Recent discussions have centered on Solana surpassing all EVM chains in trading volume. This analysis dives deep into the quality of liquidity pools across top blockchains to determine if this is a fleeting trend or a genuine disruption to the established order. Join me as we explore the data.
The methodology for this analysis draws inspiration from the criteria used for stock inclusion in major equity indices. Three primary criteria are considered:
- Established trading history
- High liquidity
- Consistent trading volume
These criteria have direct parallels when applied to evaluating liquidity pools in decentralized finance (DeFi).
Building the Methodology
The following is a summary of the adapted methodology. For full details, one can review methodology documents from major index providers like S&P Global.
- Scope: All pools considered are on major, established blockchains.
- Liquidity (TVL) Qualification: To be ranked highly, a pool must have a significant Total Value Locked (TVL). A scaling factor was applied to reduce the ranking of pools with lower TVL.
- Adequate Liquidity & Volume: Using historical pricing and volume data, the ratio of trading volume to TVL was assessed. Pools needed to demonstrate consistent activity.
- Established History: Pools created within the last 30 days had their rankings weighted downward to satisfy the "established history" standard.
A weighted formula was applied: Ln(TVL)/Ln(MAX(TVL)) * Volume_Weight. This scaling method has little impact on highly liquid pools but significantly reduces the ranking of pools with smaller TVL.
The top 20 rankings based on this weighted "quality" metric reveal insightful patterns.
First, it's notable that Ethereum, Solana, Arbitrum, and Base each have a representative pool in the top 4! These pools are the "primary" pools trading each chain's native token against USDC.
Another key takeaway is that Ethereum continues to dominate, accounting for half of the top spots in this ranking. Its high TVL combined with sustained volume makes it stand out across all chains. This is likely a key reason behind institutional choices, such as Blackrock's decision to deploy on Ethereum.
Delving deeper, the top two pools are particularly noteworthy:
Aerodrome's Slipstream WETH-USDC pool on Base boasts the highest volume.
Uniswap's v3 WETH-USDC pool on Ethereum has the highest TVL.
On most blockchains, the primary liquidity pools with an 0.05% fee tier are the top performers. However, on BNB Chain, the 0.01% fee pool is the top one, which was unexpected. Furthermore, USDC is used in more top pools than USDT, another surprising finding.
Distribution of Top Pools by Chain
How many pools from each chain made the top-tier list?
- Ethereum: 10 pools
- Base: 5 pools
- Arbitrum: 2 pools
- BSC: 2 pools
- Solana: 1 pool
In this analysis, all other Solana pools were unable to rank highly due to insufficient TVL. Despite large trading volumes, these trades occurred with significantly lower liquidity compared to other chains. Without the TVL weighting, Solana shows substantial volume across the top 150 pools, but it does not come close to surpassing all EVM chains, or even Ethereum alone (though it is very competitive in raw volume).
The top 20 assets traded across all pools include:
- Stablecoins: USDC, USDT, DAI, pyUSD
- Major Cryptocurrencies: ETH, BNB, SOL, cbBTC, WBTC, wsETH
- Other: AERO
Notably, AERO is the only token that is neither a stablecoin nor among the top five cryptocurrencies by market cap.
Total Value Locked (TVL) in Top Pools
The combined TVL for the top 25 pools on each chain paints a clear picture:
- Ethereum: $1.04 Billion
- Base: $310 Million
- BNB Chain: $194 Million
- Solana: $181 Million
- Arbitrum: $155 Million
Ethereum is the clear leader, but Base emerges as a strong contender among the other chains. It's also worth noting that 4 out of Base's 5 top pools are from Aerodrome, demonstrating its dominant position on that chain, even while Uniswap maintains dominance on Arbitrum and Ethereum.
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Conclusion
A significant portion of Solana's volume originates from pools with lower liquidity, with a considerable share coming from platforms like Pump.fun. Ethereum remains the dominant force in DeFi, but Base is surprisingly emerging as a powerful challenger, hosting the pool with the highest trading volume.
This focus on volume isn't negative. However, sophisticated investors looking to engage deeply with DeFi are likely more interested in sustained economic activity from deep, liquid pools rather than which meme coin is trending this week.
This analysis has multiple avenues for further exploration and refinement, such as automating TVL metrics, examining liquidity depth beyond just TVL (as concentrated liquidity pools are highly capital efficient), and considering the impact of pool fee tiers. A second part to this analysis will be released in the coming weeks.
Frequently Asked Questions
What defines a "quality" liquidity pool?
A quality pool typically has a strong combination of high Total Value Locked (TVL), a long-established history of consistent operation, and sustained high trading volume. This indicates deep liquidity and reliability for traders.
Why does Ethereum still dominate in these rankings?
Ethereum's first-mover advantage, vast ecosystem, and significant institutional adoption contribute to pools with massive TVL. This deep liquidity, combined with high volume, makes it a preferred venue for large and consistent trading activity.
Is high trading volume alone a good indicator of a chain's health?
Not necessarily. Volume can be inflated by speculative trading in low-liquidity pools or meme coin activity. A healthier indicator is high volume occurring in pools with deep liquidity, suggesting sustainable economic activity.
What makes Base a notable competitor in this analysis?
Base has a relatively high number of top-quality pools compared to other newer chains. Its leading pool, hosted on Aerodrome, even achieved the highest trading volume in the study, indicating strong organic growth and user engagement.
How does liquidity pool quality affect average users?
Higher quality pools with deep liquidity provide users with better trading experiences, characterized by lower slippage (the difference between expected and executed trade prices) and more stable prices for assets.
Could Solana's ranking change in the future?
Absolutely. Blockchain landscapes evolve rapidly. While Solana's current top pools are limited by lower TVL in this metric, its high raw volume shows strong demand. An increase in capital deployment to its pools could significantly improve its quality ranking.