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The rapid development of Automated Market Makers (AMMs) is a major driver of the expansion of decentralized exchanges (DEX), which topped 5% of total crypto exchange volume last month, according to a new report.
More than 90% of DEX volume is currently generated by AMMs, according to a study published by the crypto analysis company Messari. However, it remains to be seen whether these robust growth states will translate into value for AAM tokens.
The authors of the Messari report wrote,
“AMMs differ from exchanges which determine prices by matching buyers and sellers via limit order books (CLOBs). Instead, MAs allow anyone to become a market maker by simply depositing their unused assets into pools of cash. The price is then determined by the ratio of the assets traded. Market makers charge fees because smart contracts automatically execute trades.
In a recent Tweeter, Jack Purdy, Research Analyst at Messari, wondered if this financial success would prove to be sustainable and if it would be possible for AMMs to translate it into value for their governance tokens.
Purdy wrote,
“Crypto has dramatically reduced the time it takes to generate substantial income. Marketing authorizations in service for a few years (a few months) now generate nine figures. ”
As of September 13, the top five MAs in terms of annual revenue included Uniswap at $ 406 million, SushiSwap with 228 million dollars, Balance to $ 114 million, Swerving with $ 29.6 million and Curve with 15 million USD, also by Messari.
Analysts at the company noted that AMM’s income has a weak relation to the value of their respective tokens.
In the case of SushiSwap, its token’s price / sales ratio is 0.91x, while for Balancer, which generated about half of the former’s revenue, the ratio is 19.1x. Swerve, which accounts for just over a quarter of Balancer’s revenue, has a price-to-sales ratio of 5.9x. Meanwhile, in the case of Curve, whose revenues are roughly half that of Swerve, the price-to-sales ratio is the highest among the top five MAs – a staggering 388.3x.
Purdy predicted that the future success (or not) of MAs depends on their ability to fill two key niches.
He explained,
“Provision of incentivized liquidity. Tokens can easily start a market by allocating tokens to [liquidity providers] which we have seen succeed in increasing the liquidity and volume of transactions. Low slippage on assets with stable prices (stablecoins, indexed assets). Compressed price curves such as [Curve] can actually provide a superior product compared to CLOBs.
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Learn more: Here’s why decentralized exchanges are growing so fast right now
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