DeFi Brief: Declining Ethereum DEX Dominance, Uniswap V3 License Expiry, and GMX Shorters Jump the Gun

Narratives and Trends

Ethereum DEX Volume Dominance Decreasing

Ethereum mainnet’s role as the hub for DEX trading volumes is showing signs of weakness. For the first time since the end of 2021, Ethereum’s 90 day moving average in DEX trading volumes has begun to decrease.

This shift can be explained in two parts. First, the erosion of Ethereum’s dominance in DEX volumes throughout 2021 can be attributed to the rise in alternative Layer-1 (L1) DeFi ecosystems and a raging bull market. When the market drawdowns of 2022 wiped out many large entities, trading volumes shifted back to the safety of Ethereum mainnet. This trend reached a climax in March 2023 during the USDC depeg when Ethereum DEX volume dominance reached 80% – a level that hadn’t been seen since the start of 2021.

Following the USDC depeg event, volumes are once again moving away from Ethereum mainnet. While the 90 day average has just begun to decrease, this trend is likely to continue, given the ongoing maturation of Ethereum’s Layer-2 (L2) DeFi ecosystem. Users that migrate from Ethereum mainnet to L2 DEXs are less likely to reverse course compared to those that leave for alternative L1s. Since L2s inherit their security properties and base asset (ETH) from Ethereum, their users do not need to worry about fleeing to the safety of Ethereum or ETH the asset when the market dynamic turns sour.

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