DEXs flex their resilience

gm! Welcome back to the Variant newsletter. 

Call it hot DEX summer? Okay, maybe not quite, but even amid a bear market, DEXs have continued to demonstrate their resilience, climbing in active usage. For our new issue, our in-house data scientist Jack Gorman (you may know him on Crypto Twitter as J.Hackworth) is diving into why that’s been the case. 

Meanwhile, five other Variant investment partners just returned from EthCC in Paris, and they’re bringing the buzz back to you. Stay cool during all this heat, and remember to forward this newsletter to your fellow crypto builders.

Dan Roberts, Editor in Chief

How DEXs Are Demonstrating Their Resilience

Jack Gorman

Amid the meltdowns and tumult of the ongoing bear market, decentralized exchanges have continued to operate as designed—and have even managed to capitalize on the prevailing volatility. 

While DEXs date back to 2014, 2020’s “DeFi Summer” marked a pivotal moment. DeFi tokens mooned and DEX metrics soared, experiencing a compounded monthly growth rate of 47% in monthly volume and 26.4% in active users from June 2020 to June 2021.

As everyone in crypto is well aware, the party eventually stopped. After hitting its second-largest month ever in December 2021 at ~$123 billion, monthly DEX volume crashed to a bottom almost one year later of ~$28 billion.

Despite the drop, DEXs continued to do exactly what they were programmed to do: provide permissionless trading. On days when centralized entities (like FTX, BlockFi, Celsius, and Voyager) were collapsing, DEXs saw large spikes in trading volume and some of their biggest single trading days ever. (The SVB collapse and USDC depeg caused the largest single day of DEX trading volume with ~$19.7B in trading volume.)

2023 reversed the downward trend in volume: DEX volume on Ethereum saw an increase for the first three months, hitting a peak for the year in March at ~$85B. Volume has since decreased, but there are other indicators that DEX activity is on the rise. Fueled by new token launches, liquid staking tokens, and memecoins, active users and number of swaps have grown month over month an average of 11.7% and 7%, respectively, from December 2022 to June 2023. Another positive indicator: the ratio of DEX to CEX spot volume rose to 22% in May, the highest ever.

Source: Dune
Source: Dune

So, why the sudden rise in these DEX usage metrics? Many might point to the memecoin madness seen this past May. While that is certainly a large determining factor, it’s just one piece of a larger trend gaining steam.

Read the full piece on the Variant site.

Read this next

More fresh posts from Variant

Geoff Hamilton: Building a Truly Scalable Lending Protocol: Morpho at EthCC

Morpho co-founder Paul Frambot lays out a radical path for scaling DeFi lending and teases the next generation of Morpho.

Jack Gorman, Derek Walkush: Why UniswapX Will Be Additive to the Uniswap Protocol

Based on how fat-head and long-tail token trades work on DEXs, UniswapX should be net good for the Uniswap protocol.

Mason Nystrom: DePIN and DeREN: Toward a Better Classification of Decentralized Infrastructure Networks

With the rapid expansion of decentralized infrastructure networks, it’s worth classifying them into two categories.

Jesse Walden, Derek Walkush, Caleb Shough: Alluvial: Liquid Staking for Institutions

Why we invested in Alluvial, a non-custodial liquid staking protocol that meets the needs of institutional investors, ourselves included.

Bonjour from EthCC

Variant investment partners share their reactions after a whirlwind EthCC in Paris.

Variant's Geoff Hamilton chats with Morpho CEO Paul Frambot at EthCC
Variant's Geoff Hamilton chats with Morpho CEO Paul Frambot at EthCC

Alana: “The conversations in Paris this year felt very infra-oriented, but it feels like a different part of the infra cycle than last year. A year ago, many of the conversations focused on scaling solutions. Now the meta is very much about infra in service of better UX (like abstracting complex transactions from the user, removing frictions in bridging, and improving security tooling). I find that really exciting; better UX should lead to better apps. The opportunity now is to ensure those UX-focused infra devs are connecting with app devs. I’m optimistic that if we can make sure that happens, we’ll soon see a wave of really delightful applications.”

Li: “I agree that the broader conference was more infrastructure and DeFi heavy, but that left a vacuum and hunger among the consumer builders that were present. I felt like there was an overwhelming demand for more consumer-focused events and programming. There was a view that being able to message people through wallets is very significant because it will open up an avenue that wasn't present before—both for businesses who can have a notifications channel, and for new peer-to-peer web3 social connections. There are also a lot of tailwinds behind web3 social and a lot of desire for something to work in that category. Everyone’s rooting for web3 social networks to succeed. There's a need for verticalized apps that give users a reason to want to own something: tokens themselves are incomplete as products, and need to exist in a context in which people value them. You need to build around a token and create a fuller product experience.”

Medha: “EthCC was buzzing, which was very refreshing to see during a bear market. I spent a lot of time at the MEV side events, and I’m excited to see the conversation is slowly shifting toward how MEV can be utilized by different layers of the stack, particularly the app-layer and wallets. Seems like there’s still a long way to go there from an educational perspective, but it feels like there is a strong appetite to learn. I also noticed Base had a large presence throughout the conference: lots of momentum, many activations, and lots of interest to build or partner with them. Finally, the most used word of the conference was 100% ‘modular.’ Every part of the stack is going modular in Ethereum. My biggest takeaway was that the space is extremely optimistic and focused on shipping.”

Derek: “I saw two narratives at the forefront at EthCC: re-staking, and specifically the ability for upstarts and other staking protocols to both capture value and carve out parts of the market for themselves; and discussion around the emerging field of intents, partially sparked by the UniswapX announcement.”

Geoff: “I attended a side event focused on stablecoins and came away very excited about the coming acceleration in growth for stablecoins and tokenized US treasuries. In talking with a number of teams building in these markets, I was impressed both by the pace of innovation and the pragmatic focus on bootstrapping demand. It was also striking to see the diversity of promising designs: some deriving yield from purely cryptonative sources and others integrating yield from ‘real world’ sources.”

Thinking in public

We welcome your input and replies on Twitter.

Jesse is wondering if we’re all over-emphasizing decentralization:

Geoff wants to know how FX stablecoins can scale:

Jack analyzed layer-zero usage as it related to new address creation on L1s and L2s:

Tina is moonlighting as a hitmaker on We are her biggest fans:

See you next issue. And make sure you tell your web3 friends to subscribe!

Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated.

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