Uniswap is superior in basic indicators such as transaction volume, liquidity, and transaction volume, while SushiSwap is superior in market-to-sales ratio and price-volume ratio.
Original title: “DeFi 丨SushiSwap is surpassing Uniswap?”
Written by: Lukas Wiesflecker
When we talk about decentralized exchanges (DEX), we cannot avoid SushiSwap and Uniswap. The two are very similar and compete with each other.
This similarity is no coincidence. After all, SushiSwap is an imitator of Uniswap. At first it was a simple imitation, and now SushiSwap has become a strong competitor.
SushiSwap’s cryptocurrency SUSHI price hovered around $1.5 after the initial price hype disappeared. The target price of SUSHI is the $15 mark, and the current market value is less than $1.8 billion. SushiSwap has come this far.
There are enough reasons to compare the performance of these two competitors in the battle for the DEX leader.
SushiSwap vs Uniswap: the starting signal of the battle for the leader
Although they were the same product at first, in the past few months, the two agreements have become two completely different products. SushiSwap is constantly releasing new features. At the same time, the core community of SushiSwap is very good at communicating these developments to the outside world, while the core developers of Uniswap are working behind closed doors to develop V3. No one knows what this update will bring. However, people’s expectations for Uniswap are high, and the pressure is increasing in the face of SushiSwap, an increasingly powerful competitor.
The goal of this article is to compare these two protocols based on significant on-chain indicators and how they compete with each other for dominance in their niche markets.
First round: trading volume
One of the most basic indicators to measure the success of a decentralized exchange is trading volume. After all, the core purpose of decentralized exchanges is to facilitate the exchange of tokens between participants.
In terms of transaction volume, Uniswap has a clear lead. However, the current transaction volume of SushiSwap is hard to ignore .
In the past three weeks, Uniswap’s average daily trading volume has ranged from US$700 million to US$1 billion. At the same time, SushiSwap shows an average daily transaction volume between 300 million and 600 million US dollars.
Uniswap’s transaction volume is still twice that of SushiSwap, but the monthly transaction volume trend shows that SushiSwap has entered the fast lane.
Uniswap and SushiSwap monthly transaction volume
When we plot the percentage of SushiSwap and Uniswap transaction volume, SushiSwap’s catch-up becomes more obvious. A month ago, SushiSwap processed an average of 25% of Uniswap’s weekly transaction volume. The current processing volume averages 48% of Uniswap.
Percentage of SushiSwap’s weekly volume achieved on Uniswap. Source: Dune Analytics, Bankless
Such an obvious trend cannot be ignored. The core developers of Uniswap are also aware of this trend, which increases their pressure, because if SushiSwap can continue to catch up with Uniswap’s transaction volume at an average weekly rate of about 2%, it will be by the end of the year. Become the first DEX.
However, it is questionable whether Uniswap will give up its leading position in DEX so quickly. Therefore, there is no final conclusion here. Currently, Uniswap is the leader in trading volume.
🏆 Round 1 champion: Uniswap
Second round: total liquidity
As the saying goes, mobility is king. This slogan didn’t come up anywhere, so the key basic indicator to be analyzed next is the total value of assets. This represents the total amount of liquidity provided by users to the platform.
SushiSwap was notorious for its vampire attacks at the time and damaged the reputation of the protocol in its early days. After all, it directly and publicly attacked the darling of the DeFi circle. The attack still worked, at least for a short time, so that SushiSwap succeeded in surpassing Uniswap in its monetization ability during the hype phase.
The success of this turnaround was achieved through SUSHIToken, which rewards users for providing liquidity. SUSHIToken exists longer than UNI Token. With this additional incentive, the success of this turnaround shows that no advantage is set in stone .
But Uniswap fought back.
Within a few weeks after SushiSwap released the token and the full-scale vampire attack, Uniswap finally gave in and released its token. Uniswap went one step further. They retroactively rewarded early adopters of their protocol and provided 15% of the token offer, creating a new retrospective airdrop trend.
As the Uniswap Token was launched, the wind direction immediately turned again. After SushiSwap absorbed a large amount of liquidity in August, liquidity providers flocked to Uniswap to obtain newly issued UNI Tokens from the initial liquidity mining.
At the same time, a few months later, things have calmed down. Both agreements have billions of dollars in liquidity. However, there is a key difference. After Uniswap’s additional liquidity incentives ended in November 2020, much of the liquidity was redistributed instead of issuing additional tokens. This is because SushiSwap continues to reward its liquidity providers with its native Token SUSHI.
Liquidity on Uniswap and Sushiswap. Source: Token Terminal, Banales
It should be noted here that although UNI Token does not directly support Uniswap’s liquidity, many projects use Uniswap as their main trading venue and encourage their communities to provide liquidity for their respective Uniswap pools.
However, this trend seems to be changing more and more.
Although Uniswap is still the first port, more and more projects also provide measures to encourage users to provide liquidity on SushiSwap. For example, the ecosystem around Year Finance prefers SushiSwap. This fact alone highlights that SushiSwap has become an indispensable part of the ecosystem, and even the project party can no longer ignore it.
In any case, despite the lack of additional incentives, higher liquidity is a powerful indicator of a product and its market position. Uniswap remains the leading trading platform for traders and Token projects. However, SushiSwap broke the USD 2 billion mark at the end of January, further highlighting its own healthy development.
The liquidity of SushiSwap. Source: Token Terminal
However, Uniswap has higher liquidity, currently has 3.15 billion US dollars, won the second round of the championship battle.
🏆 Second round champion: Uniswap.
Round 3: Income
With the fierce competition between the two agreements in terms of transaction volume and liquidity, revenue has become another key indicator that needs attention. Income comes from the cash flow that LP obtains from transaction fees. It is worth noting that both protocols charge a 0.3% transaction fee for all token exchanges.
Based on the previous two indicators, the result of this comparison is not surprising. Not only compared with SushiSwap, but also in the entire DeFi field, Uniswap is an absolute leader. The agreement is a real cash flow creation machine. As of January 2021, Uniswap has collected an average of more than US$2.3 million in LP fees, and the unit is per day! This is much more than any other company in the field.
Who is the next best performing company in the DeFi field?
Yes, you may have guessed it. It is SushiSwap.
The information published by SushiSwap is “only” half of Uniswap’s daily revenue, and the average daily cost of the 7 liquidity providers is $1.2 million. This is not a bad thing, because a clear trend is emerging and SushiSwap is on the rise.
The turnover created for liquidity providers. Source: Token Terminal, Bankless
This means that Uniswap still leads in the third round, but the emphasis is “still”. This is because the challenger is catching up at a crazy speed.
🏆 Third round champion: Uniswap
Fourth round: The ratio of price to sales (P/S)
The market-to-sales ratio (P/S) is becoming the standard valuation indicator for DeFi agreements.
P/S compares the market value of the token with the revenue of the agreement. That is, the valuation index of the market value of the agreement relative to the expenses incurred.
Simply put, in the same niche market, a token with a lower P/S is more reasonable than a similar agreement with a higher P/S. However, this is not necessarily true. It is also possible that the market has given lower future growth expectations to agreements with lower market-to-sales ratios. After all, in an efficient market, future expectations are priced at current prices. However, the market-sales ratio is still an effective indicator, as long as it is carefully analyzed, it can become a powerful tool for investment decision-making.
Uniswap’s current market-sales ratio is 17.86. It is worth noting that since the end of January, its market-sales ratio has risen sharply. This may be mainly due to the GameStop event, or the user’s expectations for the upcoming release of V3.
Uniswap’s market-to-sales ratio. Source: Token Terminal
The market-sales ratio of SushiSwap is relatively stable. Currently, the value is 8.02.
The market-to-sales ratio of SushiSwap. Source: Token Terminal
According to the market-sales ratio, it can be inferred that the current market price of Uniswap (UNI) is twice that of SushiSwap (SUHSI). Since Uniswap’s cash flow has increased more, its higher pricing is understandable. Although UNI is rising rapidly, we do not think its value is overvalued. At the same time, the rise in SUSHI’s stock price is equally impressive, and its value may still be undervalued.
In contrast, SushiSwap already owns more than 40% of Uniswap’s transaction volume, has about 66% liquidity, and generates more than 55% of revenue. The growth rate of these three categories is also higher than Uniswap itself. Therefore, if we assume that this trend will continue, we can see from the market-sales ratio that this fact has not been widely recognized and priced by the market.
In addition, although UNI is a governance token, token holders do not have the economic rights of cash cows. On the other hand, the holders of SUSHI demand the cash flow of the agreement, hoping to make it a productive asset. One of the reasons for this discrepancy may be Uniswap’s regulatory issues.
Aware of this, Uniswap V2 introduced an optional protocol fee that reduces the LP’s 0.3% transaction fee to 0.25%, while the remaining 0.05% will be managed through decentralized governance. SushiSwap uses this model, but it does not clarify the intention of the agreement fee, but allows SUSHI holders to directly obtain agreement cash flow through staking.
However, how to interpret this data is entirely up to each reader. For us, SUSiSwap has taken the lead in this regard.
🏆 Round 4 champion: SushiSwap.
The fifth round: price-volume ratio (P/V)
Price-to-volume ratio (P/V) is a newer DEX-specific valuation indicator whose characteristics are similar to the market-sales ratio.
The price-to-volume ratio is not valued based on the costs of these liquidity agreements, but is based on the transaction volume to determine the market’s valuation of the agreement.
As of yesterday, Uniswap’s trading volume was US$982 million, and its current market capitalization was US$5.663 billion. This means that the current P/V ratio is just below 5.77. In other words, the current market value of Uniswap for every US$1 in trading volume per day is approximately US$5.77.
SushiSwap’s trading volume yesterday was US$472 million, and its current market value is US$1.85 billion. Correspondingly, the P/V ratio is just below 3.92.
According to this standard, technically speaking, you will get more benefits on SUSHI today than on UNI. But as mentioned earlier, valuation indicators can have different interpretations.
Just like the market-to-sales ratio, the market may value Uniswap at a higher market-to-sales ratio because it expects higher growth in the agreement than Sushiswap. However, this is not reflected in the final growth trend to be observed, and we have fully explained this.
🏆 Round 5 winner: SushiSwap.
Comparison of Uniswap and SushiSwap
So let us summarize the last five rounds of comparisons.
Although Uniswap is still the leader, SushiSwap’s growth in recent months and its competitiveness indicate that the market will soon allow new ratings. But the future is arguably uncertain, so we evaluate the current situation.
The final result of today’s game was Uniswap’s 3-2 win. This means that the defending champion is still in an advantageous position. Due to its advantages as a leading trading venue in the DeFi field, it has won victory in basic indicators such as transaction volume, liquidity and transaction volume.
However, this throne is not as solid as some people say.
SushiSwap has won the valuation index P/S ratio and P/V ratio due to its more attractive economic design and smaller market value. In addition, you can see the current catch-up trend that is currently underway, and the next comparison situation may be quite different.