Rapture #198: Uniswap Liquidity, so Deep

Recently, Dan Robinson (Paradigm) and Gordon Liao (Uniswap) released a report analyzing the liquidity on Uniswap. Now, I will start off by saying that there is likely some bias in this research considering Paradigm was a lead investor in Uniswap and Gordon works for Uniswap.

Still, with the researchers open sourcing both their code and their data, and by their reputation, the findings are likely close to being accurate. That being said, the market depth comparisons are not quite apples to apples considering Uniswap utilizes an AMM structure while traditional exchanges use order books, meaning the researchers had to make a new calculation in order to directly compare. I did not look at this equation in detail, but if anyone does, let me know what you think.

Additionally, I would have preferred to see more comparisons over time to show that Uniswap has had deeper liquidity across most of the major market pairs throughout different parts of the market cycle.

Still, the research is incredibly insightful, so let's dive into what they found.

Greater market depth across major pairs

Note: The plot shows the daily average +/- 2% spot market depth in $millions for the sample period from June 1, 2021 to March 1st, 2022. The comparison uses the most liquid ETH/USD pair for each of these markets (ETH/USDC on Uniswap v3 Layer 1, ETH/USDT on Binance, ETH/USD on Coinbase, and ETH/USD on Gemini). The market depth data for centralized exchanges is provided by Kaiko. The comparison does not include some exchanges, including FTX and Bybit, due to a lack of data.

Uniswap V3 has greater market depth for ETH/USD, ETH/mid-cap tokens, and stablecoin/stablecoin pairs compared to the largest centralzied exchanges.

For ETH/USD, Uniswap has ~2x more liquidity than both Binance and Coinbase. For ETH/BTC, Uniswap has ~3x more liquidity than Binance and ~4.5x more liquidity than Binance.

For ETH/mid-cap pairs, Uniswap has on average ~3x more liquidity than major centralized exchanges.

Finally, for USDC/USDT, Uniswap v3 has ~5.5x more liquidity than Binance.

Further analysis of market depth and duration analysis

Note: The time series is of 7-day rolling mean of +/- 2% spot market depth in $millions. Market depth on Uniswap v3 is from Layer 1 only. The market depth data for centralized exchanges is provided by Kaiko.

Interestingly, Uniswap has had greater depth on ETH/USDC compared to centralized exchanges for quite some time.

For the ETH/USD market, higher market depth can be seen across all price levels.

Note: The plot shows the average spot market depth in $millions for the sample period from June 1, 2021 to March 1st, 2022 across price levels. Market depth on Uniswap v3 is from Layer 1 only. The market depth data for Coinbase is provided by Kaiko.

Of course, including gas costs and fees might alter these results a bit.

Separate from the market depth analysis, the researches include some data on the duration of Uniswap v3 LP positions, which tracks how long LP positions are held.

Note: The duration of LP positions is the time period between the initial mint and first burn of a LP position.

The big takeaway here is that 68% of LP tokens are held for more than 1 day+, indicating some sort of liquidity stickiness. I would be very interested to see further break outs over longer time frames, as the market makers creating liquidity on the various exchanges typically have long term contracts.

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