TriCrypto: Curve’s Ace in the Hole

First, we’ll examine the current breakdown of market share, then consider how the changes to TriCrypto could change the status quo.

Market Share

ETH, USDT, and wBTC are three of the most crucial assets in Ethereum DeFi and trading between these tokens accounts for a significant share of volumes on both Uniswap and Curve. ETH is the network’s native currency, USDT is the largest stablecoin by market cap (although USDC dominates DeFi), and wBTC is the wrapped and DeFi-friendly version of BTC.

Since January 2022, monthly Uniswap volume amongst these tokens has only fallen below $3bn once: in December 2022, when volume on Curve also fell to just under $500mn. (Note that only includes direct trading between the tokens – wBTC-ETH, ETH-USDT, and wBTC-USDT – for a better apples-to-apples comparison.)

Average monthly volume during this time period has been nearly $6.5bn on Uniswap and $2.1bn on Curve.

Below is charted their share of volume on each exchange, showing that they are significant drivers of volume on both exchanges.

The share of these tokens on Uniswap has been relatively stable, ranging between 10% and 25% for over a year and a half, with a spike to 45% in June 2022. Meanwhile, their share on Curve has been more volatile, bouncing between 20% and 40% in 2022 with a spike to 60% in July, then a drop to 5% at the beginning of this year. Despite these differences, the shares on these two exchanges have been surprisingly similar since the start of this year and were nearly identical last week.

However, when comparing these tokens’ volume on the two DEXs, Curve has lost significant market share since the start of last year, down from 45% to 10% last week.

Breaking this down by pair, Uniswap has nearly all wBTC-ETH volume. It has grown its share of ETH-USDT volume from under 50% last summer to nearly 90% today. Interestingly, Uniswap has also grown its wBTC-USDT share from 3% in March to 30% today.

Improvements

Gas efficiency

As detailed in this piece, TriCrypto has been hampered by gas inefficiency, with Curve swaps incurring costs 50-100% higher than on Uniswap. One primary reason for this is the complex math behind TriCrypto, which has not been optimized for gas efficiency. The new optimization methods have brought Curve’s gas fees in line with Uniswap’s during testing.

However, if gas efficiency alone explains Uniswap’s lead and Curve has better execution, we would expect to find that Curve has more volume when examining only large swaps. Essentially, as swap size increases, concern about gas fees decreases and execution becomes much more important [2].

What’s possibly concerning for Curve is that, when looking at only large trades (in this case larger than $1mn USD) for these pairs, Uniswap has an even larger market share.
Curve hasn’t had a higher weekly volume of large trades since January 2022 and has been beaten $240mn to $1mn since the start of April.

However, this is maybe not as concerning as it seems. DEX aggregators and meta-DEX aggregators (basically aggregators of aggregators) have become much more popular, allowing users to easily find the best execution for trades, often by breaking up larger trades.

Here, for example, is a trade of $1mn USDT for wBTC routed on Kyberswap:

The bulk of this trade is routed through Curve’s 3pool, then Uniswap V3, then the TriCrypto pool.

Here’s how that same trade is routed on 1inch:

This has the effect of distributing volume to a variety of DEXs, with Curve and Uniswap usually included. It also means that large swaps are very likely to be broken up into smaller pieces. If you look again at the large trade volume chart, it’s clear that – barring a couple weeks with notable events, like FTX collapsing – the volume of large trades has been trending downwards since Spring 2022.

So, only time will tell whether gas optimizations shift a significant amount of volume from Uniswap to Curve. It certainly won’t hurt.

USDt out, usdc in

Since the start of 2022, ETH-USDC has never accounted for less than 40% of Uniswap’s monthly volume. In this timeframe, Curve’s total volume has never exceeded Uniswap’s ETH-USDC volume.

But here’s the really interesting part: Curve has never competed for this volume. The second largest DEX on Ethereum having no direct ETH-USDC swap option is so unbelievable that it’s hard to believe that it’s true.

But it is true. As I look now, a $1mn USDC for ETH swap on Curve is routed through the 3pool and then through the TriCrypto pool, with a price impact of 1.5% ($15k). On Uniswap, this swap is entirely routed through the V3 ETH-USDC 0.05% pool, with a price impact of 0.08% ($800).

In a hypothetical scenario where the new TriCrypto pool is wildly successful, Curve would need to siphon away 60-70% of Uniswap’s ETH-USDC volume to become the largest DEX on Ethereum.

Conclusion

It’s great that the new TriCrypto pool will improve gas efficiency, but it’s even better that it will finally correct Curve’s unforced error of having no direct ETH-USDC trading. The pool has the potential to significantly alter the DeFi landscape and increase Curve’s challenge to Uniswap. While it’s impossible to determine the new TriCrypto pool’s effectiveness in competing with Uniswap’s offerings until its release, even capturing a small portion of the volume would significantly benefit Curve.

[1] The excellent crv.mktcap.eth Substack/newsletter has been one of the few to cover this and is the inspiration for this piece.

[2] If I’m trading $100 of wBTC for USDT, a $10 gas fee hurts much more than a $5 gas fee. If I’m trading $1mn of wBTC for USDT, that $5 difference is essentially irrelevant, and I’m instead looking for the best execution regardless of gas.