Author: Daoshu Blockchain

Decentralized exchanges (DEX) are a cornerstone application in the DeFi ecosystem. Uniswap is a typical representative of this application.

In the encryption ecosystem, most projects are open source, and the code can be used for free, and DEX is no exception. Before Uniswap V4, in actual technical implementation, Uniswap had no substantial technical barriers compared to its competitors.

In terms of the service types provided, before V4, Uniswap was not essentially different from its competitors. There was basically no subdivided service that only Uniswap could provide, but competitors could not provide it.

In this case, where is the moat of Uniswap?

is in liquidity.

Perhaps it was because of the precedence in the market, or perhaps because of the team's precise and efficient management, these two applications quickly took advantage of the gushing out of project tokens, especially long-tail project tokens, to seize the liquidity of those new tokens, which made those tokens first establish liquidity on Uniswap.

Uniswap offers the best prices when people want to trade those long-tail tokens on the chain without threshold. Therefore, in on-chain transactions, Uniswap has become people's first choice.

In that DeFi climax, this positive cycle continued to superimpose, forming the brand effect of Uniswap in DEX. The huge liquidity of the tokens it holds has become its moat to defeat its competitors.

However, can the advantages of this moat last?

Looking back now, it doesn't seem easy.

In the bear market that began in 2022, with the silence of the ecosystem, when no new generation of projects rises and no new generation of high-value tokens appear, the moats of these two projects are constantly weakening.

Let's first look at the DEX represented by Uniswap.

A typical challenger is Raydium.

In this round of market, pump.fun gave birth to a large number of meme coins, and the liquidity of these meme coins was automatically injected into Raydium. Raydium took advantage of the trend to become an emerging DEX that was rising in this market.

The Pump.fun team saw this, so naturally they would think about why such a good thing is cheap for outsiders. It would be better to build a DEX by myself.

Recently, when Binance began to make efforts on meme coins and attracted considerable traffic and attention, Pancake also improved significantly and became the first choice for trading these meme coins. This is also the effect caused by liquidity.

This can also explain why almost every second-tier expansion of Ethereum has a DEX that the platform has vigorously supported.

Because once its expansion ecosystem can prosper, a number of new generation projects and new generation high-value tokens can emerge. When the liquidity of these new generation high-value tokens is imported into the DEX they support, this DEX will inevitably become the first choice for DEX in the ecosystem. Such a DEX can not only obtain stable returns, but also help the ecosystem firmly lock in liquidity. Uniswap has almost no advantage in such an ecosystem.

Uniswap should have seen this crisis, so it launched the V4 version with additional restrictions, hoping that through technological innovation, liquidity providers can customize trading methods more flexibly, thereby attracting more market makers to establish liquidity on it.

In addition, I have a feeling that no matter what the purpose is, it is probably only a matter of time before DEXs extend their tentacles to RWA, because the existing liquidity is almost the same, and they can only turn their vision to new areas.

In the long run, the road to development of the crypto ecosystem is still long. I firmly believe that the future crypto ecosystem will inevitably emerge with new top-notch projects and new high-value tokens.

In terms of on-chain transactions, the battle for the liquidity of new high-value tokens must be a never-ending and extremely fierce protracted war.

From the scale and characteristics of this protracted war, it seems that the moat of DEX is not easy to build, or even if it can be built in a profound and lasting way, it is not easy to build it.