Moon Capital Research — DEXs

Moon Capital
7 min readJun 6, 2023


Our research into decentralized exchanges (DEXs) revealed crucial insights, primarily focusing on two vital metrics: Dex/Chain TVL% and Dex/Chain Marketcap%. These metrics help us understand the level of trust users place in DEXs, the liquidity and trading volume they generate, their role in decentralized finance (DeFi) activities, and their overall market value.

This research delves into case study with a special focus on emerging Move-based chains — Aptos and Sui. Our exploration extends beyond the factors driving DEX dominance to a close examination of these platforms’ DEX/Chain Total Value Locked (TVL) ratios. By probing these insights, we aim to better understand the dynamics of DEXs and their role in shaping the future of decentralized finance.

Understanding Dex/Chain TVL%: A Key Metric for Evaluating DEX Performance and Ecosystem Role

Dex/Chain TVL%, which represents the ratio of Total Value Locked (TVL) in a decentralized exchange (DEX) to the TVL in its underlying blockchain, is a crucial metric that provides insights into several key aspects of a DEX’s performance and its role within the wider ecosystem. Here are some of the key insights we can draw from a high Dex/Chain TVL%:

Demonstrates User Trust and Confidence

  • A high DEX TVL suggests that users trust the platform and feel secure in locking their assets on it.
  • Trust might be established through a combination of factors including transparent and reliable operations, audit records, community reputation, and the robustness of the smart contract architecture.

Indicates High Liquidity and Trading Volume

  • A high TVL generally corresponds with high liquidity, which is crucial for the effective operation of a DEX.
  • More liquidity reduces slippage, improving trading conditions and making the DEX more attractive for traders, thus potentially increasing trading volume.

Signals Strong DeFi Activity on the Chain

  • A high DEX TVL relative to the chain’s TVL can indicate that the chain’s main utility is decentralized finance (DeFi).
  • Active trading and participation in DeFi protocols is a positive signal for the chain’s DeFi ecosystem, highlighting a robust demand for DeFi services on that blockchain.

Reflects DEX Utility and Innovation

  • DEXs with high TVL often offer innovative features, incentives, or yield farming opportunities that attract users.
  • A high Dex/Chain TVL% might suggest that the DEX has a competitive advantage or unique features that differentiate it from others, contributing to its popularity.

By analyzing the Dex/Chain TVL%, we can develop a more nuanced understanding of a DEX’s position within its blockchain ecosystem, its attractiveness to users, and its potential for future growth and development.

Dex/Chain Marketcap%: A Critical Indicator of DEX Significance, Market Perception, and Risk in Blockchain Ecosystems

Dex/Chain Marketcap%, the ratio of a decentralized exchange’s (DEX) market capitalization to the market capitalization of its underlying blockchain, is a key metric that provides valuable insights into the DEX’s importance within the ecosystem, market perception, and potential risks. Below are the key factors that can be inferred from a high Dex/Chain Marketcap%:

Highlights the DEX’s Relative Importance within the Ecosystem

  • A high DEX/Chain MC % can indicate that the DEX plays a substantial role within the chain’s ecosystem.
  • This could be due to factors such as the DEX’s popularity, liquidity, trading volume, unique features, or the utility of its native token.

Reflects Market Perception of the DEX

  • This metric can reflect the market’s perception of the DEX’s future prospects relative to the overall chain.
  • A higher DEX/Chain MC % might suggest that investors have positive expectations for the DEX’s growth, profitability, or other aspects, signaling investor confidence.

Indicates Token Utility and Demand

  • DEX tokens often provide benefits such as governance rights, staking rewards, fee reductions, or other utilities.
  • A high DEX/Chain MC % could indicate that these benefits are highly valued by users and investors, driving demand for the DEX token and increasing its market capitalization.
  • *GMX’s noticeably high Dex/Chain Marketcap% can be attributed to its unique role as a perpetual exchange in addition to being a decentralized exchange.

Signals Potential Risks and Overvaluation

  • A very high DEX/Chain MC % could potentially indicate overvaluation of the DEX or a high concentration of activity and value in a single application.
  • This concentration could make the chain’s ecosystem more vulnerable to shocks, raising questions about the sustainability and risk diversification of the blockchain’s ecosystem.

By studying the Dex/Chain Marketcap%, we can gain valuable insights into a DEX’s significance within its blockchain ecosystem, its perceived value, and potential vulnerabilities, which are crucial for informed decision-making in the rapidly evolving DeFi space.

Unraveling the Disparity between TVL% and Marketcap% in DEX Ecosystems

The Dex/Chain TVL% and Dex/Chain Marketcap% are key metrics for understanding the dynamics between decentralized exchanges (DEX) and their underlying blockchains. A discrepancy between these two figures can arise due to various factors, some of which are discussed below:

Influence of Liquidity Mining & Yield Farming

  • DEXs often have liquidity mining or yield farming programs that incentivize users to lock up assets in their protocols.
  • This can inflate the Total Value Locked (TVL) without necessarily increasing the market cap of the token, especially if the token itself is not used in the farming schemes.
  • As a result, a DEX may have a high Dex/Chain TVL% but a lower Dex/Chain Marketcap%.

Role of User Base and Usage

  • The market cap of a token is largely determined by its user base and usage.
  • If a blockchain has a large user base but those users are not using the DEX on the chain, the market cap of the DEX token could be relatively low compared to the chain’s market cap.
  • This could explain why some chains have a lower Dex/Chain Marketcap% compared to their Dex/Chain TVL%.

Impact of Token Distribution and Supply

  • The market cap of a token is determined by the price of the token times the circulating supply.
  • If the DEX token has a low circulating supply or a wide distribution, this could result in a lower market cap.
  • Consequently, even if the TVL is high, the Dex/Chain Marketcap% could be lower.

Function and Utility of Tokens

  • The function and utility of the tokens can also affect their market cap.
  • If the DEX token has more utility (e.g., governance rights, fee-sharing, staking benefits), it might have a higher market cap compared to a token with limited utility.
  • This can result in a higher Dex/Chain Marketcap% even if the Dex/Chain TVL% is relatively low.

Understanding the disparity between Dex/Chain TVL% and Dex/Chain Marketcap% is crucial in the analysis of DEXs, as it provides insights into the dynamics between the DEX and its underlying blockchain, as well as the behavior of users and investors within the ecosystem.

Case Study: Dexes on Aptos and Sui

Move Language → Application Specific

The prominence of Decentralized Exchanges on Aptos and Sui, both utilizing the Move language, underscores its suitability for specialized applications, such as Dexes. Intrinsic benefits of Move, including safety, resource control, upgradeability, and explicit data ownership, propel DEXs towards success by ensuring efficient transactions, secure asset management, and seamless upgrades.

Move’s DEX Specialization

Despite Move’s potential for broader applications, its TVL is primarily concentrated in Dexes. This observation indicates that the Move chain’s value proposition currently doesn’t extend significantly to other protocol categories, like launchpads and liquid staking. Existing, more mature chains already offer these services without tradeoffs, overshadowing newer Move-based offerings. While Move excels in specific areas like DEXs, its versatility across a wider range of protocols remains to be seen.

Nurturing Novelty to Diversity

The relative lack of protocol diversity on Aptos and Sui can largely be attributed to their novelty in the blockchain space. As emerging chains, they are still in the early stages of their development and ecosystem growth. It’s common for new chains to focus on establishing a strong foothold in specific use cases, as Aptos and Sui have done with decentralized exchanges, before expanding into more diverse protocols. Over time, as these chains mature and their communities grow, we can expect to see an increase in the range of protocols they support. It’s important to remember that realizing the full potential of a blockchain platform is a gradual process, often taking years of development, testing, and community engagement. As such, while the current focus of Aptos and Sui is on DEXs, this doesn’t preclude the emergence of a more diverse range of protocols on these platforms in the future.

TVL as Testament to Trust

In conclusion, the strikingly high DEX to Chain TVL ratios for the Move-based chains, Aptos and Sui, serve as a strong testament to the trust and confidence users have in these platforms. These impressive figures not only indicate high liquidity and robust trading volume but also point towards significant DeFi activity on these chains. The marked dominance of DEX protocols suggests that users find substantial value in the innovative features and utilities these platforms offer, reflecting their competitive edge in the DeFi space. As these platforms continue to grow and evolve, their inherent strengths, coupled with user trust, could well pave the way for broader protocol diversity and further innovation, solidifying their positions in the dynamic and ever-evolving world of decentralized finance.







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