Fundamental Insights: An Overview of Mainstream Cross-chain DeFi Exchanges
The Crypto industry has entered the crosschain era. According to Defillama, the proportion of Ethereum’s total value locked (TVL) has been decreasing since the beginning of last year, and now sits at only 58.37% down from over 95%.
As the number of chains and rollups continues to grow across Web3, many applications are built on different isolated ecosystems. Although some of these applications are deployed across multiple chains and rollups, their liquidity is inevitably fragmented which is inconvenient to users. Moreover, it is troublesome for the users to move their assets across different ecosystems through centralized exchanges or clumsy bridges. To help combat this, decentralized exchanges may have to embrace the shift into cross-chain ecosystems. Since last year, many cross-chain exchange products have launched. Even SushiSwap and Ren Project released their own crosschain DEX applications too.
Thanks for reading Fundamental Insights: Stories | Research | Investments! Subscribe for free to receive new posts and support my work.
Crosschain DEXs are very complex products that integrate the DEX, bridge and routing into a single application. In this piece we will take a closer look at a variety of crosschain DEX products.
Some crosschain bridges support only swapping between stable coins. For example, Stargate finance can help users transfer USDT on Ethereum mainnet to USDC on Polygon. These kinds of crosschain bridges are not the topic of this piece. Instead, this piece focuses on crosschain swaps which enable the user to seamlessly move their assets among different chains and coins. Depending on whether they build their own DEX, bridge or blockchain, we divide the products into 4 categories listed below:
2.1 Pure aggregator
A pure aggregator is a crosschain DEX which does not have its own blockchain, bridge or swapping capabilities. Unlike 1inch, this product aggregates not only DEXs such as Uniswap, PancakeSwap or SushiSwap but also aggregates crosschain liquidity pools such as Connext, Hop and ThorChain. It searches the best path for the user through its routing algorithm and executes the transaction by calling the protocols in the path.
Li.Finance is a crosschain bridge & DEX aggregator. It provides the “bridge & DEX” SDK and Widget to help developers to build their own crosschain applications based on Li.Fi. It released its own crosschain DEX as well: TransferTo.xyz. The product aggregates 10 bridges, 18 exchanges and 16 EVM chains or rollups.
The transaction function enables users to swap any token from any blockchain or rollup to another. All routing path details are shown to the user, such as the bridge and swap route used, the expected time and gas cost and the estimated result. In addition, the protocol provides several path options for the user to choose from. More advanced users can even exclude protocols which they believe are risky.
The dashboard clearly show the portfolios of the user across all EVM blockchains and rollups supported by Li.Fi. This feature is very convenient, as sometimes users may forget what assets they hold across various blockchain networks.
Li.Fi was launched at the end of last year, obtained a Gitcoin grant and got investment from Coinbase, Dragonfly Capital, 1k(x), and many more. As of time of writing, the tool is free to use and has achieved $250 million of trading volume. Although the Li.Fi team published the token contract on Github, the token has not yet been issued.
Bungee (formerly known as FundMovr), is very similar to Li.Fi. Bungee is powered by Socket, which is an interoperability protocol for secure & efficient data and asset transfers across chains. Socket is not a bridge, or a crosschain app. It is an infrastructure tool that allows developers to easily build interoperable applications. Developers can use Socket to build apps with interoperability as a core part of app infrastructure. SocketLL and SocketDL are major products of Socket.
SocketLL enables efficient asset transfer across chains. It unifies liquidity across bridges & DEXs, and routes funds via them based on user preferences like fees, speed or security. SocketDL enables data transfers across chains. As of last month, SocketLL processed more than 400 thousand transactions and more than $400 million volume. Data transfer via SocketDL will be rolled out later.
Bungee moves assets between chains by plugging into the Socket Liquidity Meta-Layer. It allows users to swap and transfer funds across any-chain seamlessly via its route.
Same as Li.Fi, Bungee gives users multiple options to choose from and shows all details as well. Bungee is also free to use. The difference is that in Bungee users are not able to choose which bridge or DEX to use, they can only pick one routing path to execute. Moreover, Bungee allows users to receive assets on another address that differs to the address that initiated the swap. Refuel is a convenient tool that is also part of Bungee. When users set up a new address which does not have any tokens in it to cover gas fees , they can easily purchase the required tokens with assets they hold on other blockchains with one click through Bungee.
Socket received investment from Framework Capital, Nascent and Lightspeed, amongst others. According to DappRader, Bungee only processed $5.65 million in volume. Both Bungee and Socket have not issued a token as of time of writing.
2.1.3 Router Protocol
Router Protocol is a crosschain bridge that is very different to Li.Fi and Bungee. It is an extensible multi-directional bridge that connects current and emerging layer 1 and layer 2 blockchains to allow contract-level data or token flow across them. Router's XCLP (Crosschain Liquidity Protocol) delivers seamless liquidity migration across chains, coupled with smart-order routing for efficient execution against customizable parameters.
Voyager is a crosschain DEX powered by Router Protocol. Router Protocol has not established its own crosschain liquidity pool, which is why Voyager can only use Router Protocol to transfer messages but has to integrate with other crosschain pools to execute transactions.
The UI of Voyager is very different from Li.Fi and Bungee: it does not show any information about the routing path and instead more closely resembles Uniswap’s swapping interface.
Router Protocol received investment from Coinbase Ventures, QCP Capital and Alameda Research. It connects with 9 blockchains and crossed $300 million in cumulative transaction volume since launch. It issued the token ROUTE which has the market value of about $30 million and FDV of $78 million.
2.2 Crosschain DEX with in-house swap
Unlike pure aggregators, crosschain DEXs with in-house swap capabilities have their own swap application. They establish exchanges on multiple chains first and then integrate with external crosschain liquidity pools to process transactions.
SushiSwap is one of the most famous Uniswap fork projects. Today SushiSwap is far more than just a fork of Uniswap though. While Uniswap is digging deep into AMM functionality, SushiSwap is aggressively deploying on different blockchains or rollups and expanding its business. Now it is deployed on 14 blockchains and as of time of writing has accumulated around $750 million of TVL across these chains. Even though SushiSwap’s TVL has dropped 90% from the peak, their TVL is still top 10 of all the DEXs.
Based on liquidity across these blockchains, SushiSwap launched its crosschain product SushiXSwap. SushiXSwap integrates with Stargate Finance which acts as the crosschain bridge. Stargate Finance, however, only supports crosschain transactions of stable coins. As a result, SushiXSwap exchanges the client’s assets into stable coins first, and transfers these to the destination chain where it swaps these to the client’s target asset.
SushiXSwap was launched on July 21th and hit $500 thousand trading volume by August 8th. It does not seem like a large amount, but the time interval is short. We expect it to see it perform better over time.
Although O3Swap and SushiXSwap are both DEXs with in-house swap capabilities, they are actually very different under the hood. Generally speaking, the in-house swap in O3Swap project is more like a crosschain liquidity pool rather than a swap pool.
O3Swap integrated with Poly Network as the crosschain bridge. Poly Network is a leading crosschain bridge which locks the client’s assets in the source chain and issues the corresponding wrapped ptoken (which is known as ptoken) on the target chain to the client. In order to assure the clients can get the native token instead of the ptoken, O3Swap established stable swaps (which is known as the O3 Hub) on each blockchain to help the users to exchange between ptokens and native tokens. However, the stable swap may not necessarily support the user to swap their token into the target asset. This means that the O3Swap needs to integrate with at least an external swap platform to process the final stretch of transactions which their O3 Hub cannot cover.
For example, when a user wants to exchange his USDC on Polygon to ETH on the Ethereum mainnet, the protocol will first issue pUSDC in an amount equal to the USDC to be swapped, then bridge the pUSDC to Ethereum mainnet where it is exchanged back for USDC, and finally integrates with Uniswap or 1inch to swap the USDC to ETH.
According to DefiLlama, the TVL of O3Swap is only about $10 million, which is not enough to support large trading volume. O3Swap built a routing algorithm to integrate with other DEXs to increase the liquidity. O3Swap V1 supports routing swaps on the source chain while V2 supports routing swaps on both source chain and the destination chain, which gives the user more options to decrease trading costs.
The teams of O3Swap and Poly Network are both from the Ontology Ecosytem. They have good business experience in the crypto industry. O3Swap has established partnership with many blockchains and rollups to bootsrap their TVL. However, the major hack of Poly Network hurt O3Swap severely. The TVL of O3 Swap dropped from around $700 million to $200 million in only one month, and continues to decrease. Currently TVL is only $10 million.
The project issued the O3 token which has a market value of about $5 million and FDV of around $13.8 million.
2.3 Crosschain DEX with in-house bridge liquidity pool
If a crosschain DEX executes transactions through external crosschain liquidity pools, it has to pay for this service. Some products decide to build their own liquidity pools to eliminate this cost. Moreover, large in-house liquidity pools can help to maintain an economic moat for the protocol to keep competitive advantages over its competitors.
2.3.1 XY Finance
XY Finance is a one-stop crosschain aggregator for both DeFi and the Metaverse. XY Finance consists of two parts, X Swap and Y Pool, to facilitate cross-chain swap and incentivize the provision of liquidity.
X Swap ****is a DEX aggregator while Y Pool incentivizes all liquidity providers with swap fees between chains. The issued XY Governance Token is used to incentivize the liquidity providers who deploy liquidity in specific pools. In Y Pool, there are times when a certain pool-supported token is swapped up and runs out, while this token is constantly being swapped in the other, which brings about a situation called an unbalanced pool on that chain. The following flowchart shows a scenario in which an unbalanced pool arises due to a certain cryptocurrency's shortage. The rebalance algorithm will reward XY token to the person who helps rebalance through X Swap.
XY Finance received investment from Animoca Brands, YGG and Circle. The token XY has been issued with a market value of $2.5 million and FDV of $28 million. The TVL of Y Pool is only around $3.3 million, which means XY Finance has to settle most transactions through external bridge pools. Since launch, XY Finance has processed $152 million transaction volume, while the 24h trading volume is about $558 thousand.
Catalog is a decentralized gateway for users to discover and trade crypto assets across multiple chains. Built on Ren, which is one of the most secure crosschain protocols, Catalog uses the first ever boundless liquidity mechanism that allows users to simply trade assets across the DeFi Metaverse. This is the first consumer application developed under Ren Labs and built on top of Ren protocol.
Ren is one of the most successful crosschain bridges in the industry. It has processed around $12 billion of transaction volume since launch, which provides an extremely strong liquidity support to Catalog.
Catalog is very different from the projects mentioned above. In Catalog the user has to deposit assets into their account before trading and can withdraw them afterwards. This is very similar to how a centralized exchange works. The benefit is that the trading can be executed immediately after deposit, but the depositing and withdrawing process still takes time.
This product is still in testing and technical details have not yet been disclosed. We will have to wait until the product is officially launched for additional information. However, the largest difference between Catalog and SushiXSwap is that Catalog will have its own token. Catalog announced its $7.5 million fundraising in February with participation from Amber Group, Multicoin Capital and Cumberland DRW.
2.4 Crosschain DEXs based on side chains
Similar to DEX aggregator 1inch, most crosschain DEXs are currently free to use, which makes it difficult to support the intrinsic value of their tokens. Even an in-house liquidity pool cannot generate a good profit due to the low bridging fees and high risk. In this case, some projects build their own side chains to enhance the security of their products and the value of their tokens.
ThorChain is a decentralized crosschain liquidity protocol based on Tendermint & Cosmos-SDK which utilizes the Threshold Signature Schemes (TSS) technology to secure the assets. It does not peg or wrap assets, it simply determines how to move them in response to user-actions. ThorChain observes incoming user deposits to vaults, executes business logic (swap, add/remove liquidity), and processes relevant outbound transactions.
There are many interfaces built on top of ThorChain. ThorSwap is the one with the most used features which does not need KYC.
Based on Tendermint, ThorChain can support the interaction among not only EVM chains but also non-EVM chains. Thus in order to obtain the best user experience, all-chain wallets such as xDEFI should be used instead of EVM wallets such as Metamask.
Instead of aggregating the liquidity from external DEXs, ThorSwap built its own exchange on top of ThorChain. The liquidity TVL is around $171 million. Same as Bancor, in ThorSwap all the liquidity pools should be established with the trading pair between RUNE (native token of ThorChain) and other tokens. This mechanism increases the demand and intrinsic value of RUNE but limits the size of the liquidity TVL.
The ThorChain token RUNE has the market value of $873 million and FDV of $1.45 billion. ThorSwap has processed over $6.8 billion transaction volume since launch and currently has a daily volume of roughly $51 million.
Chainflip is a decentralized, trustless protocol that enables crosschain swaps between different blockchains, which is very similar to ThorSwap. The difference is that Chainflip is built on top of Substrate within the Polkadot ecosystem while ThorSwap is on Tendermint within the Cosmos ecosystem. According to the whitepaper, Chainflip is building their own liquidity pools on every major blockchain ecosystem, and also building their own AMM-based swaps as well. The whitepaper shows that Chainflip AMMs will be designed based on Uniswap V3.
Chainflip received investment from Coinbase Ventures, Mechanism Capital and ParaFi. Chainflip’s token, FLIP, is used as collateral by Validators to provide economic security to the network. The protocol charges a fee between 0.10% and 0.20% for every swap. This fee is used to buy and burn FLIP tokens directly from the Chainflip AMM.
Like Catalog, the user experience of Chainflip appears as though it will be similar to centralized exchanges that require users to deposit assets before trading, and have them withdraw those assets afterwards. However, Chainflip have not launched the public test so we do not have enough information to give more comments.
2.4.3 Chainge Finance
Chainge Finance is an interesting project which is founded by DJ Qian, who is also the co-founder of Anyswap and Fusion. Similar to Anyswap, Chainge Finance is built up on top of the Fusion blockchain but uses a completely different mechanism from other crosschain DEXs who have their own side chains.
Firstly, Chainge Finance is a mobile wallet by itself. The users have to use the Chainge Finance app directly instead of through other blockchain wallets such as Metamask.
Secondly, when centralized exchanges or projects such as Osmosis receive users’ deposits, they will lock the assets and put a wrapped token in the user’s account or just add a number into the user’s account without actually giving users custody over their assets. Then the user can begin to trade with the numbers. Thus ETH from Polygon or from Ethereum mainnet will be shown exactly the same in this kind of system. However, in Chainge Finance, the token will be accurately shown in regards to which chain the tokens are on. Moreover, users can transact their tokens from multiple chains to one target chain with a single click, which is very convenient.
Thirdly, Chainge Finance does not have an in-house swap on the Fusion blockchain, but it has established liquidity pools on every connected blockchain. When the users process trades, the project will source the liquidity supply from the DEXs on the target chain and complete the transaction. This is similar to a DEX aggregator.
ChainSwap was launched in March of 2021 with great ambitions. ChainSwap is very similar to Li.Fi: it does not have its own liquidity pool or bridge. Instead, it integrated with AnySwap, PolyNetwork and cBridge amongst others to execute crosschain swaps for users. However, this product only shows a single routing path which cannot be adjusted. As of time of writing, supported assets are also limited. For example, there are no ETH trading pairs on ChainSwap. ChainSwap, however, enables users to move NFTs across chains.
According to Gitbook, the ChainSwap team wants to establish a crosschain bridge & application hub, which allows projects to seamlessly bridge between blockchains. They are planning to build an in house side chain and a bridge liquidity pool on it. With this infrastructure, it can support not only crosschain DEXs, but also lending, NFT markets and live statistics.
ChainSwap received investment from Alameda Research, CMS and NGC. It issued the token $ASAP, which has a current market value of $554 thousand and FDV of $2.7 million. The protocol has an accumulated trading volume of $185 million. However, it was hacked in July and incurred around $800 thousand in losses to users, which seriously hurt user confidence in the platform.
3. Market landscape
Crosschain DEXs are often built atop existing DeFi and multi-chain ecosystems. As these ecosystems have only recently reached maturity, the latest crosschain DEXs are still quite young. Most web3 users are still accustomed to using centralized exchanges or crosschain bridges to transfer their assets. However, with more and more users coming into web3 and more and more crypto assets bring distributed across multi-chain ecosystems, crosschain DEXs will increase in demand.
3.1 Market data
According to the market value data below, RUNE is doing very well with the market value of around $860 million. As one of the leading DEXs, the market value of SUSHI is around $270 million. The market value of other protocol tokens are all below $30 million.
For the trading volume, ThorSwap occupies the biggest share of the crosschain DEX business. It has processed over $6.8 billion trading volume and its daily volume is around $51 million. Router Protocol, Li.Finance, ChainSwap and XY Finance have accumulated a total trading volume of $150 to $300 million. Bungee got the total volume of only about $5.65 million. SushiXSwap was launched on July 21th, so the trading volume is only $500 thousand as of August 8th. Finally, O3Swap and Chainge Finance has not disclosed this information.
However, the trading volume of the crosschain DEX industry is still very small comparing to other DEX protocols: Uniswap processes daily trading volumes of around $1.2 billion, which is around 10 times of the total daily trading volume of all crosschain DEXs combined.
Crosschain DEX is an emerging business sector in crypto for DeFi. Since mid-2022, multi-chain ecosystems having become increasingly popular. Most crosschain DEXs launched in 2021 or 2022 with only very short operating history, hence their trading volumes are still very small and token valuations have not performed considerably well yet. Nonetheless, with an increase in new networks and ecosystems the need for crosschain functionality increases, creating a valid and strong use-case for crosschain DEXs. Currently, crosschain DEX valuations are still low, but the space is early too.
Below is a summary of the the four categories of crosschain DEXs mentioned above:
The pure aggregator projects are designed extremely lightly. They do not have their own swap and bridge, which reduces risk. Additionally, without the limitation of integrated swaps and bridges, these protocols have the largest flexibility to search the most optimal routing path for users and could share all path information. However, it is difficult for these protocols to charge fees. Increasing fees means increasing trading costs for users and could push them away.
Crosschain DEXs with in-house swap have their own trading liquidity on top of every connected blockchain, which is a strong business moat to themselves. However, the establishment of trading pools is extremely difficult and the segmentation of liquidity may lead to high slippage. This type of DEX is more suitable for the existing multichain DEXs (such as SushiSwap) who want to expand their business to crosschain exchanges.
Crosschain DEXs with in-house bridge liquidity pools can be considered a good business model as the bridge is the most important part of the product and DEXs can maintain full control over the movements of funds. Apart from the protocols mentioned in this piece, some crosschain bridges such as Swim protocol and Stargate finance are exploring this business. This piece has not covered these protocols specifically, because they currently only support crosschain transaction between stable coins. With a mature crosschain bridge and liquidity pool, the protocol can easily help swap customers’ token among the multi chain ecosystem. However, the biggest problem is that the bridge is still one of the most vulnerable parts of the blockchain industry. The security of a crosschain liquidity pool is difficult to guarantee.
The crosschain DEX based on side chains is a good business model as well. The token can be empowered with multiple functions, such as gas fees of the Layer 1 blockchain, extraction of MEV, trading fees and bridge fees. The problem is that building a Layer 1 blockchain is much more difficult than building an application. The difficulty is not only about the technology, but also about the development of the ecosystem, community and developers.
SushiXSwap - A Crosschain DEX to rule All the Pools
What is LI.FI?
Cross-Chain Infrastructure Protocol LI.FI Raises $5.5M
Li.Fi Gitcoin grant
GitBook of Socket
Router Protocol Whitepaper
Router Protocol’s Voyager Crosses 300 Million in Transaction Volume
SushiXSwap - A Crosschain DEX to rule All the Pools
GitBook of O3Swap
O3 Interchange - 跨链流动性破局者
O3 Swap V2正式上线Avalanche，并启动流动性双倍收益挖矿
O3 Swap V2正式上线BTC-Pool，开启BTC流动性挖矿
O3 Swap V2今日正式上线Celo，将开启cUSD流动性激励挖矿
O3 Swap V2 正式上线 Metis ，开启流动性激励
解析 | DeFi史上最大盜竊案，僅34分鐘Poly Network資產被駭6.1億美元
GitBook of XY Finance
XY Finance Statistics
Catalog — Farewell to Multichain Acrobatics
Ren Labs Raises $7.5M for ‘Catalog’ Cross-Chain Exchange
GitBook of ChainSwap
ChainSwap post-mortem and compensation plan
Thanks for reading Fundamental Insights: Stories | Research | Investments! Subscribe for free to receive new posts and support my work.