What is the Potential Size of the AMM Market?

Impermax unlocks new lending and earning opportunities for liquidity providers on automated market maker (AMM) platforms like Uniswap. As AMMs grow, demand for Impermax’s services will also grow.

With AMMs growing at a huge rate, it’s fair to ask how large the AMM industry could get. What would be a fair prediction for their size in the next two to three years, and what happens if they overtake the centralized exchange markets in the future?

How big is the AMM industry right now?

Statistics from DeFi Pulse show that decentralized exchanges (DEXs) currently hold $17.19 billion in smart contracts. Of course, not every DEX is an AMM. Some, such as EtherDelta and Binance Dex, use order books instead, so this figure cannot be attributed fully to AMMs; although it is fair to say that the vast majority of popular DEXs nowadays are AMMs. In fact, DeFi Pulse lists all the top ten most valuable DEXs as using AMMs.

How much value is Uniswap holding?

DeFi Pulse lists Uniswap as holding $4.41 billion, putting it in 1st place among DEXs, with Curve (worth $4.39 billion) and Sushiswap (worth $4.12 billion) trailing behind. To understand how impressive this is, it helps to look Uniswap’s lifetime value chart. On November 3, 2018, DeFi Pulse valued Uniswap at $35,800. That means that its value rose by a gargantuan 11 million percent in just over two years. It currently has a market dominance of 25.66%.

An educated guess predicting the size of the AMM industry in two to three years

To do make an informed guess, we need to start by looking the chart for DEXs as a whole (of course, still factoring in that not every DEX is an AMM). DeFi Pulse tracks the total value of DEXs from August 2017, but considering how Uniswap only launched in November 2018, it makes more sense to begin our chart analysis from that date. From November 3, 2018 the DEX industry was worth $17.63 million, and by March 29, 2021, it was worth $17.19 billion. This is a 99,900% increase in value over the space of a little over two years. If AMM-led DEXs continue to grow at even one tenth that rate, then by 2023 the industry would be worth $1.7 trillion. Considering how the crypto community greatly favors AMMs due to their ease and efficiency, and considering probable improvements in gas fees, it is fair to say the vast majority of the wealth held in DEXs would be held by AMMs.

AMMs could take over a share of the worldwide investing market

For AMMs to reach this staggering number, they would only have to grow by one tenth of the growth rate that they did over the last two years. Let’s compare this to the current global stats: there are $1.2 quadrillion in investments, derivatives, and cryptocurrencies altogether. If other kinds of investments such as stocks, commodities, equities, and other financial assets begin to become tokenized, it would not be impossible for AMM-led DEXs to be worth $1.7 trillion. There are several factors that make this number plausible. First, DEXs have a great deal of potential to grow as they allow people who are unbanked (meaning they are ignored by centralized banks and financial organizations) to invest, unlike centralized exchanges. This means that more money will pour in from retail investors. Secondly, AMMs are getting more and more attention in the media, and with the upcoming release of Uniswap V3 coming out on May 5th 2021, it is certainly possible that they could continue growing at a staggering rate and add more types of tokenized assets. Further, the pandemic has spurred unchecked inflation around the world as governments have increased the supply of fiat currency to stimulate their economies to recover from lockdown-related recessions. If printing more money helps their economies, they will likely continue to do so.

What if AMMs overtake centralized exchanges?

According to CoinMarketCap, centralized exchanges currently hold around $354 billion. Looking at our current stats and numbers, it would certainly be possible for AMMs to overtake centralized exchanges, possibly even within a few years, although bear in mind that the centralized exchange market is likely to grow, too, during that time. For AMMs to become dominant, there would have to be a large-scale change among users that moves them toward AMMs.

Why users could move heavily toward AMMs

This could happen for a few reasons. Firstly, Ethereum-based AMMs are about to get much cheaper as Ethereum 2.0 (Serenity) matures, making the Ethereum ecosystem faster and less congested, and making AMMs even more appealing. Secondly, cross-chain protocols such as Polkadot are being developed that allow for multiple blockchains to communicate with one another, meaning that future AMMs could list more non-Ethereum pairs with ease. If AMMs overtake the market, then there is no saying how high their value could reach, as it would be capped only by the value of the crypto industry altogether, and nobody knows how high that could go. Finally, Uniswap V3 is planned to release in a month or two, and promises big improvements in costs and capital efficiency.

The leading edge of the DeFi industry

These numbers are quite speculative, but it’s hard to appreciate the growth potential of DEXs from where we stand in these early days. There’s no doubt that Impermax and the entire DeFi industry is on the edge of incredible growth potential that will benefit global financial markets and people around the world.