1inch, Dune Find 85% of DEX Liquidity Is Used Inefficiently
Summary
- 1inch Network and Dune Analytics said about 85% of liquidity on major DEXs is being used inefficiently.
- The report said LPs are giving up about $150 million in annual fee income because liquidity falls outside the price range or sees no actual trading activity.
- By protocol, Uniswap v3 had the highest share of idle liquidity, while Aerodrome saw relatively active capital flows as 58% of idle funds were rebalanced.
Forecast Trend Report by Period
1inch Network said July 17 that a joint study with Dune Analytics found about 85% of liquidity supplied to decentralized exchanges is not being used efficiently.
The study covered Uniswap v3 and v4, PancakeSwap v3 and Aerodrome.
The analysis showed about 29.5% of DEX liquidity was outside the current price range and earned no fees. When liquidity that remained within range but saw no trades is included, about 85% of the total was being used inefficiently.
A price range is the band liquidity providers set for where their capital will be used in trading. Liquidity outside that range is not used in trades and cannot generate fee income.
The report said liquidity outside the current price range neither contributes to trading nor generates fees. Even liquidity within the price range is not fully utilized from a capital-efficiency standpoint if no trades occur.
It added that idle liquidity is costing liquidity providers, or LPs, about $150 million a year in forgone fee income.
By protocol, Uniswap v3 had the highest share of idle liquidity. Aerodrome, by contrast, saw 58% of idle funds recently rebalanced, indicating relatively more active capital flows.
Filippo Armani, Dune's head of research, said decentralized exchanges have grown enough to compete with centralized exchanges and traditional finance venues. He added that improving liquidity utilization will be the next challenge for DEXs.
Uk Jin
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