Hayden Adams details how Uniswap aims to fend off the DEX competition

"Competition has made us work faster."

That's Hayden Adams, founder of Uniswap, the decentralized exchange (DEX) that has positioned itself at the center of a decentralized finance ecosystem driven by memes and fast-moving markets. 

Backed by the likes of Andreessen Horowitz, Paradigm and Union Square Ventures, Uniswap has seen its non-custodial market grow from $63 million in monthly trading volumes in January 2020 to more than $6 billion in August. Uniswap earlier this week surpassed centralized exchange Coinbase's 24-hour trading volumes for the first time ever after clocking in $426 million in tokens traded compared to Coinbase's $348 million. Originally begun by Adams as a side project, Uniswap encompassed more than 58% of the DEX sector during August in terms of trade volume.

Uniswap's growth, in a sense, is tied to the prevailing fervor for decentralized finance — a catch-all term that covers protocols for non-custodial lending, trading and automated investing. In the case of Uniswap, the protocol is comprised of a set of on-chain smart contracts, with the trade matching and execution process occurring on the Ethereum network itself. 

Now, Uniswap is accelerating its plans to launch an upgraded protocol — the last update, Uniswap v2, went live in mid-May — in a sign that Adams and his team aren't planning to rest on their laurels.

"We are working on ways to make it more efficient," Adams said in a phone interview with The Block. "Various others have experimented with improving the Uniswap mechanism."

"They are doing it in interesting ways, but I think we have an interesting approach in v3 that will blow some minds," he continued, referring to the upgrade which aims to make the protocol more flexible and capital efficient. 

Since Uniswap is an open-sourced protocol, it can be forked and altered by new entrants. SushiSwap, which bills itself as an "evolution" to Uniswap, provides one example. In just under four days, the protocol has been able to hit more than $1 billion in value locked — referring to assets deposited on the platform — and thus siphoning some attention and hype from its parent protocol. 

Unlike UniSwap, the seafood-inspired protocol has its own governance token, SUSHI. Liquidity providers can earn tokens and cast governance votes, offering an added incentive to engage with the network. When the protocol's main-net supports trading, participants will be able to trade those tokens. 

To be sure, there are risks associated with Sushi, such as the fact that it has yet to be audited and it's not exactly clear who is backing the network.  

Without calling SushiSwap out by name, Adams delineated between two different camps of Uniswap competitors: those in it for the money and those seeking to create more flexible platforms. 

"Uniswap could be made more flexible," he said. "But some exist because the money symbols are flashing in people's eyes."

Adams declined to comment on rumors about whether Uniswap would launch a governance token of its own. 

Yet across the DEX landscape, Ethereum gas fees are weighing on growth. Since the beginning of the year, fees paid to miners to process transactions on the network have risen at a steady clip, thus increasing the cost of executing an on-chain transaction. 

To address these operational constraints, Adams said the Uniswap team is exploring Layer 2 solutions. Late last year, the Uniswap team collaborated with Optimism to launch “Unipig,” a proof-of-concept to test Layer 2 scaling of Uniswap. In order to grow the proverbial pie, the firm also is looking to bring in more users from outside the Ethereum ecosystem as well. 

"There is only so much to grow within Ethereum," he said. "And I think we've hit the peak. Everyone in Ethereum buys tokens on Uniswap."

Adams added: "In general, the way to grow beyond that is to bring more people in the crypto space. I think that is maybe the most important thing."

During the interview, Adams also spoke about Uniswaps engagements with professional trading shops, stating that "early on, it wasn't something to focus on, but it is starting to get interesting."

Indeed, Wall Street's fast-moving traders could be one of those outside groups that might be lured into the DeFi market. But these traders have stayed away for the most part because of the potential compliance headaches and the overall immaturity of the ecosystem. 

"Right now we are trying to get some institutional infrastructure in place to get them comfortable: security, compliance, the things they cared about and more custody providers accepting liquidity tokens," said Adams, adding:

"We are always working on improving tooling and the developer experience, improving access, making it easier for people, and educating them."