Seasonal Analysis

    Question 45: Conduct a seasonal analysis on sushi swap activity. Is there a particular month or day where there is more activity?

    Introduction

    Seasonal analysis or Seasonality refers to predictable changes that occur over a one-year period in a business or economy based on the seasons including calendar or commercial seasons.

    Seasonality can be used to help analyze economic trends such as retail sales, which typically sees higher spending during the fourth quarter of the calendar year.

    In Decentralized Finance (DeFi), we have different economic cycles and the one which stands out is the DeFi summer. DeFi has existed for some time, but it really began to take off in the summer of 2020 – known as DeFi Summer.

    When borrowing and lending platform Compound introduced its COMP governance token, which is used to reward its users in a process called liquidity mining. Such rewards, paid in COMP, dramatically increased yields, made more complex yield farming strategies possible, and allowed token holders to participate in governance. As other protocols mimicked these concepts, users piled into defi, token prices increased, and defi activity in general skyrocketed.

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    DeFi Summmer

    The purpose of this dashboard is to perform some seasonal analysis on Sushiswap swap activity. The investigation will be divided into two parts; the first part will deal with DeFi summer which starts from late June and ends in late September.

    The line chart below shows Sushiswap swap activity since inception.

    DeFi Winter

    Another commercial season in Decentralized Finance is what we call DeFi winter. It begins in late December and ends in late March.

    The three graphs below show the Sushiswap swap frequencies of the first 3 months of DeFi winter; from December 2021 to February 2022.

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    We can see that Sushiswap trading activity began in May 2021 with a relatively high trading frequency which gradually reduced at the beginning of DeFi summer 2021 in late June. In late August, we see swap frequency shoot up which eventually dropped down at the end of DeFi summer 2021.

    Swaps for December started off hoovering around 25k-40k daily but numbers began rising astronomically on December 21, 2021, reaching as high as 61.2k

    After the high in December, swap activity reduced in January from 40k swaps to as low as 25k swaps.

    This downtrend continued for February with the average transaction frequency currently at 20k swap per day.

    Final Thoughts

    We have defined seasonality and how it is used to help analyze economic trends. We define two main commercial seasons in crypto; DeFi summer and DeFi winter. These two commercial seasons as observed, are seasons where large swings occur in crypto activity due to innovations and new products, among others, which inadvertently has an effect on Sushiswap as a DeFi protocol.