This post is part of competition organized by Dune and the Uniswap Foundation. It follows a 12-day Dune course focusing on Uniswap. It’s a great course that I highly recommend. More info can be found here: https://www.notion.so/12-Days-of-Dune-2022-2c30c5a875ce4650b19c1ef7dd60a11d
The purpose of the competition is to write a Dune query that analyzes the quality of token pairs on Uniswap. The definition of ‘quality’ can be defined in many ways, but one possibility is to consider a pair of high quality if it has high usage (e.g. trading volume) and has a good stability. I decided to keep it simple and look at the size of the liquidity pools and trading volume to assess the usage of each pair. The stability of a pair is measured by the variability of the liquidity pool. Ideally you want to have a liquidity pool that is stable over time.
Rather than looking at all token pairs on Uniswap, I restrict the analysis to DAI token pairs (DAI-WETH, DAI-USDC, …). It turns out there are over 150 trading pairs on Uniswap V2 that have DAI.
The first metric to consider is the amount of liquidity that each pool has. Figure 1 shows the development for all DAI pools over the past six months. What stands out is the dominance of the DAI-USDC pair. Currently the DAI-USDC pool has over $30m in liquidity, accounting for almost 60% of all DAI pools on Uniswap V2. The second largest pool is DAI-WETH, with almost $15m in liquidity, followed by DAI-USDT ($7m). These three pools alone cover 90% of all DAI pools. Since November 2022, liquidity has been relatively stable across the largest pools. The total liquidity of all DAI pools is around $60m, which is down from $200m six months ago. The significant decline is largely due to the DAI-USDC pool that had a liquidity of $190m in August 2022.
A second metric is the trading volume of each DAI pair. Figure 2 shows the daily trading volume of these pairs in USD. The DAI-WETH, of accounting for well over 50% of the daily trading volume of all DAI pairs. Most of the pairs see very little volume on a daily basis.
Figure 3 puts these metrics together in a scatterplot. The X-axis shows the liquidity of each pool, expressed in USD. The Y-axis shows the variability of the liquidity pools. This is measured by the standard deviation of the liquidity pools over the past six months. The size of the bubbles represent the total trading volume seen over the past six months.
As one would expect from the prior charts, DAI-USDC and DAI-WETH stand out. Comparing these two pairs, DAI-WETH has seen a notably higher trading volume as can be seen from the size of the bubble. At the same time the pool of the token pair DAI-USDC is the most volatile pair (Figure 1 already showed the dramatic decline in the DAI-USDC pool).
It’s worth noting that only five pools have a balance of over $1m and only ten pools saw a trading volume over $1m over the past six months. That doesn’t look very positive for the other pairs...
Based on these simple metrics, one could argue that only DAI-USDC, DAI-WETH, and to some extent DAI-USDT, are the higher quality pairs. The rest has seen very little usage (low trading volume, low pool balances). It’s not a real surprise that the WETH and USDC pairs come out as the ones with higher quality, given their market cap and high usage in general. Arguably the current bear market doesn’t play in the favor of the other pairs either. Another caveat is that I only looked at Uniswap V2.
The Dune dashboard can be found here: https://dune.com/dcooper/dai-pools-uniswap