UNIDEX: The Defi Liquidity Hub

Disclaimer: Nothing interndao publishes and/or shares is investment advice and should never be shared under the false pretense of investment advice. All InternDAO publications are for educational and/or entertainment purposes only. InternDAO (interndao.eth) and/or individual members of InternDAO may own tokens from the protocols discussed. This post was not written at the request of Unidex and was not sponsored. InternDAO is not working nor partnered with Unidex, but reserves the right to work or partner with Unidex in the future. By reading this post, you agree to assume all personal liability for your own actions and agree that this content is not investment advice.

UNIDEX: The Defi Liquidity Hub

Intro:

UNIDEX (www.unidex.exchange) came to be in October 2020, inspired by 2019 DeFi summer’s promise of a crypto-native financial system. This dream first started with bitcoin as a payment rail, but quickly evolved into programmable money, complete with crypto-backed stable coins and fully decentralized marketplaces.

Since then, the collapse of crypto’s centralized ecosystem, the US’s regulatory tirade on financial sovereignty, and faster / cheaper on-chain transactions have catalyzed the adoption of decentralized trading. The resulting rush of new DeFi users has brought with it the meteoric rise of DYDX, GMX, GNS, and PERP, amongst others.

Despite the most recent explosion of on-chain activity, early DEX adopters suffer from vulnerable DEX backstops and fragmented liquidity across protocols and chains — and with that simple thought, we present UNIDEX.

Unidex falls into what we at InternDAO consider to be the crypto sweet spot, meaning it’s a fundamentally focused project, with a dedicated technical team, and is progressing toward solving a real-world use case that improves the end-user experience and DeFi capital efficiency.

Sweet spot protocols have a tendency to under-communicate to those outside of their core community. Through conversations with the core development team, we’ve identified fundamental advancements that we felt are not currently captured in the documentation and are worth considering.

Summary:

At first glance it will appear that Unidex is working to solve the fragmented liquidity problem that plagues the multi-chain DeFi world. The protocol aggregates decentralized spot markets and will soon be aggregating decentralized perpetual markets across chains — providing users with a single crypto-native place to chart and trade DeFi products. However, the Unidex vision is larger than just that, and if successful, will become the liquidity hub for all Defi builders to develop on top of.

Screenshot from the Unidex team of an unreleased UI.
Screenshot from the Unidex team of an unreleased UI.

Once the protocol’s Optimism app-chain is launched, it will offer the decentralized world an omnichain Defi liquidity primitive. New Defi protocols will no longer need to launch across chains or source LP’s for themselves, instead they can plug into the Unidex appchain to solve all their liquidity needs. Moreover, users will no longer need to switch amongst chains, instead they’ll be able to use Unidex’s account abstraction implementation to submit transactions that the protocol will then auto-route across the entirety of web3.

V3 Overview:

In March of this year (2023), the team rolled out V3 swaps (aggregated omnichain AMM swaps) and are now aiming for a late March / early April beta release of their V3 omnichain perpetual swaps. The V3 multi-phase upgrade, once complete, will deliver:

(1) An updated swap aggregator design:

  • “Orders are filled in batch short-term auctions from any source removing the possibility of traders missing out on a deal they could have gotten better with a requote. Trades are constantly being quoted in small intervals and filled with cross orders (CoW orders), an existing meta-aggregation strategy, and community-built routing sources. This makes the aggregator open to future integrations as protocols can essentially add their DEX into the aggregator given they only need to fill the conditions of filling the user’s order with the requested tokens.”

  • In practice, user’s can place an order on Arbitrum and be filled on Optimism and can choose to use the gasless trading method so that their order never hits an AMM directly.

Current V3 swap aggregation design in “instant mode”.
Current V3 swap aggregation design in “instant mode”.

(2) The launch of a perpetual swap aggregator:

  • Using account abstraction, users can buy or sell from a single wallet, logged in to a single chain, and have their order filled across multiple DEXs from multiple chains. The position routing and liquidity sourcing is abstracted away from the user and they’re simply presented with a single position to manage.

  • “Orders will be filled in the order of UniDex LPs first > other Perp DEXs > Cross chain orders to other Perp DEXs…the leverage terminal is changing into a derivatives terminal that aggregates orders both multi-chain & cross-chain.”

  • Upon launch, the new derivatives terminal will aggregate liquidity from:

    • Arbitrum: Gains, GMX, Mux, Cap, MYC, UniDex, HandleFi

    • Optimism: UniDex, Pika, Kwenta, opx, Perpetual protocol v2, Mux, MMY

    • Polygon: Gains, Metavault, Unidex

    • Fantom: MPX, MMY, Mux, Unidex

    • Binance Smart Chain: LVL, UniDex

    • Avalanche: GMX, Unidex

(3) A dedicated Optimism app chain which will serve native LP’s and help to drive liquidity to perpetual markets, while creating a new Defi liquidity primitive for all other developers to plug into:

  • The current testnet is slated to be launched at either the end of this month or in early April.

  • The appchain will be using EIP 1559’s gas burning mechanism, turning UNIDX into a deflationary coin with no future emissions, however user’s can also decide to use ETH or stable coins for gas as account abstraction is supported.

  • While anyone can build on top of the app-chain, the Unidex team will be providing an orderbook DEX, it’s leverage/derivatives platform, an options trading protocol, a swap aggregator, and potentially a lending protocol.

  • The team will also be onboarding partner protocols, but no other details were provided to us.

(4) Updated token fee structure and token holder benefits:

The protocol has taken a beautifully simple approach to tokenomics, but has a history that you must learn about to understand the project’s marketcap.

  • 20MM tokens were created during the token’s initial launch, however 16MM were burned in November 2020, leaving the total supply of 4MM.

  • Included in the burn was the team’s token allocation. They have instead opt’d to take a split of fees. We consider this to be an atypical approach, however, there is potentially strong alignment due to the teams’ financial outcome resting entirely on their protocol’s adoption.

  • The inflation rate of the token is 0 and all tokens are held by users, with the exception of the 833,333 tokens owned by the protocol, which are currently providing liquidity on Uniswap on Ethereum. Once Uniswap supports concentrated LP’ing on Arbitrum, a portion of the liquidity will be moved there.

UNIDX holders also receive a portion of protocol fees (currently capturing .17% of total perpetual swap volume). Token holder rewards are directly dropped (weekly) into holders’ wallets, without the need to stake. By default, the protocol will airdrop your portion of fees in USDC on Optimism. However, you may opt to receive your rewards in UNIDX, ETH, Frax, or a number of other supported tokens on your preferred chain. The protocol currently purchases UNIDX back from the open market (amongst other places when available) to distribute UNIDX rewards to users.

Once V3 roles out, the perpetual swap fee model will be updated to 45% of protocol revenue to LPs, 40% to token holders, and 15% to the team.

https://tokenterminal.com/terminal/projects/unidex
https://tokenterminal.com/terminal/projects/unidex

Growth opportunities:

  • V3 will also introduce the ability for Unidex to capture positive slippage from token swaps, introducing an additional revenue stream that is then split 50/50 between token holders and the team.

  • Volume routing rewards from newly onboarded protocols also creates an additional revenue stream for the protocol. Uniswap’s most recent integration with Defillama Swap is expected to handle 75% - 90% of the project’s volume.

  • Currently, only a small portion of DEX volume is routed through aggregators, estimated at around 10% to 20% (Source). In addition, most of the spot volume is being done on CEXs. Therefore, we can expect that on-chain volume will grow over time. Based on the volumes currently being routed through aggregators, we can lay out the following scenarios:

https://dune.com/rmaborn/dex-aggregators
https://dune.com/rmaborn/dex-aggregators

Unidex also is expected to grow within the derivatives market, initially through omnichain perpertual swap aggregation, and later through a native appchain. Currently, there is roughly $2.5b in daily decentralized perpetual swap volume (Source). By analyzing the amount of volume that Unidex is capable of capturing from the current perp landscape, we can envision the following potential scenarios:

Conclusion:

The combination of an Optimism appchain and multiple Defi applications on top does more than just address the current fragmentation of onchcain liquidity, it provides the foundation for a new Defi liquidity primitive, open to all developers.

By creating one place for omnichain liquidity, Unidex attracts both developers and users to their network. Defi applications that integrate with Unidex offer a better user experience and better order execution, which in turn brings more volume to Unidex, which in turn deepens Unidex’s native liquidity. This flywheel, driven by a better experience for developers, users, and LP’s has the potential to create a massive moat.

Moreover, crypto has long discussed the idea of a chain agnostic application that abstracts away the complexities of a multi-chain world, and less than a decade later, that reality has arrived.

Sitting at an approximate $30MM FDV (at the time of writing), Unidex’s valuation is a complete head scratcher. Based on the scenarios presented above, we can estimate that Unidex holders will receive between $0.35 to $4.50 per token per year, for the more bearish/neutral outlooks, and upwards of $16.50 or more per token per year for the more bullish outlooks — all of this being real yield. Combined with a deflationary token model, this reminds us of the early days of Defi summer where the now called “defi bluechips” were just starting to be understood.

Nothing interndao publishes and/or shares is investment advice and should never be shared under the false pretense of investment advice. The above figures are an academic response to the growing world of decentralized finance.
Nothing interndao publishes and/or shares is investment advice and should never be shared under the false pretense of investment advice. The above figures are an academic response to the growing world of decentralized finance.

<https://coinmarketcap.com/currencies/unidex/ https://linktr.ee/unidexexchange>

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