An empirical study on historical trade gains: DEX aggregators versus Uniswap

• Main Author: Mohamed Irfan Bin Shahul Hameed
• Other Authors: Li Yi
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2023
• Subjects: Engineering::Computer science and engineering
• Online Access: https://hdl.handle.net/10356/166160
• Institution: Nanyang Technological University

Decentralized Exchanges (DEXs) have revolutionized the DeFi space by enabling trustless trading of tokens through Automated Market Maker (AMM) algorithms. Recently, DEX aggregators have emerged as a new DeFi protocol, promising higher returns than traditional DEXs by sourcing liquidity from multiple DEXs. In this study, we analyze historical on-chain transactions from 1st January 2021 to 31st December 2022, to evaluate the performance of the three largest DEX aggregators (1inch, 0x API, and Paraswap) compared to Uniswap, the largest AMM-DEX. Our findings show that, on average, trades done through aggregators result in higher returns than Uniswap. Specifically, 1inch gave higher returns by 0.23%, 0x API gave higher returns by 0.17%, and Paraswap gave higher returns by 0.27%. We also found that the size of the trade does not necessarily contribute to higher returns over Uniswap, but that the tokens involved in the trade can significantly impact performance. Additionally, we found that the majority of aggregator trades still rely on Uniswap for liquidity, highlighting the dominance of Uniswap in the DeFi trading landscape. To the best of our knowledge, this work is the first formal empirical study on DEX aggregators. Our research has implications for the future of DeFi and DEX aggregators, as it suggests that aggregators have the potential to offer higher returns than traditional DEXs. However, the heavy reliance on Uniswap for liquidity may be limiting its potential gains.