Layer-2 rising to prominence amidst high gas fees
QuickSwap, a decentralized exchange running on the layer-2 solution Polygon, has seen over a 57% increase in the number of active users in the last 7 days. Moreover, the surge in usage places QuickSwap as the number one dapp on Polygon with only Aavegotchi anywhere near in regards to active users. The DeFi game had 2,700 users in the same time period.
Looking at the transaction volume of QuickSwap also reveals another key metric in their overall success. $40 million in volume means they are more significant than all the dapps combined on Polygon right now.
Another way to gauge the success of a platform in its infancy is to compare it with similar, more established platforms. According to DappRadar data PancakeSwap, an exchange running on Binance Smart Chain has seen over $5.4 billion in transactions whilst the number of users has increased 10% to over 166k in the last 7-days. Uniswap, a leading Ethereum based DEX has seen over $6.2 billion in volume with the number of users dipping slightly in the last days down to just over 214k.
Comparing the exchanges puts QuickSwaps success into context, but it is also vital to understand how young QuickSwap is. The platform launched in February 2021 and it operates on a layer-2 solution. This means that users cannot simply use Ethereum to make token swaps and must first get a usable token such as WETH or MATIC. These actions aren’t well documented and are quite challenging for newcomers. Something not that well explained on these sites or easy to do for a newbie.
Learn how to set up and fund a Metamnask wallet for use on Polygon (Formally Matic)
Gas Fees Hurting Ethereum
The reason for the increase in users of layer-2 trading platforms is clearly the escalating gas fees associated with Ethereum exchanges. Ever since the Summer of DeFi in 2020, increased usage of the Ethereum blockchain has congested the network, causing gas fees to spike. Looking at the below example it is quite clear to see why people, especially those trading on hundred dollar portfolios and not thousand dollar ones, are shifting to layer-2 solutions.
To add further context, imagine you want to make a $500 token purchase on Uniswap. The fee associated with it could be up to $70 right now meaning you just gave up almost 20% of your principal just to make the trade. For somebody moving $100,000 a $70 charge is not an issue, but when moving smaller amounts it becomes a big problem. This trend actually negatively impacts token purchases.
If blockchain and decentralized finance want to scale and become commonplace, the issue of high gas fees needs to be overcome. That’s where layer-2 solutions such as Polygon are now starting to shine as a slew of smaller investors playing with hundreds of dollars desperately try not to miss the boat as they may have done in 2016/17.
Arguably, these investors and the solutions to satisfy their needs are key to the long-term viability of decentralized finance. Whilst blockchains such as Ethereum may become home to more upper-end and commercial investors shifting larger amounts.