The principle of best execution is a fundamental hallmark of any trading strategy. Therefore, market volume and liquidity are key considerations when building investment portfolios. Decentralized exchange (DEX), automated market making (AMM), and proactive market-making (PMM) services, accordingly, have become a backbone to DeFi access and trading—with DEX revenue volumes and total value locked (TVL) often leading data across different financial primitives.
Yet, most trading volume today is concentrated on a handful of protocols. Despite the advent of aggregators to source the best quote at all times, volume on individual protocols still far outweigh aggregation protocol usage. This is surprising, given that the platform that provides best execution will vary dramatically for every token pair. Gravitating towards one protocol or one aggregator increases likelihood of slippage and poor execution.
MetaMask Swaps solves this problem by offering market participants unrivaled liquidity data across the widest range of protocols, in seconds. MetaMask Swaps therefore empowers users with more information than they would get if they interacted with protocols directly.
This article will provide a data-driven assessment of different protocol and aggregator execution results to demonstrate that focusing on only one or two price sources increases likelihood of failure in best execution.
When assessing a DEX protocol or aggregator, four factors come into play:
The price quoted
The gas prices paid for execution
The transaction failure rates experienced
And lastly, the depth of the market, or its liquidity, which is the lifeblood of DEXs, AMMs and PMMs.
To compare the first three variables we obtained up to 20 quotes across 9 different trading pairs from 11 different DEXs and aggregators—arriving at 1,249 data points from which to draw inferences. We ran quotes multiple times per day and across several days to construct typical liquidity demands (See appendix).
Of the 1,249 data points covered across a range of token pairings, MetaMask Swaps identified, on average, the venue with the lowest price when compared with the prices quoted by DEX, AMM, and PMM providers. This is perhaps the most essential metric to measure, as larger transactions will be more adversely impacted by changes in price.
MetaMask Swaps does not optimize solely on gas (as this tends to have a less significant impact on large transactions). Rather, when collecting prices to present to the user, MetaMask Swaps presents a comparison of both gas and quote price to highlight what the user might consider the optimal deal.
Transaction Failure Rates
Transaction failure rates on MetaMask Swaps have also shown to be lower than those exhibited by other aggregators. Users of MetaMask Swaps are able to achieve lower failure rates because they get the largest range of quotes. Additionally, MetaMask Swaps filters out the options for ones that have the highest chance of failing, which allows MetaMask Swaps users to enjoy a low average failure rate of 4.4% as opposed to an average failure rate of 8.7% across 6 of the major platforms.
In terms of assessing liquidity, we analyzed the liquidity distribution amongst DEXes, AMMs, and PMMs. Given the ever-changing variables within token pair liquidity, a single source of liquidity will often result in a lack of market depth and high slippage.
This is why aggregating the widest sources of liquidity data guarantees market depth. In this, MetaMask Swaps again stands out by providing users with accurate information regarding depth across the market.
Data clearly shows that DeFi users tend to gravitate to one or two protocols when executing their trades. However, data across price quotes, gas prices, failure rates, and market depth show that focusing on one or two price sources increases likelihood of failure in best execution.
MetaMask Swaps gives DeFi users unparalleled insight, enabling them to identify the best price quote, coupled with optimal gas prices for the given quote, the lowest failure rates, and largest market depth.