The number of users interacting with Hashflow increased significantly in Q2, with DAUs up 60% QoQ, including 136,000 new users.
Hashflow facilitated over $1.5 billion in volume in Q2, up 7.4% QoQ. The average trade size fell, but the number of trades increased to over 500,000 trades.
While Hashflow volumes remained steady on Ethereum, Hashflow’s trading volume on Arbitrum more than doubled in Q2.
The Hashflow forum and decentralized governance were significantly busier in Q2. Combined with the upcoming launch of the Hashverse, they likely drove the 20% increase in the number of HFT stakers.
Primer on Hashflow
Hashflow is a decentralized exchange (DEX) that uses a request-for-quote model with pricing provided by professional market makers. Hashflow's signature-based pricing offers traders guaranteed execution price, MEV-resistance, and no slippage. Hashflow was founded in 2020 by Varun Kumar, Victor Ionescu, and Vinod Raghavan. After launching in Private Alpha in April 2021, Hashflow fully launched in August 2021. Since initially launching on Ethereum, it has expanded to Arbitrum, Avalanche, BNB, Polygon, and Optimism. Hashflow also offers cross-chain trading, allowing traders to exchange assets on different chains without escrowing or bridging assets between chains. HFT is the governance token for the Hashflow protocol. In early 2023, the Hashflow Foundation announced the Hashverse, a gamified experience to onboard new users, diversify HFT ownership, and promote usage.
Hashflow’s volumes grew slightly in the second quarter, surpassing $1.5 billion in volume traded. While volumes on Hashflow’s Ethereum instance were flat, volume on Arbitrum increased 123% to over $420 million in Q2. Arbitrum now accounts for nearly 30% of Hashflow’s volume. Avalanche and BSC were the biggest volume decliners in USD terms. Compared to Q4’22, the volume on Hashflow’s Avalanche instance fell 95% to $15 million and dropped 56% on Hashflow’s Binance instance to $120 million.
In Q1, Hashflow onboarded or partnered with many DEX aggregators and wallets. Those seeds bore fruit in Q2, as the source of trading volume on Hashflow became far less concentrated. Although 1inch remained a very important partner, non-aggregator trades became far more popular in Q2. In May, Hashflow announced another integration with Moonpay to enable users to access Hashflow liquidity with a credit/debit card.
The number of daily active users (DAUs) on Hashflow was up 60% in the second quarter. Similarly, the number of new, unique users increased by 47% as over 135,000 new addresses traded on Hashflow in Q2. With the launch of the Hashverse in Q3, the number of new users on Hashflow will likely continue to grow. Interestingly, Ethereum was the only Hashflow instance where the average number of daily users fell (-27%). On the other hand, Arbitrum and Polygon were the most used instances with 430 and 158 DAUs, respectively.
In Q2, the total volume traded on Hashflow’s Arbitrum instance skyrocketed to nearly half a billion in USD. Arbitrum’s new, native token ARB was responsible for nearly 7% of trading volume. wETH and USDT remained the highest volume tokens at 33% each, while USDC was responsible for 24% of volumes. Both GMX and wBTC only accounted for more than 1% of volumes in the quarter.
Along with having more users, Hashflow executed nearly 27% more trades in Q2 than Q1. The jump in trade count was led by Optimism, where daily trades increased by 278% in the quarter. The increase likely came as a result of users transacting more to earn OP rewards from many DEXs. Hashflow is also now executing over 1,000 trades per day on Polygon, where the daily transaction count increased 69%.
Volume on Ethereum was roughly flat for the quarter along with market share by type, after responding to the change in rewards last quarter. Wrapped ETH (wETH) made up 38% of volume, with USDT and USDC behind it at 27.5% and 23%, respectively. At just under $1 billion of volume, Hashflow remains a top-10 DEX by volume on Ethereum Mainnet.
HFT Distribution and Staking
The Hashflow Foundation is in the process of decentralizing the protocol. Hashflow uses token voting for off-chain governance, with an optional vote escrow staking mechanism for holders to increase their voting power depending on the length of the escrow. In the June 22 release of Hashbeats, the foundation shared some stats on the community building process, highlighting the “50 proposals, 20 polls, and 8100+ on-chain votes” since launching governance. The number of HFT holders only increased by 4% in Q2, but participation will likely increase with the release of the Hashverse in the second half of 2023.
Hashflow has been marketing early access to the Hashverse for early stakers who can pre-activate their profiles. Stakers can also earn HFT rewards (targeting 10% APY), along with a higher power level in the Hashverse, which can increase future HFT earnings. Although the amount of HFT staked only increased by 5.4% in Q2, the number of stakers jumped 20% to 2,558 wallets.
In the upcoming quarter, roughly half of the existing staked HFT will become unlocked. However, in terms of liquidity or sell-pressure, it is not a meaningful amount of the total circulating supply. Further, stakers could always just re-stake once their escrow period is over.
Qualitative Analysis
Updated Governance Process
The earlier Hashflow governance process faced some challenges due to the lack of clear guidelines for proposing, discussing, and implementing changes. Given the resulting inefficient and unclear process, community members found it difficult to gauge the level of support for a specific proposal. Moreover, the absence of proper guidelines led to poorly drafted proposals and brought about disagreement among participants regarding the implementation process.
Under the newly implemented upgrade, the Hashflow governance process was streamlined to address these issues effectively. The revised process comprises three stages: Discussion, Proposal, and Consensus. This structured approach promotes a healthy dialogue, allowing community members to deliberate on potential changes in the Discussion phase before drafting a formal proposal. Proposals must now follow specific guidelines, including essential elements such as problem definition, proposed solution, and acceptance criteria. Furthermore, proposals must obtain at least 60% approval in the Consensus phase.
These improvements in the Hashflow governance process seek to create a more organized, transparent, and efficient system for driving upgrades and decision-making within the community.
Deprecated Contract Whitehat Intervention
In May 2022, Hashflow's smart contracts were upgraded to their current iteration/version. The team communicated the transition, deprecating the old contracts and recommending users revoke any of the contracts’ permissions. Over a year later, on June 14, 2023, a hacker was able to transfer approved assets of ~$615,000 using the deprecated contracts on Ethereum and Arbitrum. In the post mortem for the hack, the Hashflow team identified that the hacker was a whitehat and announced that all funds would be returned to affected users. The team reiterated its instructions to the community to revoke access from the contracts. Any eligible user can follow these instructions, provided by the Hashflow team, in order to recover lost funds.
Rewards Expiration Algo
In December 2022, a change to the rewards algorithm was proposed in order to incentivize holders to claim their HFT with the intention of participating in governance. The passing of the proposal implemented an expiration policy for unclaimed HFT grants that had been dormant for over 60 days.
The community later brought up concerns about rewards they were entitled to and a change they had not been aware of. Further, many had an issue with the gas cost to claim a small amount of rewards.
To address the concerns and feedback from the community, there were two new proposals in June. They aimed to reinstate HFT rewards while introducing changes to the rewards algorithm. The first proposal, termed "Re-assign Forfeited Unvested Grants and Staking Rewards," would make unvested token grants and staking rewards non-expirable. This change should ensure that users keep their accrued rewards despite the expiration policies, offering increased flexibility and fairness. After some discussion, the community vote was passed on June 30, and the new policy was implemented.
The second proposal, referred to as the "Upgrade Rewards Expiration Algorithm," focused on modifying the rewards expiration algorithm itself. The proposed algorithm aimed to balance the need for an incentivizing mechanism to promote active participation while accounting for potential delays in claim redemption. By implementing this new algorithm, the Hashflow community sought to reward active users promptly while also providing a reasonable timeframe for claiming accrued rewards. This proposal was voted on by the community and passed on June 21.
The early experience of decentralized governance is a learning experience for the community and its leaders. All the back and forth did have a silver lining: It created a much more active governance forum and Discord. The experience proved that community issues can and must be solved by governance, which the Hashflow community successfully accomplished this quarter.
Closing Summary
Usage of Hashflow as a means to transact cryptocurrencies increased in the second quarter. Its volumes were up marginally, but the number of users increased dramatically as the team built out partnerships, integrations, and direct user marketing. Hashflow’s usage growth on Ethereum Layer-2 solutions stands out, with DAU growth on Polygon, Optimism, and Arbitrum each growing more than 1.5x in the second quarter. Hashflow took major steps in community participation in Q2, and the expected launch of the Hashverse should accelerate this process further. Hashflow continues to be a competitive DEX for aggregators and traders to find best price execution.
This report was commissioned by the Hashflow Foundation. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization may have input on the content of the report, but Messari maintains editorial control over the final report to retain data accuracy and objectivity. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.
No part of this report may be (a) copied, photocopied, duplicated in any form by any means or (b) redistributed without the prior written consent of Messari®.
Looking to dive deeper? Subscribe to Messari Pro. Messari Pro memberships provide access to daily crypto news and insights, exclusive long-form daily research, advanced screener, charting & watchlist features, and access to curated sets of charts and metrics. Learn more at messari.io/pro.
Before joining Messari as a Senior Research Analyst, John worked in Equity Derivatives on the buy-side and sell-side for over five years. He studied macroeconomics and markets for almost a decade. Now, John spends time thinking about token design, DeFi protocols, and governance.
Before joining Messari as a Senior Research Analyst, John worked in Equity Derivatives on the buy-side and sell-side for over five years. He studied macroeconomics and markets for almost a decade. Now, John spends time thinking about token design, DeFi protocols, and governance.
