Dr. DODO is Researching

Posted on Dec 29, 2022Read on Mirror.xyz

Data-driven| DODO 2022 Performance Review

Key Points

  • For aggregated trading volume across chains, DODO’s market share has been increasing since July. Today, the 7-day volume market share of DODO reaches 6.7%, which ranks at the 3rd position globally.

  • In the bear market, the TVL in DeFi has been trending down. Since the TVL decline after LUNA’s crash in May, DODO's TVL on Ethereum and BNB chain has remained stable.

  • The DODO private pool is a market making strategy offered to professional market makers. The private pool offers up to 22% gross market making returns and up to 36% net returns on mainstream tokens on BNB chain and Polygon.

  • DODO Stablecoin Pool: Among the top three DEXes on Ethereum, the stablecoin trading volume on DODO makes up about 47.4%. According to the 1inch quarterly report, DODO V1 Q3 export volume was up 38% compared to Q2.

  • When comparing the slippage of Uni V2 AMM vs. DODO PMM, we find that the slippage is more effectively controlled by setting the k value to minimum in the PMM pool.

  • DODO SmartTrade, which is the name of liquidity aggregator service, had the highest routed contract calls on BNB chain. Among the pools that DODO aggregated, the trading volume is mainly happening in DODO V1 and Uni V3.

  • A review of 2022 development roadmap:

Note: The data for this article mainly came from DODO internal data source. The data for comparison with other DEXes is collected from Coingecko and DefiLlama.

Macro Level

Looking at year-to-date data (2022/01/02-2022/11/15), DODO's transaction volume is mainly concentrated in Ethereum, BNB chain, and Polygon, each accounting for 38.4%, 33.9%, and 26.7% of DODO's total transaction volume. These three public chains will be the main targets of macro analysis.

  • Trading volume: We see a shift in trading volume after July, with more active trading on Polygon and BNB chain before July, and a pickup in Ethereum trading volume after July.

    DODO's trading volume situation was clearly divided in July: before July, BNB chain and Polygon were outpacing trading volume on Ethereum in most cases. Since July to date, the volume on BNB chain and Polygon has dropped 77.8% and 62.5% respectively, while the volume on Ethereum is up nearly 115.3%, which can be felt as a pickup in network activity on Ethereum after July.

Trading Volume by Chains

Looking at the trading behavior for the last two months, the share of bot trading volume averaged as high as 92% for the last two months due to the 0 stablecoin trading fee and the low fee settings for mainstream tokens on Polygon and BNB chain.

The proportion of human users trading volume fluctuated between 10%-15% from mid-September to the end of October, rising after the end of October to 18%.

Bot vs. Human User Volume

Around November 1, the DODO USDT/DAI stablecoin pool suffered severe sandwich attacks, which was caused by the default slippage setting of 3% for new user transactions coupled with the DODO stablecoin pool 0 handling fee setting.

Taking a closer look at the two addresses conducting the sandwich attack 0xf480fab87c07ec2ddd68a83ec0319bb466b1afa2 and 0xf667c82a45703bb6a34e031b092b55d6e40c25dc: in the stablecoin pools of DAI/USDT and USDT/USDC on Ethereum afa2 and 25dc completed transactions of $10.5B and $2.9B respectively.

But aside from the MEV attack, the fact that DODO's stablecoin pool is less than $10M in liquidity but can achieve $50-100M in daily trading volume, can be attributed to the 0 handling fee setting on one hand and the high capital efficiency enabled by the PMM algorithm on the other.

Since Balancer DAO's technical lead Mike B pointed out this vulnerability, DODO has promptly adjusted the stable coin pool slippage to 0.01% and made an official response.

  • For aggregated trading volume across chain, DODO’s market share has been increasing since July. Today, the 7-day volume market share of DODO reaches 6.7%, which ranks at the 3rd position globally.

DEX volume comparison on Ethereum

DEX volume comparison on Polygon

DEX volume comparison on BNB chain

Since mid-July, DODO has traded among the top positions on Ethereum, occasionally battling with Balancer for the top three spots. It has been able to maintain the top three positions since the end of August.

The trading volume on BNB chain is mainly led by PancakeSwap. Apart from PancakeSwap, DODO mainly competes with Biswap in terms of volume. On the BNB chain, DODO's trading volume has dropped in October and then rebounded, with an average volume of $20M in the last month.

On Polygon, the trading volume rose to prominent position in between Feburary to April, and in July and September, with WMATIC/USDC and WETH/USDC being the markets with relatively high volumes and transaction fees.

  • The TVL on DODO was clearly divided in May, with the volume of locked positions on Ethereum and BNB chain remaining largely stable after the LUNA crash.

    Prior to the LUNA meltdown in early May, DODO's average daily lock volume on Ethereum and BNB chain was around $89.1M and $55.2M. Polygon's TVL was up nearly 338% at the end of January.

    TVL on Ethereum and BNB chain have remained stable since May, while Polygon’s TVL have fallen sharply since the end of August.

    DefiLlama shows that DODO has a locked position of $34.3 M on Ethereum, ranking 8th. At one time, TVL was the metric that users were concerned about, and DODO has pointed out in the article DEX-Evolution that measuring liquidity and yield with TVL is not accurate. The reason is that, on the one hand, the growth of TVL may be brought about by liquidity mining and, on the other hand, TVL does not reflect capital utilization. A detailed analysis of capital utilization and capital efficiency is laid out in the third part of the article.

  • Fees: Ethereum, BNB chain and Polygon all showed declines in Q3, with an average drop of 43%. Then in Q4, they rebounded sharply, with Ethereum fees rebounding 173.4%.

The two most traded stablecoin pools on Ethereum: DAI/USDT has 0 fee, and USDC/USDT only has 0.2 bps fee. Although the mainstream token trading pairs have 0.24% - 0.4% fees, the volume is low, so the total fee return is lower compared to BNB chain and Polygon.

DODO's fee generation is concentrated on the BNB chain and Polygon chains, where market makers primarily deploy pools due to their lower gas fees relative to Ethereum. On a quarterly basis, fees on Ethereum, BNB chain, and Polygon all fell in Q3, with an average drop of 43%. Subsequently, fees rebounded significantly in Q4, with Ethereum fees rebounding by 173.4%.

*Note: Due to the data cut-off on Nov.15, Q4 fee valuation = (fee Nov. 1 - 15) 2

  • Number of Active Addresses: The number of active addresses on Polygon is relatively high compared to Ethereum and BNB chain, with an average of 4 transactions per address.

Based on DODO's number of transactions at active user addresses, the average number of transactions per address per month is about two per day on Ethereum, three on BNB chain and four on Polygon, with Polygon users being more active in comparison.

The graph shows that the number of active Polygon addresses rose sharply from August 21 to 24 and then fell back, but the average number of transactions per address was about 1.3, suggesting that unique user addresses traded during this period.

Micro Level

The key product features on DODO include an Exchange, Liquidity Pooling, Crowdpooling, Cross-chain Bridge and one-click coin issuance. Considering we are in the middle of a bear market, we mainly analyze the performance data of DODO Private Pool and DODO Stablecoin Pool, and briefly describe the functions and data of aggregators.

  • The fee rate for the mainstream token in the DODO private pool is set around 0.1%, and market maker yields can reach 10-22% annually.

🪐 The DODO private pool whose main target are professional market makers, went live in March 2021. The private pool configuration can be flexibly modified during the market making process, including the transaction commission rate, current external guide price i, curve slippage factor K, and support for adjusting the pool's capital size. For detailed mechanism features and application scenarios, please refer to the DODO article series - Unveiling Professional Market Maker.

DODO private pool mainly meets the market making needs of professional market makers. DODO currently does not have a DPP pool on Ethereum, as most market makers choose to build pools on Polygon and BNB chain, where gas costs are lower.

The top three active markets on Polygon:

The top three active markets on BNB chain:

Note: The pools on BNB chain only include data from July.20-Nov.15.

To encourage trading volume, the stablecoin rate is set at 0, while the rate for the DPP mainstream token pool is set at 0.1% or less, with market makers adjusting the rate frequently based on trading conditions.

On Polygon, trading volume is mainly generated by stablecoin pairs, with an average trade count of 2.7 for the year, peaking at 6.8 in early September. The WMATIC-USDC marketplace is particularly strong in terms of volume.

Also, since DPP primarily serves professional market makers, let's take a look at how market maker yields are performing.

For WETH- USDC on Polygon, the market maker has a total gain of 16% year-to-date. The market maker pool for stablecoin pairs focuses on low fees to facilitate trading, so the total trading volume for stablecoin is also the largest at $9.07B. The 118% yield rate for WMATIC- USDC pairs is due to its very high total fee earnings, with an average daily fee earnings of $4,337.

The market maker pool on BNB chain went live at the end of July and has achieved a total return of 10% over the last four months, with a high of 22%, which is quite impressive.

In an interview with DODO market makers and how to improve market making efficiency with DODO, market maker Shadow Labs mentions that it is possible to achieve 30-40% profitability after deducting various fees such as gas. For example, for the WETH and USDC market maker pools, the market maker's year-to-date net revenue after expenses amounted to $500,000, a net return of about 36.2%.

  • DODO Stablecoin Pool: DODO’s stablecoin trading volume account for 47.4% of the total trading volume of the top DEXes on Ethereum.

🪐 Currently, a large number of stablecoin transactions are concentrated in the stablecoin pool of DODO. Recalling the mechanism of DODO PMM, the stablecoin pool has fixed central price i = 1 and k = 0.01 (the smaller the value, the closer to the rigid conversion of stablecoins). The rate of DODO stablecoin pool is set to 0, with minimal slippage and high degree of centralized liquidity.

For stablecoin transactions, we have selected Uniswap, Curve, DODO and Balancer for comparison. The transaction volume data is obtained from the pool of stablecoin transactions in the aggregation table of each DEX on DUNE.

The pie chart shows that DODO transactions account for 21% of the total volume and 4% of the total number of users. From January 2022, DODO trading volume on Ethereum can compete with Curve or Balancer for the second place position.

In its recent Q3 report, 1inch also noted that DODO V1 Q3 volume exported were up 38% compared to Q2, despite a 50% decline in 1inch's total routing exports.

![https://messari.io/report/state-of-1inch-q3-2022

](https://images.mirror-media.xyz/publication-images/CduZ58mTmwuQfaAePpXRb.png?height=1125&width=2000)

Capital Efficiency

  • When we simulated and compared the slippage between AMM vs. PMM, we found that in PMM algorithm pool, by setting the parameter k to minimum can effectively reduce slippage.

    Take a look at Uni V2 AMM vs. DODO PMM algorithm:

    Uniswap V2 introduced the classic AMM algorithm: $x*y=k$,in which $x$ and $y$ are the reserves of token $A$ and $B$. $k$ remains constant.

    In PMM algorithm, $i$ is the external price, $k$ controls the concentration of liquidity, the smaller the $k$ the more concentrated the liquidity. $B$ and $Q$ are token amount:

To compare the slippage of AMM and PMM, we simulate the comparison of average prices when buying ETH with different amounts. First, assume that the total locked value of the simulated pool is $1M and the current ETH market price is $1000 USD.

The number of ETH in the AMM pool is set as 500 and the number of USD is set as 500,000;

The parameters in the PMM pool are set to i = 1000; k = 0.01/0.1/0.5; S_ETH = 500.

It can be seen that in the simulation results, the difference between the average price returned by AMM and the market price increases rapidly as the amount of ETH purchased increases when the AMM algorithm is used.

In the PMM pool, the simulations with k values equal to 0.01/0.1/0.5 show that the slippage can be effectively controlled by setting the k value to the minimum.

In addition, on November 24, DODO is developing a Chrome extension that went live in beta, allowing users to compare when trading.

  • Capital utilization comparison: The majority of trading volume on DODO is concentrated in the stablecoin pool, and by setting a k value of 0.01, the stablecoin pool liquidity is concentrated around the market price, thus achieving higher capital efficiency.

The capital utilization comparison of DODO mirrors the analysis of the market maker pool and the stablecoin pool above. Since the trading volume in the DODO is concentrated in the stablecoin pool and the k value set in the stablecoin pool is 0.01, the stablecoin pool liquidity is concentrated around the market price, thus achieving higher capital efficiency.

In addition, the our article Deep Research in the Market Making Algorithm of UniV3, Curve V2, and DODO — the Efficiency Improvement Brought by Concentrated Liquidity, we analyzed the liquidity distribution across different liquidity concentration strategy. By selecting the WETH/USDC market maker pool as a sample, the article shows the average value of the liquidity ratio in the price range of 2%, 6%, and 10%. The liquidity ratio of the DODO V2 market maker pool in the 2% range is as high as 83.1%.

DODO SmartTrade

SmartTrade is DODO's decentralized liquidity aggregation service that routes to and compares various liquidity sources to quote the optimal swap rate between any two tokens.

There are two strategies used DODO routing, one of which is called linear routing and the other is called split-order routing:

  • Linear routing means that all of the coins being traded pass through the same pool, based on which the path with the best price for the target token is found. This algorithm has low complexity, fast computation, less interaction with the contract, and uses less gas.

  • Split-order routing refers to the process of finding a transaction path in which the user's funds are allocated to different trading pools simultaneously. This algorithm has high complexity, less computational speed, and more path-contract interaction than linear routing.

A detailed analysis of the DODO aggregator can be found in DODO's article: DEX Aggregators: Ecosystem Development, Products Comparison and Aggregation Algorithms.

We can see that BNB chain has the highest number of requests for routing contract calls, followed by Polygon and Ethereum. The number of requests on BNB chain basically stays around 600,000 per day. The success rate of error reporting in the past 30 days is 92%, most of the errors are caused by timeouts, but also due to program errors or user parameter errors that cause users not to receive the normal routing results.

Looking at the prices returned, 39% of the time the price is returned via DODO’s linear routing, while 36% is returned via 1inch. The DODO routing algorithm is continuously being optimized.

From the graph below, we can see that for DODO split-order routing, the 90 percentile data is fluctuating around 700 ms, which is faster than other aggregators.

The pools under DODO Aggregator include DODO V1/V2, Uni V2/V3, Sushiswap and Curve. The trading volume is mainly happening in DODO V1 and Uni V3.

https://dune.com/queries/1719238/2840861

In the past year's bear market, DODO's team has been building persistently, such as the user trading experience optimization, multi-chain deployment, support cross-chain trading, the introduction of K-line function, and the development of the online Chrome price comparison plug-in.

In terms of data performance, during the bear market, DODO's trading volume has been maintaining its position in the top three. And DODO's capital efficiency has been in the leading position, PMM algorithm effectively concentrates the price near the market price, leveraging higher trading volume with less lock-up volume.

References:

https://www.chaincatcher.com/article/2082679

https://messari.io/report/dodo-capital-efficient-dex

https://blog.dodoex.io/dodo-research-dex-%E7%9A%84%E6%BC%94%E5%8F%98-%E8%BF%9B%E5%87%BB%E4%B8%8E%E6%9C%AA%E6%9D%A5-68ab954a309

https://www.chaincatcher.com/article/2072687


About us:

「Dr. DODO」is the research arm of DODO. We track the evolvement of DeFi and related sectors. Dr.DODO leads a group of researchers to decode the crypto world, conduct in-depth research, publish distinctive views and predict the future value of the crypto world

Our DM is open! We welcome any insights & original writings.

Contact: email: [email protected]

We’re Hiring

https://twitter.com/DodoResearch/status/1601066101001302018

1)DeFi / Web3 Infrastructure Researcher

2)Brand Operation

https://twitter.com/DodoResearch/status/1601066101001302018

Our work are published at Twitter, Notion and Mirror

Twitter: https://twitter.com/DodoResearch;

Notion: https://dodotopia.notion.site/Dr-DODO-is-Researching-6c18bbca8ea0465ab94a61ff5d2d7682;

Mirror:https://mirror.xyz/0x70562F91075eea0f87728733b4bbe00F7e779788