Part 1: Follow the leader (Uniswap)
This section will highlight how to learn from the leaders in the DEX space and build superior, competitive, and high revenue/fee generating products.
What is Proxyswap?
Proxyswap is the new kid on the block in the Degen L3 (DL3) ecosystem, taking inspiration from Uniswap V3 (the OG of concentrated liquidity) to bring some DeFi magic to the party. Funded by the devs themselves, it's all about growing the DL3 space and giving users more bang for their buck.
What's next for Proxyswap? We need to learn from the DEX industry leaders: Uniswap and Jupiter. Uniswap
Think of Uniswap and Jupiter as the giant successes of our industry. Proxyswap's like the underdog waiting to prove itself, ready to shake things up with a user-centric revolution. However, it's always good to learn from the OGs but also recognize how/where they can't move fast enough.
Proxyswap learned from Uniswap's most profitable product: V3
Three years ago Uniswap v3's whitepaper introduced a game-changer: concentrated liquidity pools.
Here's the gist: LPs (liquidity providers) can target specific price zones for their loot (capital) instead of spreading it thin across the whole market. Stray outside those zones, and poof! No liquidity, no fees. This superpower lets LPs be way more efficient with their cash (see images below). They can tweak their risk based on their strategies and potentially rake in more rewards with less capital (and less impermanent loss to boot). Basically, Uniswap v3 ditches the rigid, one-size-fits-all approach and lets the market dictate where the liquidity goes. It's like a decentralized order book, mimicking the sweet efficiency of traditional systems.
The results of V3 have been nothing short of spectacular for Uniswap on the Ethereum ecosystem.
Uniswap dominates Ethereum ecosystem with its DEX volumes. With a massive 53.3% market share. As of April 2024, the last 180 days Uniswap has generated approximately $535M in fees with an average fee charge of 0.15% on the total $343B trading volume. And given Uniswap's total market cap today stands at $7.4 billion, we can them ascertain that the market has attributed a 5.28x multiple to the annualized trading fees that Uniswap accrues, which are approximately $1.4 billion.
The question now remains, what kind of earnings, valuation, and user insights (size, volume, activity) do we apply to Proxyswap given that it is trading only on Degen Layer 3 chain vs. Uniswap that trades on almost all ETH chains. For the sake of this experiment, I will presume that Proxyswap becomes the dominant DEX on Degen.
Let's take a generous 30,000 users on Proxyswap. I came up with this number by simply looking at Degen bridged users data and assumed 100% of the 29k users will use Proxyswap as their leading DEX.
Proxyswap with a 30k user base, trading with a generous $5000 in volume every 30d gives us approximately $150M 30d trading volume. We will apply the 0.15% average fee charge, Uniswap charges on this $150M volume.
Metrics | Uniswap (Million Active Monthly Users) | Proxyswap (Hypothetical) |
|---|---|---|
Active Monthly Users | 3.18 million | 30,000 (estimated) |
Market Cap (circulating) | $7.40 billion (5.28x of ann. fees) | $14,461,000 (5.28x of ann. fees) |
Trading Volume (30d) | $73.40 billion | $150 million (estimated) |
30d Fees | $115 million (0.15% fee) | $225,000 (0.15% fee) |
Annualized Fees | $1.4 billion (0.15% fee) | $2,739,000 (0.15% fee) |
There are a lot of assumptions and exaggerations, I understand. But this is only an exercise to demonstrate how we can start valuing Proxyswap and build out different models for its path to success in the future.
As of today, I believe Proxyswap trades at a rich multiple today with a $17.5M mcap. Even though I believe in early stages of a newly launched project and a token, the mcap is meaningless. Token liquidity itself is a poor parameter in volatile market conditions.
Final thoughts:
I am writing this entire multi-page article because I'm a big fan of Degen Layer 3 and I believe the Proxyswap team has what it takes to dominate the DEX landscape.
In my follow-up article, I will reveal Part 2 which highlights the successes of Jupiter and how Proxyswap can learn from that leader.
Part 3 we will put it all together to build a plan and a roadmap of how we elevate Proxyswap to the next level to reinvent the game and be a top-tier DEX.
