SUMMARY

📊 Since August 2022, Ethereum and Arbitrum have dominated the DEX volume, accounting for more than 95%.

📈 In February, Arbitrum dominated trading volume, accounting for 54% of the total, surpassing Ethereum.

📉 Sushiswap's market share has declined across major networks including Ethereum, Arbitrum, Polygon, and Avalanche.

💰 Sushiswap's dominance on the Ethereum network is evident from the impressive liquidity provider rewards, but a decline in rewards for Polygon and the emergence of Arbitrum raises questions about the future of liquidity provider rewards on different networks.

Since January 2022, Ethereum had been the reigning champion, driving over 50% of the total trading volume on SushiSwap. However, this changed when Arbitrum entered the picture, toppling Ethereum from its throne. While Ethereum's dominance had been the norm for quite some time, It remains to be seen whether Arbitrum's ascendancy will be a passing fad or a lasting shift in the market.

In stark contrast, other chains have barely made a blip on the radar, with Avalanche, Polygon, Moonriver, Fantom, Celo, and Harmony contributing to a mere 2% of the trading volume last month. This is surprising, given that Avalanche had a significant 15% share at the beginning of last year. However, its volume dropped significantly until August 2022, where it accounted for less than 1% of the total volume. Polygon has experienced a similar decline, going from accounting for a substantial share of the trading volume to contributing only 1.5%. Even Harmony, which once accounted for 5% of trading volume in June of last year, now contributes less than 1%.

Introduction and context

The cryptocurrency market is a wild ride, and 2021 and 2022 were no exception. The graph above paints a picture of a market that experienced a surge in growth and adoption, peaking in May 2021 with an impressive volume of 28 billion USD. However, this momentum was short-lived, and the market saw a decline that continued until October 2022, hitting a low of 1 billion USD. The root cause of this downturn can be traced back to a shift in market sentiment, as investors grew increasingly risk-averse in response to rising interest rates set by the Federal Reserve. Unfortunately, this change in sentiment led to the collapse of several crypto protocols and exchanges throughout 2022, resulting in a significant drop in overall volume.

Despite this, SushiSwap has set its goals for 2023, aiming to become a market-leading DEX focused on users, release its DEX aggregation router, and optimize tokenomics, liquidity, and treasury diversification. Sushi also plans to launch its decentralized incubator, Sushi Studios, to support ecosystem growth. The protocol has redesigned its business model to encourage scalability and sustainability while avoiding depleting the treasury. With these initiatives, SushiSwap intends to 10x its market share in 2023. To achieve its goals, Sushi emphasizes community-driven governance and transparency through its governance dashboard, which will be available in Q1 2023. Ultimately, SushiSwap aims to become a market leader while promoting the principles of crypto, such as financial autonomy and sovereignty.

Data revealed that Arbitrum is the primary volume attractor for SushiSwap. However, when compared to other DEXs, we found that SushiSwap's market share has fluctuated significantly over time.

In January 2022, SushiSwap captured an impressive 56% of the market share, while Uniswap had 30%. However, over time, Uniswap gained more market share, reaching a whopping 66%, while SushiSwap's market share dropped to a mere 12% in October 2022.

Despite the decline in market share, SushiSwap's fortunes took a turn for the better with the advent of higher monthly volumes in Arbitrum. From 2B to 8B, this marked a significant increase in trading activity, and SushiSwap was quick to regain market share, which climbed back up to 23%.

It is noteworthy that the rapid growth of Arbitrum volume indicates that SushiSwap may have an opportunity to capitalize on this growth and gain more market share in the future. However, the data also underscores the importance of remaining competitive in the market, as demonstrated by the rise of Uniswap.

As we delved into our data analysis, it became evident that while Ethereum accounts for a significant proportion, at least 50%, of SushiSwap's trading volume, its market share in comparison to other DEXs is relatively low. SushiSwap experienced a promising start, capturing 10% of the market share in January 2022. However, the latest market share data for February 2023 reveals that it has dwindled to a meagre 3.3%. This decline is due to the success of other players such as Curve, Dodo, and Balancer, who have increased their trading volume and captured more market share.

Uniswap remains the dominant player on Ethereum, commanding at least 60% of the market share. Uniswap's stronghold on the market could be attributed to various factors, including a well-established user base and a reputation for providing reliable services.

As we explored further, we analyzed the liquidity provider (LP) data over time. We found a concerning drop in the number of daily LPs on SushiSwap from around 300 in January to less than 100 a year later. The data shows a consistently low number of LPs since then, suggesting that something significant has changed in the market dynamics.

In contrast, Uniswap boasts an average of 500 daily LPs, indicating the strength of its user base and the high level of trust in its services.

In the case of Polygon, the market share it's not too concentrated like in Ethereum and Arbitrum, where a few DEXs dominate the market. Instead, Polygon boasts a more competitive environment, with several decentralized exchanges vying for dominance and market share. DEXs like Balancer, Quickswap, and Dodo are among the competitors vying for market share in this competitive landscape.

However, not all platforms have been able to keep up with the pace of change. Sushiswap, for instance, has experienced a dramatic drop in market share, falling from 12% to just 1% in the previous year. This downward trend can be attributed primarily to the explosive growth of Uniswap, which has surged from 24% to 57% market share.

The story of Sushiswap in Avalanche is a fascinating one, and it highlights the constantly evolving nature of the decentralized finance market. In January 2022, Sushiswap had a substantial market share of 16%, but as of February 2023, it has virtually disappeared, accounting for less than 0.1% of the market. The platform lost out to competitors such as Platypus, Curve, Woofi, and Kyberswap, who were able to capture a larger share of the market. In addition, the monthly volume in Avalanche decreased dramatically from nearly 15 billion in January 2022 to 1 billion in February 2023.

Sushiswap rewards liquidity providers through its MasterChef contracts. LPs receive rewards based on the amount of liquidity they provide in each pool. They can claim their rewards by using the "harvest" function on the MasterChef contract, which transfers SUSHI tokens to their wallets. This contract is available in Ethereum, Polygon, Arbitrum, Gnosis, Fantom, BInance Smart Chain, Moonriver, Moonbeam, Harmony, Metis, Celo, Kava, Boba and Fuse. For simplification, we'll just look at rewards in Ethereum, Arbitrum and Polygon.

The scatter plots above present an intriguing insight into the relationship between sushi rewards and USD volume across different networks. Interestingly, the results do not seem to show a clear linear relationship between rewards and volume, with the exception of Polygon but it's important to recognize that correlation does not always equal causation.

As we embark on our analysis of liquidity provider rewards, the dominance of the Ethereum network is immediately apparent. Since January 2022, a staggering minimum of 300k Sushi tokens have been rewarded to liquidity providers each month, with peak rewards reaching almost 500k tokens in June, July, and December of the same year. These impressive figures demonstrate the enduring appeal of Sushiswap on the Ethereum network.

However, the story is different when we examine Polygon rewards. The first quarter of the year (January to April) witnessed a sharp decline in monthly rewards for Polygon liquidity providers, plummeting from 60k tokens to less than 20k tokens.

On the other hand, Arbitrum rewards only kicked off in April 2022, with an average monthly reward of 15k Sushi tokens. As a relatively new addition to the Sushiswap platform, it will be interesting to monitor how rewards for liquidity providers evolve in the coming months, especially considering that Arbitrum has surpassed Ethereum in trading volume. It's worth noting that rewards appear to be unaffected by lower trading volumes on the different networks throughout the year.

The road ahead for Sushiswap is not without challenges, as the platform has experienced a decline in market share on the primary networks. However, by embracing transparency and community-driven governance, Sushiswap can navigate these challenges and position itself for success. To achieve its goals of optimizing tokenomics, liquidity, and treasury diversification, strategic decision-making will be crucial. With careful planning and execution, Sushiswap can regain its foothold in the crypto market and emerge stronger than ever.

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