The data show that the volume of decentralised exchanges has increased dramatically over the last 6 months, with Uniswap leading the way.
Uniswap, the most widely used decentralised Ethereum-based exchange in the industry, experienced explosive growth during the second quarter. Less than a month ago, Uniswap’s trading volume outpaced that of Coinbase Pro as the exchange processed transactions totalling $426 million over 24 hours.
In 2019, the decentralised finance market (DeFi) remained relatively stagnant, but things changed as the concept of yield farming and governance tokens became more popular. Yield farming is a process in which investors use various DeFi protocols that generate high returns in exchange for liquidity.
In most cases, the return comes from the value of governance tokens, and in addition to staking the DeFi token, users also deposit cryptocurrency such as Ether (ETH).
As an example, yearn.finance (YFI) was launched without any premiums, unlike many DeFi tokens. Instead, in the early days, users staked crypto assets to receive YFI, allowing for decentralised token distribution.
The model became much better known and more attractive with the launch of Compound and its COMP token governance. Following the launch of COMP, and its success, the DeFi market has seen the arrival of a large number of new token governance tokens.
As a result, many users have started buying and selling governance tokens on decentralised exchanges in the hope of generating high returns (in some cases 35,000%) or buying the ’next‘ YFI.
Will the volume of DeFi eclipse the volume of centralised exchanges?
The advantage of Uniswap over major centralised exchanges is that users do not have to wait for token listings.
On Uniswap, users provide liquidity and directly create trading pairs, allowing participants to trade new tokens.
The great demand to buy and sell governance tokens has earned Uniswap popularity in DeFi, surpassing several centralised counterparties.
Compared to other platforms in the category, Bitcoin Sunrise experienced parabolic growth from July to September. Currently, the decentralized crypto exchange market processes around $20 billion per month, and the vast majority of the monthly volume comes from Uniswap.
Over the past 12 months, decentralised exchanges have facilitated operations totalling $44.617 billion, and with the arrival of October, the market is on track for a monthly volume equivalent to half of this figure, which perfectly describes the rapid growth of the sector.
Uniswap’s token governance could improve long-term growth
As reported by Cointelegraph, Uniswap recently launched UNI, adopting a rather unique approach to the distribution of its token governance. Instead of following the staking model, Uniswap distributed 400 UNI to each of its users, an amount that at the peak of the price was worth around $3,200.
The launch of the governance token is crucial for Uniswap’s sustainability, and according to the documentation 17.65% of the offer is allocated to the team. However, these tokens will be released according to a pre-established schedule over a four-year period.
The allocation ensures the continued development and maintenance of the Uniswap protocol, also allowing the community to lead the governance of the protocol. The document explains:
„A treasury managed by the community opens up a world of infinite possibilities. We hope to see a multitude of experiments, including ecosystem grants and funding for public goods, which can promote the further growth of the Uniswap ecosystem“.