product Market Fit (PMF) in digital assets; DeFi, NFT’s, and Gaming. But all three have very different user bases. Introducing Shoyu allows SUSHI to cross-sell products to its new users (i.e. introduce NFT users to DeFi with lending, fractionalization, and cap-raising).

Shoyu also has the opportunity to drive significant compounded finance to xSushi. If Shoyu grows to just 5% of the market share, it would drive more than $100M to xSushi holders, more than doubling current APY’s. (see marketplace growth assumptions)
This doesn’t even begin to take into account the SUSHI Metaverse. The optionality of partnerships, product lines, and NFT-based games is huge. Finding ways to bring those users into the rest of the Sushi ecosystem is how Sushi continues to grow as a DEX and community.
Even though correlations remain high, the DEX sector is continuing to differentiate both in product offerings and more importantly by the user base. We continue to be bullish on projects that are highly focused on customer acquisition and the cross-selling of products.
 
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Categories: Cryptocurrency

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