Research Summary

The research report compares two major types of Decentralised Exchange (DEX) models: order books and Automated Market Makers (AMMs). The report analyses their respective volumes, fees, trader unit economics, and earnings. It reveals that while AMMs exhibit greater decentralisation and benefit from deeper liquidity and higher volumes, their inefficient business models result in sustained unprofitability. On the other hand, order book models prioritise speed and cost-effectiveness, making the unit economics per trader more attractive. The report also highlights the significant impact of platforms like Uniswap and dYdX on the overall volume trends.

Actionable Insights

  • Consider the efficiency of the business model: The report suggests that the business model of AMMs, where a significant portion of fees is directed to Liquidity Providers (LPs) rather than the protocol itself, makes it unlikely for them to become profitable with their current architecture and infrastructure.
  • Take note of the impact of major platforms: Uniswap, the leading AMM platform, and dYdX, the leading order book platform, contribute to approximately 75% and 90% of their respective categories’ total volumes. Their significant presence has a substantial impact on the overall volume trends.
  • Understand the value generated per user: From a net profit perspective and per-trader basis, order books emerge as the more profitable business model, showcasing higher lifetime value and earnings per user.
  • Keep an eye on emerging profitability trends: Order book volumes are catching up to AMMs, with notable contributions from platforms like dYdX. This trend is further bolstered by the fact that order books are projected to achieve approximately $6 million in profits by the end of this year, whereas AMMs collectively face a loss of $330 million.

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