Keys to Success: How Uniswap, dYdX, and Lido Dominated the Decentralized Application Market

Introduction

Advances in blockchain infrastructure such as rollups, fast L1/L2, and account abstraction are expected to lead to a surge in decentralized applications (dApps). This analysis aims to explore why certain dApps such as Uniswap, dYdX, and Lido have been successful in a competitive market and provide valuable insights for future application developers.

Uniswap: Simplicity and Branding (Background and Technology)

Uniswap is a decentralized exchange (DEX) founded by Hayden Adams in November 2018, boasting over $5 billion in liquidity, $1 billion in daily trading volume, and 100,000 daily active users. Uniswap’s success is often attributed to its technology, especially its automated market makers (AMMs), although the concept was not unique to Uniswap. AMM was originally conceived by Alan Lu of Gnosis Safe and popularized with contributions from Vitalik Buterin.

Design and Brand

Uniswap’s real win is in its user-friendly design and memorable brand. Unlike its predecessor EtherDelta, which was complicated for retail customers, Uniswap offered simplicity: users could trade without worrying about order books, and liquidity providers could deposit tokens with a single click. This ease of use, along with the distinctive pink unicorn branding, captured the imagination of the crypto community.

Sales and Networking

Hayden Adams’ aggressive networking also played a key role. Adams gained public recognition by attending conferences, working with established teams, and demonstrating Uniswap in person. His meeting with Vitalik Buterin, who appointed and promoted Uniswap, was pivotal. Additionally, Adams effectively provided initial liquidity, encouraged early adopters, and generated hype that led to a snowball effect in liquidity provision and user adoption.

dYdX: User Response and Vertical Integration

Background and Customization Founded in July 2017 by Antonio Juliano, dYdX is a leading perpetual securities trading protocol with a daily trading volume of over $2 billion. While token incentives contributed greatly to its success, dYdX’s ability to adapt to user needs was crucial. Its original product, Expo, aimed to simplify margin trading but failed to catch on. Recognizing the preferences of its sophisticated user base, dYdX pivoted to a product more similar to a centralized exchange, resulting in a 20x increase in daily trading volume.

Vertical Integration

dYdX’s strategy included vertical integration to overcome scalability bottlenecks. Initially, dYdX faced issues with liquidity and trading errors when it used the 0x protocol for its order book. dYdX improved the reliability of transactions by developing an off-chain matching engine. Additionally, the move to Starkware’s L2 in the DeFi summer of 2020 reduced gas fees and increased throughput, allowing for greater liquidity and market growth. Most recently, dYdX moved to its own Cosmos AppChain to gain control of its validator set and further optimize the user experience.

Lido: Action-Oriented Approach and Strategic Partnerships (Background and First Steps)

Founded in 2020 by Konstantin Lomashuk, Vasiliy Shapovalov, and Jordan Fish, Lido offers liquid staking via its token stETH. With $29 billion in deposits, it is the second largest DeFi protocol after Total Value Locked (TVL). While early entry was a factor, Lido’s proactive approach differentiated it from competitors.

Action-oriented

The Lido team valued moving fast and often made compromises to accelerate market entry. For example, to get around the issue of validators not being able to select smart contracts as withdrawal addresses because Ethereum does not have 0x01 withdrawal information, Lido used a distributed threshold encryption scheme.

This allowed them to safely manage assets and launch quickly. Additionally, unlike Rocket Pool’s permissionless design that resulted in deposit queues, Lido’s design with permissionless node operators made it easier to quickly set up validators to meet the demand for stETH.

Partnerships and Integrations

Strategic partnerships and integrations have been key to Lido’s growth. Collaborations with wallets such as Argent and Ledger have increased the discoverability of stETH. Additionally, Lido has increased liquidity by promoting the stETH/ETH pair on Curve and securing integrations with protocols such as Maker and Aave, increasing the utility and adoption of stETH.

Conclusion

The success stories of Uniswap, dYdX, and Lido show that winning in the blockchain space is not just about having the best technology or being first to market. It is also about deeply understanding user needs, developing a user-friendly product, building a strong brand, and building a strategic network. These factors, combined with adaptive strategies and proactive partnerships, can have a significant impact on the success of a dApp and provide a blueprint for future developers who want to be leaders in the decentralized ecosystem

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