Decentralized trading shines as Uniswap shows its metal
Last week’s Bored Ape Yacht Club APE airdrop caused quite a stir in the crypto-verse as thousands of NFT holders collected APE tokens. However, despite APE immediately being listed on popular centralized exchanges (CEXs) such as FTX and Binance, in the first few days, most APE traded through the decentralized exchange dapp Uniswap.
A trend continued for a few days until more people latched onto the APE token and its potential and gravitated toward CEXs like Binance and Coinbase to make trades.
Uniswap handled almost $850 million in APE token trades in the first two days. That number then seriously dropped off in the preceding days, down to $165 million on March 19 and $120 million on March 20. At writing, just $53 million has been traded.
A screenshot from Uniswap founder Haydn Adams on March 17, a few hours after the APE airdrop and trading commenced, clearly shows the situation. Uniswap topped the trading volume chart with more than $125 million in trading volume. Almost double that of centralized exchange Binance.
The trend can be explained as early token trades will have been dominated almost by those collecting airdrops from holding BAYC NFTs. So for this writer, it makes sense that Uniswap was the early benefactor of the APE trading volume for several reasons.
NFT collectors are savvier than traders
BAYC is a premium NFT collection embraced by a new wave of investors, investors that understand blockchain wallets and decentralized exchanges. Arguably NFT holders are far more comfortable with DEXs than anyone else.
Centralized exchange users tend to be more concerned with safety, and might not be that savvy in dealing with Metamask or other Web3 wallet tools. However, all the signals were triggered last week when APE climbed from $7 to $17 in 48 hours. The availability of APE on CEXs then created a snowball effect.
Looking at APE trading on CoinMarketCap on March 21, we see that decentralized exchanges have far surpassed decentralized exchange trading with Uniswap V3 and V2 accounting for just 4.6%, and SushiSwap accounting for just 0.06% of the trading volume at writing.
Chinese-centric centralized trading platform Binance is way out in the lead with APE/USDT trading volume of more than $570 million and APE/BUSD trading volume at more than $97 million. Mandala Exchange has also been a popular centralized exchange for APE and racked up more than $572 million in APE/USDT trading volume at writing.
These initial trading trends indicate that early hype around APE started with the airdrop claimants selling and swapping APE on DEXs and quickly leaked out into the wider crypto-verse as the price developed positively. Nonetheless, the initial performance of the leading decentralized exchange Uniswap shows the true power of DEXs and their lure within certain communities of traders and NFT enthusiasts. Moreover, it’s a trend that we will continue to track.
CEX vs. DEX
In brief, a DEX aims to offer lower transaction fees, let users directly hold their assets, and avoid some regulatory burdens. On the other hand, they face the cost of compensating their liquidity providers. CEX’s also hold benefits, primarily associated with easy onboarding, fiat on and off-ramps, and an associated feeling of safety with a centralized entity. They also have fees attached but arguably hide them well inside the spread on the token prices.
Decentralized exchanges are the foundational layer of DeFi and, for most networks, a key component to the health of their network. A blockchain cannot let its users swap tokens or participate in farming or earning possibilities without a DEX. Their growth and evolution in the industry are paramount for the move toward mass adoption, and seeing such a stellar performance at this stage is undoubtedly encouraging.
DEX’s like Sushi is expanding well outside the realm of Ethereum and adding new blockchain compatibility and users daily. Sushi lets users operate on Sushi from more than ten blockchains and avoid Ethereum gas fees. As these developments continue to unfold and investors can more easily interact with DEXs, they will supersede CEXs to allow a genuinely decentralized future to flourish.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in various cryptocurrencies, including BTC, ETH, and RADAR.