Uniswap’s counterattack and DEX pattern


(Farmer in the wheat field, Van Gogh) Since Compound launched “Liquid Mining” on June 15 this year, mining has become an important mechanism for the cold start of DeFi projects and token distribution. Because it has proved from practice that liquid mining can quickly expand the scale of business in a short time. However, in the field of lending, liquidity mining is slightly far-fetched, because part of its demand is not because of real borrowing needs, but because it can benefit from mining.

Launch of DEX liquidity mining

Following Compound, Balancer also launched its liquid mining. The “liquid mining” or “agricultural sowing and farming” in DeFi has entered the DEX field. There is a natural fit for liquidity mining in the DEX field. This is because most of the current DEX adopts the AMM model. This automatic market maker model allows everyone to become a liquidity provider, and it encourages users to do The trading token pool provides sufficient liquidity. With sufficient liquidity, the slippage of traders will be lower and the trading experience will be better. Balancer has successfully implemented this. Its liquidity has gone from less than US$20 million in early June to more than US$700 million today.

In the DeFi liquidity mining frenzy, Uniswap has been very quiet and has no intention of issuing coins for a long time, which allows other DEX to find opportunities.

YFI pushes liquidity mining to the extreme, because it has no founder share and no investor share. It distributes tokens entirely through the mining model and uses tokens as a tool for community governance. This brings DeFi mining into a brand new stage. What followed was the fork of AMPL by YAM and the use of YFI’s mining distribution mechanism. This inspired the entire DeFi field.

Among them, the most striking is the birth of SushiSwap. Because it forked Uniswap, which has not yet issued coins, and uses a token distribution mechanism similar to YFI. At the same time, it cleverly designed incentives for Uniswap’s liquidity pool, that is, it not only forked the Uniswap code and mechanism, but also tried to leverage the liquidity that it depends on.

Although SushiSwap has experienced various ups and downs in just over two weeks, its drama is no less than any Hollywood blockbuster, but in the end, it achieved its original goal, successfully leveraging part of Uniswap’s liquidity to SushiSwap.

Uniswap’s counterattack

Uniswap has been reluctant to issue coins, but the situation has reached a stage where it has to fight back. If it does not issue coins, the whole pattern will change.

Not only SushiSwap, but various other swaps also saw this opportunity and launched their own swaps, trying not only to fork Uniswap, but also to dig out its liquidity. The picture below is a picture sent by Uniswap founder Hayden Adams. It vividly shows the scene of people hunting Uniswap.


(People are hunting unicorns)

During the two weeks of continuous offensive by SushiSwap, Uniswap is obviously not idle. It is planning a counterattack and is planning to issue its own tokens. Yesterday, it finally launched its own token mechanism and developed in the direction of community governance.

Among the token mechanisms it released, there is one thing that impressed Blue Fox Notes very deeply, that is, it focuses more on traders and liquidity providers in the distribution of tokens to historical contributors. Among them, 4.92% of the total amount of tokens is proportionally distributed to 49,192 historical liquidity providers, and 10.06% is equally distributed to 251,534 historical user addresses. Any address that has called Uniswap V1 and V2 can claim 400 UNI , Even 12,000 addresses that have only submitted failed transactions.
Based on the price of Blue Fox’s writing, each user received a UNI worth $1,340. This means that a total of more than 250,000 users are bound to the benefits generated by Uniswap. These users are all users of UNI tokens, and the total number of token holders is also among the highest in the entire encryption field.

In addition, considering that the entire DeFi field currently has more than 400,000 users, Uniswap’s UNI currency holders are already about 60% of the DeFi field. They are the core users and the backbone of the DeFi field. This move allowed Uniswap to lay a stronger community foundation.
Uniswap issuance and the location of Uniswap

Before Sushiswap came out, Uniswap had always been the leader of DEX, ranking first in both liquidity and transaction volume, and Sushiswap once surpassed Uniswap in liquidity.

Now Uniswap has issued tokens and provides liquidity mining for the following pools: USDT/ETH, USDC/ETH, DAI/ETH, and WBTC/ETH. Why do you need to mine these four pools? Because the liquidity of these four pools is the largest in DEX, and its trading volume is also the largest. Starting the mining of these four pools, if the rate of return exceeds that of other swaps, this means that there is no loyalty liquidity will flow to Uniswap, which will result in Uniswap having the largest liquidity in the most critical liquidity pools Sex, and bring lower slippage to traders.

At the same time, because there are still many long-tail tokens on Uniswap, this means that Uniswap will continue to consolidate its position as the number one DEX, and due to network effects, it is difficult for the second place to have a chance to chase. For a long time, if there is no special killer, Uniswap has a high probability of continuing to become the boss of DEX.
Does SushiSwap still have a chance?

As Uniswap successfully launched the UNI token and launched liquidity mining, this has put tremendous pressure on SushiSwap. Especially the token pools mined on Uniswap are the most liquid pools on Sushiswap. This is the classic counterattack to leverage liquidity.

The community is currently bearish on SushiSwap and believes that there is basically no chance. From the perspective of fighting for the position of the boss, from the perspective of changing the DEX pattern, SushiSwap’s odds of winning are indeed getting smaller and smaller. The time window for Uniswap to issue coins is the time window for various Swaps to encircle Uniswap. Now that Uniswap has successfully issued coins, the entire DEX structure is unlikely to change significantly in a long time.

But SushiSwap is not without opportunities. Currently, DEX transaction fees are high, and the trading experience needs to be improved. If the SushiSwap community can have faster iterations and improvements in transaction fees and transaction experience, it is not impossible for it to gain a place in the DEX field.

First of all, SushiSwap can speed up the adoption of Layer 2 and deploy it on other public chains to reduce transaction fees as soon as possible, increase transaction speed, and give users a more silky enjoyment.

Secondly, SushiSwap can accelerate the realization of transaction experience such as order books, and continuously introduce product experiences that cater to the needs of the community.

Finally, in terms of incentive mechanism, how SushiSwap retains liquidity through incentive mechanism is also its top priority. It is even possible to consider appropriately increasing the incentives of liquidity providers during periods of fierce competition, while also providing certain incentives to traders instead of sticking to the current incentive mechanism. Maybe there are other better ways that the SushiSwap community needs to dig and discover.

In addition, in a sense, Uniswap’s liquidity mining cannot maintain the highest profit for a long time. There will be an equilibrium. Therefore, although Uniswap will get bigger and bigger, it cannot monopolize everything. This is also the living space of various other swaps.

From this perspective, although Uniswap’s position as the leader is difficult to shake in a long period of time, it is possible for Sushiswap to survive rapid iteration. If there is a better mechanism, there is also a chance for further development.
Those who can challenge Uniswap will not be another swap

The micro-innovation carried out on the basis of Uniswap can only obtain a relatively small development space in the end, and cannot actually challenge Uniswap, because no matter what these swaps do, Uniswap can finally imitate.

It must be the brand-new DEX model that can challenge Uniswap. As for what model it is, Blue Fox Notes doesn’t know. But one thing is certain, Uniswap is not worry-free, and new models may come at any time in the future.

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