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DEX and Lending Protocol Tokens Thrive on Recent Proposals – Uniswap, Mango Markets, SushiSwap, and Aave Updates

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Trading activity on centralized platforms took a hit in the fourth quarter of 2022 after the revelation of the financial crisis befalling the FTX exchange. This prevailed decline in trading volume figures in the latter stages of the year added up to a contraction of 46% across 2022, according to CryptoCompare data. Though volumes on decentralized exchanges (DEXs) slumped on account of the same event, activity on these latter platforms has sparked thanks to a pickup in blockchain deployment proposals. Here is a wrap of the developments fueling interest around these decentralized platforms and their respective tokens.

Key Takeaways

  • Uniswap community backs the decision to deploy on BNB Chain
  • dYdX token lock period extended, providing a brief boost in the spot market
  • SushiSwap sets out to launch a decentralized perpetual futures trading platform on Sei
  • Aave deploys its protocol's third version, v3, on the Ethereum network
  • Mango Markets devs push for relaunch of the protocol amid scruples around MNGO token

Uniswap pursues ‘chain agnostic' deployment objective

Decentralized exchange protocol Uniswap received support from its community in its exploration of deployment on other chains via the v3 iteration, which focuses on concentrated liquidity. The protocol has, in particular, set out to deploy on Binance's BNB chain. More than 80% of Uniswap's native token (UNI) holders voted in favor of the ‘temperature check' around the decision on Tuesday.  Thus far, Uniswap v3 has rolled out on four ecosystems besides Ethereum, including Arbitrum, Optimism, and Celo.

BNB Chain triumphed over Ethereum in the number of unique addresses on the respective networks in December and has since established a gap in this count, according to data from their explorer tools.

Following the largely positive reception in a preliminary poll, the proposal will now move to a vote on the final governance proposal by the Uniswap DAO. Deployment on the BNB chain will take almost two months as the execution of the relevant smart contracts is estimated to take five to seven weeks. Launching across multiple chains positions Uniswap to benefit from a wider DeFi exposure (new users) while discouraging forks of the protocol from deploying where it hasn't.

The majority in the Uniswap community viewed the move as an opportunity for the exchange to tap into the growing popularity of DeFi in the Binance ecosystem and gain exposure to additional liquidity. Future and in-progress Uniswap proposals could prove beneficial for the new chains where the v3 iteration rolls out. Some, however, raised concerns about the merits arising from the expansion in the long term.

“The deployment of UniSwap on BSC will not attract BSC's users – they already have PancakeSwap (UniSwap v2 fork), but will pull users of other protocol networks into transferring funds to Binance-USD derivatives (all assets in BSC by Binance) and BNB purchases to pay for gas. I understand you want to make money before April (Business-license), but what will happen after April (SEC can arrest CZ?)” one member queried.

DeFi tracking platform DefiLlama shows that Uniswap, which uses smart contracts to match trades and provide liquidity to traders, has more than $3.8 billion in total value locked (TVL), with its v3 accounting for $2.71 billion. Plasma projected that Uniswap could gain up to 2 million new users and at least $1 billion in additional liquidity.

To learn more about Uniswap, check out our Investing in Uniswap guide.

dYdX token unlock period extended

The token unlock event on the decentralized derivatives exchange, dYdX, initially planned for early next month, was revised Wednesday with a reduction implemented in the supply distribution. The Swiss non-profit firm behind the Layer 2 protocol notified in a Jan 25 blog that early investors and employees to whom the native tokens were to be allocated will now wait until December when the adjusted supply of 83 million tokens (from 150 million) will be unlocked. The decision to postpone the unlock by approximately ten months was consented to by the dYdX foundation, dYdX trading, and other involved parties.

The dYdX ecosystem has a total supply of 1 billion tokens, of which roughly 156 million are in circulation as per the latest token supply data. The remaining supply is slated to be wholly unlocked by September 2026. Thursday's price action shows that the news of the lock-up period extension delivered volatility in the spot market, pushing the price of the native dYdX token 23% higher at the peak of the mini rally. The token has since retraced to $2.16 but retained an impressive 30% gain over the past five days. dYdX is one of the projects, alongside Aptos (APT) and Axie infinity (AXS), that have experienced volatile trading fueled by an unlocking narrative.

Crypto strategists earlier this week – before the plans got shelved – warned that traders and investors alike should be wary of shorting the upcoming token unlock in the derivatives market. Markedly, decentralized exchanges offering perpetual futures products have seen a surge in trading volumes following the downfall of FTX. For context, dYdX's trading volume reached as high as $2.92 billion on Jan 14, after it had nosedived to $177.5 million on Dec 24.

To learn more about dYdX, check out our Investing in DYDX guide.

Mango Markets legal representative asks court to rescind arrangement with exploiter

The $114 million drain of Mango Markets treasury on Oct 11 made headlines in the decentralized finance (DeFi) space after the exploiters revealed their identity. Avraham Eisenberg, who took responsibility for the drain termed it a “highly profitable trading strategy,” was apprehended on Dec 27. Barely two weeks later, the Commodity Futures Trading Commission (CFTC) got into action tabling market manipulation charges. Last Friday, the US Securities and Exchange Commission (SEC) laid more charges relating to violating federal securities laws.

Following the October incident, Eisenberg proposed an arrangement to Mango's related decentralized autonomous organization, which saw him keep part of the drained loot. He agreed to return $67 million to the treasury while the decentralized autonomous organization (DAO) voted to let him have the remaining funds. The complaint submitted to the District Court for the Southern District of New York asked for invalidation of the initial agreement, which included terms preventing the DAO from pursuing criminal charges to the treasury drain. This week, Mango Labs, the legal team of the protocol's decentralized autonomous organization (Mango DAO), sued Eisenberg for $47 million in damage, a Jan 25 court filing corroborates.

The lawsuit is now a fourth court challenge for Eisenberg, who, in a separate instance on Nov 22, tried manipulating Aave by targeting AAVE's looping system but failed. Mango Markets developers led by founder Daffy Durairaj conveyed in a Jan 22 call that they are keen to reopen despite being in a somewhat compromising situation with the SEC that could become a conflict. The first since the drain meeting focused on Mango Markets' ‘version 4', whose launch under DAO authority could effectively restart the trading venue.

The push for the resumption of trading on the project, however, entails the native token, MNGO, which has been of interest among regulators. The SEC indirectly referred to the token as securities offering in the charges it brought against Avraham Eisenberg raising speculations that the regulator could be securing a basis and setting the pace to go after the exchange and others with similar offerings. This bit of controversy has been a costly affair for Mango Labs, which represents the DAO legally. It could also further undermine the protocol since it affects the roadmap of the v4 upgrade meant to address the exploited flaws.

Aave clears bad debt from unsuccessful exploit, V3 Ethereum completes deployment

In addition to DEXes, liquid staking solutions and DeFi lending ecosystems, protocols under the derivatives (perpetual futures) category have also attracted interest from market participants. Nearly a year after its v3, non-custodial lending platform Aave recently approved this version's launch on Ethereum, listing pre-approved tokens including WBTC, WETH, wstETH, USDC, DAI, LINK, and AAVE. This was reached following a discussion and vote by the Aave community that approved activation of the V3 Ethereum pool. Ethereum is currently leading Aave V2, which has a total value locked of $4.28 billion.

There were two options under consideration, but voters rejected the suggestion to directly upgrade existing V2 contracts to the V3 market as it would be technically difficult. It would also place substantial assets at risk, despite retaining critical smart contract details and a seamless experience for the users. They instead rooted for the option to deploy fresh V3 contracts and leave the existing V2 contracts unchanged, which would be safer but would require users to move their deposits to V3 themselves. This was the proposal supported by Aave founder and CEO Stani Kulechov, who argued that a clean deployment allowed the community to review assets in the protocol later and assured a less risky environment.

Aave V3, which rolled out on Ethereum today, beats V2 by offering a flexible architecture for increased composability.

Meanwhile, on-chain data show that the decentralized finance protocol bought 2.7 million Curve DAO (CRV) tokens. The Thursday purchase was meant to eliminate the bad debt left in the failed exploit attempt by Eisenberg. The Aave community approved the procurement of the tokens using the ParaSwap DEX aggregator in a vote that went live on Jan 22 and concluded on Jan 24, receiving 100% support.

The execution of the Aave Improvement Protocol (AIP) 144 delivered a boost for the Aave protocol's native AAVE token. The token's price appreciated to a 24-hr high of $89.70 in the hours after the action and has since dipped to $86.91 but still trades in the green.

To learn more about Aave, check out our Investing in Aave guide.

SushiSwap sets out goals for 2023, entailing deep liquidity, optimal pricing, and sustainable tokenomics

Last year, SushiSwap CEO Jared Grey revealed that the decentralized exchange was facing a substantial deficit in its treasury, which posed a risk to long-term sustainability. Grey also said that SushiSwap lost $30 million to liquidity provider incentives in the last year and, towards the close of the month, introduced a new optimal token model for Sushi.

Sushi wants to grow its market share tenfold

In a blog post published Monday, Grey shared Sushi's roadmap for 2023, highlighting several improvements planned for the decentralized exchange. Top among them is to attain a dominant position in the DEX market by enhancing its product suite and achieving feature parity in order to establish a robust foundation for novel features such as concentrated liquidity offerings. The former CEO of EONS and crypto exchange Bitfineon further detailed that Sushi developed its DEX aggregation router in “stealth mode” last year and is set to be introduced in Q1 to launch the DEX into the aggregation sector.

He explained that aggregation would help enhance the liquidity positions of Sushi's pools and allow liquidity providers and token holders to reap the benefits of increased trading volumes and swap revenues. Sushi wants to blow its market share tenfold this year, and Grey believes the exchange's vision leads there.

Sushi Studios is coming

Sushi intends to support innovation via the launch of decentralized incubator Sushi Studios. The platform will foster self-funded projects, boosting the ecosystem's overall growth without drawing funds from the DAO's treasury. Among the projects debuting under this umbrella include the creator-centric NFT marketplace Shoyu coming in Q1, a perpetual decentralized exchange platform, and several other stealth products to leverage Sushi's solid & resilient brand to expand its reach in DeFi. This week at the Quantum Web3 conference in Miami, SushiSwap revealed more details about the perpetual futures exchange under development on the layer one solution Sei Network, which specializes in trading. The plans advance Sushi's objective to seek entry into non-Ethereum-based ecosystems

“It's a new play for us,” Grey acknowledged. “We're working hand-in-hand with them on what developer resources need to be allocated from their side for Sushi to leverage what they've built so that we can provide value, as a brand, back to them.”

Notably, the announcement came on the heels of a recent governance action – a tokenomics proposal affecting Sushi's tokens – which passed on Monday. The Sushi DAO unanimously voted to implement the proposal to direct xSUSHI revenue (trading fees from xSushi holders) to the SushiSwap treasury wallet. xSushi is the token provided to stakers of SushiSwap's governance token. The previous tokenomics model had a provision that rewarded its holders a fraction of the fee, 0.05% of each swap, from trades and 10% being directed to the DAO treasury. Unless deprecated by the DAO, the updated implementation will direct all rewards earned by the xSushi holders until Dec 19 – the date that the DAO agreed on as the effective start date of the governance action.

In the reinstated “Increase Kanpai Treasury Allocation to 100%” proposal, Grey noted his support for the approach as a better alternative to overcome the challenge of securing funds for the project compared to selling the native tokens. Sushi DAO's wallet address has roughly $17 million worth of crypto tokens in its reserves, the bulk being its sushi token, according to blockchain explorer tool Etherscan. The treasury also held 169 Ether (ETH) tokens and $208,000 worth of USDC at press. Its community hopes that the new tokenomics models, whose poll drew participation from 747 wallets and other additional efforts to produce more swap volumes and generate fees, will help restore the DEX.

SushiSwap ranks sixth in total value locked (TVL) among decentralized exchanges and is still recovering from the setbacks it suffered last year. Another proposal to determine the fate of 10,936,284 unclaimed sushi tokens passed with similar overwhelming support (99.85% of voters) on Monday. The rewards were awarded at the time of launch in 2020 to liquidity providers who offered liquidity between August 2020 to February 2021 and have been unclaimed since. The majority thus voted to put this proportion to use by returning them to the treasury.

To learn more about SushiSwap, check out our Investing in SushiSwap guide.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.