At present, the competition in the Derivatives DEX track is fierce, the overall transaction volume of the market has declined, and new agreements are still being launched. In the shrinking market, traders are more sensitive to various incentives and yields. Due to its high incentives, the new agreement has attracted stock traders from previous top exchanges.
Since late March, the trading volume of Derivatives DEX has been on a downward trend as a whole, and rebounded this week. The previous week (May 15-21) the cumulative trading volume of the six major Derivatives DEX agreements was US$6.1 billion, while last week (May 22-29) the cumulative trading volume was approximately US$6.6 billion, an increase of about 9%.
Over the past month, 5 of the 6 major Derivatives DEX agreements have shown a downward trend in trading volume, and only Kwenta has shown a trend of growth against the trend. Kwenta is a perp frontend built on Synthetix, contributing over 95% of Synthetix's volume growth and revenue growth. Synthetix is a Liquidity provision agreement, with a TVL of more than 400 million US dollars, providing Liquidity pools for front-ends such as Kwenta.
Figure: Weekly trading volume of major Derivatives DEX
- The relevant data in this article mainly comes from tokenterminal. Due to different statistical calibers, there may be differences in statistics between different data platforms.
DYDX in the order book mode still accounts for nearly half of the transaction size of the entire market. However, in the capital pool model Derivatives DEX, GMX has been impacted by Kwenta and Level. This week, Kwenta and Level traded more than GMX.
Figure: Market share distribution of capital pool model Derivatives DEX
The peak trading volume of GMX appeared in mid-April, and has shown a continuous downward trend since then. The current trading volume level is comparable to that at the end of 2022.
Figure: GMX weekly trading volume changes
Kwenta is a DEX that will be launched at the end of 2022. Since mid-February, trading incentives have been launched, and the trading volume has increased significantly. OP tokens were used as incentives in late April, and the transaction volume increased significantly in May.
Figure: kwenta weekly trading volume changes
Level’s trading volume peak also occurred in mid-April, when it hit $2 billion in that week, and has since declined. However, there was a rebound during the week of May 22.
Figure: Level weekly trading volume changes
The reason for the increase in transaction volume: more incentives, lower costs
The contrarian growth of Kwenta's trading volume may mainly benefit from two aspects: First, Kwenta's trading incentives are relatively strong . In addition to the token incentives of the protocol itself, starting from April 26, 130,000 OP will be rewarded every week;5 From August 10th to August 30th, 330,000 OP will be rewarded every week, with a market value of about 500,000 US dollars.
Second, the transaction fee of Kwenta is lower than that of GMX. The current transaction fee is 0.02% to 0.06%, and the fee varies according to the taker and maker. GMX has a transaction fee of 0.1% and charges a lending fee based on the position held. For real users, the transaction cost of entering Kwenta is lower, after deducting the users who have fully swiped.
Figure: Kwenta transaction incentive rules
LEVEL has also adopted transaction incentives. Users receive 1 LEVEL Loyalty token (lyLVL) for every USD 1 in transaction fees. A total of 10,000 LVLs are allocated every day, and are allocated according to the proportion of the user's lyLVL in the lyLVL of the entire platform. The claim is valid for 24 hours.
In addition to the above-mentioned basic rewards, there is also a Ladder reward mechanism. When the daily revenue of the platform exceeds a certain threshold, an extra incentive of LVL tokens will be added. This reward is accumulated and distributed after one week.
Note: Level n = (Revenue-$100,000)/$50,000
The quantity is determined. Earning points is calculated based on the transaction fee contribution of the trader to the protocol, and multiplied by (1+boost) can increase the points. Boost is determined by the total amount of LVL tokens a trader has staked on the platform. For every 1000 LVL staked, the boost factor will increase by 1%.
In the past six months, the number of days with revenue greater than 100,000 US dollars was 46 days, accounting for 25% of all days. Among them, the number of days for more than 150,000 US dollars is 19 days, the number of days for more than 200,000 US dollars is 8 days, and the number of days for more than 250,000 US dollars is 2 days.
Figure: Level daily revenue situation chart
In addition, DYDX in the order book mode has maintained high transaction incentives since its launch. Although the incentive token has been reduced twice, there are still about 1.58 million DYDX token incentives per epoch, which is worth about 3 million US dollars if converted according to the market price, and the average daily incentive reaches 100,000 US dollars. In the current Derivatives DEX model, it is a relatively high incentive.
It is necessary to consider the impact of transaction incentives on the selling pressure of protocol tokens, as well as their sustainability.
In Kwenta's incentive measures, the ecological token OP incentive occupies the main part, the protocol token incentive part is gradually decreasing, and the selling pressure of the protocol token is smaller. Moreover, Kwenta’s transaction incentives are acquired on a weekly basis and have a Vesting period. If they are unlocked in advance, part of the tokens need to be destroyed. However, the OP's incentive currently lasts until August 30, and if there is no continuation measure after the expiration, the trading volume may drop significantly.
In Level’s incentive measures, all protocol tokens are used, which are collected daily and have no lock-up period. Therefore, the protocol tokens are under heavy selling pressure. In addition, its ladder incentives focus on increasing transaction volume, giving the top 20 users a high incentive, much higher than ordinary users. This also leads to the problem of high concentration in its trading volume.
DYDX also has a large token incentive and more tokens to unlock, and the market has been waiting to see, waiting for its DYDX chain to go online and the modification of the token mechanism.
Real Trading Volume Analysis
Due to the existence of transaction incentives, it is necessary to analyze the transaction volume to understand the general situation of real transactions. Briefly count the number of users, trading volume, concentration and position size of several fund pool model Derivatives DEX.
Table: Quality analysis of DEX transaction volume of capital pool model Derivatives
It can be seen from the above table that GMX still has 2-3 times higher number of users than other projects, and its open interest is much larger than other projects, which is 3 times that of Kwenta and 5 times that of Gains Network.
The average transaction volume per user of Kwenta and Level is significantly higher than other projects without incentives.
The average transaction volume of Kwenta is about 120,000, which is about 2.5 times that of GMX. The trading volume of the top five accounts for 33.35%, and the degree of concentration is acceptable. The number of users reached 1772, which is not far from the number of users of Gains Network. The amount of open interest fluctuates to a certain extent, between 40m-60m.
Level’s average transaction volume reached $580,000, about 12 times that of GMX. The trading volume is highly concentrated. The top five traders accounted for nearly 75% of the trading volume, the open interest was only 2.6m, and the number of users was less than 400. It can be seen that the platform has a relatively high proportion of swiping and interaction.
On the whole, Kwenta has more real users and a larger real transaction volume. After its incentives attract some users, it is possible to retain users by providing better Liquidity depth and lower fees. Level has a larger proportion of brushing users and higher inflation.
Recent Development Plan
GMX
According to the information learned from the community, the GMX project party believes that the decline in transaction volume and yield is more caused by the overall decline in the market.
The focus of GMX recent work is still to launch its V2 version. Its V2 beta version has been launched on May 17, and users can participate in the test. Major modifications include:
GLP has changed from the current comprehensive pool to a single pool for each currency pair. By segregating, high-risk assets can be added.
There are two types of assets, one is trading pairs that require the support of native assets such as BTC and ETH, and the other is trading pairs of synthetic assets fully supported by USDC. Traders can choose the Liquidity of different pools.
Due to the existence of multiple pools, the difficulty for LP participants will increase. It is necessary to analyze the usage of each pool, changes in yield, etc., to decide which pool to participate in.
Funding rate and price impact factors have been added to balance changes between long and short sides.
In addition, GMX has been rewarded with approximately 10,000 $ARB tokens from Arbitrum, and there is currently no proposal on how to use these tokens.
Kwenta
The development of Kwenta is closely related to Synthetix. The two belong to the same ecosystem, Synthtix provides good Liquidity services, and Kwenta provides front-end services and acquires users.
On May 25th, Synthetix founder Kain Warwick put forward some ideas for the future development of Synthetix, including:
SNX is used for transaction incentives, and it is planned to allocate 5 million to 10 million SNX to the incentive plan.
Consider increasing SNX passive staking to expand participation and pool size. Previously, Synthetix adopted the active pledge model, that is, pledgers must perform better than the entire pledge pool in order to obtain a better rate of return, or need to use hedging tools to hedge risks. Now it is relatively simple to increase the passive pledge pool and maintain the basic rate of return, which is convenient for users to participate.
Subsidize front-end costs. The income of front-end operators basically belongs to the SNX pledgers. In the long-term development, the incentives for front-end operators are insufficient. For example, Kwenta’s protocol revenue is fully distributed to SNX stakers. It is recommended to subsidize the front-end fee by allocating a certain percentage (for example, 10 million SNX) of SNX from the treasury. Staking on behalf of the front end will generate a base fee income of 3–5%.
The above-mentioned plans have considered the relationship between the user side, the capital side and the product side respectively. If they can be implemented, they will have a greater incentive for projects built on Synthetix.
Level
Level passed a community vote in May, adding a new Cross-chain, which will be migrated to Arbitrum. Currently, a Liquidity pool of LVL tokens has been deployed on Arbitrum and can be traded. The front-end trading business is expected to be put into use in mid-June. Based on the large amount of active users and funds on Arbitrum, this migration may bring new users and funds to participate.
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