The current state of the cryptocurrency market is undeniably mired in a profound bear market. This downturn is evident in the consistently decreasing trading volumes, with volume hitting 3 year lows (https://beincrypto.com/crypto-exchange-volumes-fall-institutional-funds-outflow/ ) recently. This decline in trading volume is obviously paired with a diminishing number of users participating in the crypto space.
The bounty topic for this round is to analyse the users in the bear market (and those that have left). Analysis can include, but not limited to, amount of addresses that are still active currently compared to that those become inactive. LPs that have became inactive and still have liquidity positions open. Addresses that became active in the bear. Active addresses that have stopped using Uniswap. Etc.
What defines an active as active can be defined by you, but make sure to explain reasoning.
The Uniswap Protocol serves as a decentralized marketplace designed for the exchange of cryptocurrencies within the Ethereum blockchain ecosystem. It operates through a set of immutable smart contracts, ensuring that no single entity has control over its underlying code. This unique characteristic guarantees that the Uniswap Protocol remains unchanged and operational for as long as the Ethereum blockchain functions, even in the event of Uniswap Labs ceasing to exist. Furthermore, the Uniswap Protocol can be deployed on various blockchains, including Ethereum, Polygon, Arbitrum, Optimism, Binance Smart Chain, and Celo, by anyone interested in utilizing it.
Individuals predominantly utilize the Uniswap Protocol for two primary purposes:
Swapping: The Uniswap Protocol functions as a decentralized exchange (DEX), distinguishing it from traditional exchanges. Unlike centralized counterparts, decentralized exchanges enable users to exchange tokens directly, without the involvement of third parties who manage the transaction or oversee users' assets. Swapping tokens on Uniswap is entirely self-custodial, guaranteeing users always maintain control over their assets and preventing third parties from misusing or seizing their funds.
Providing Liquidity: Liquidity denotes the extent to which a particular asset is available for trading. The Uniswap Protocol relies on external entities, referred to as liquidity providers (LPs), to contribute liquidity. These LPs are users who deposit tokens into specialized liquidity pools, thereby enhancing the liquidity available for specific token pairs that traders can utilize. In return for offering their liquidity, LPs earn a share of the trading fees generated by the pool. This open opportunity for anyone to become a liquidity provider signifies a transformative shift in participating in financial markets.
In the crypto winter of 2022, a series of unfortunate events triggered a domino effect of financial losses that led to a disintegration of investor confidence in cryptocurrency. In May 2022, the TerraUSD and Luna stablecoins crashed, taking billions of dollars of investor equity with it. That crash led to a crisis of confidence in the overall stability of the cryptocurrency markets, dragging down the values of the market overall.
The market was further impacted by the bankruptcy of crypto exchange FTX in November 2022, which also wiped out billions of investor equity. With FTX, allegations of financial wrongdoing and mismanagement have been levelled against the firms leadership, including the company's founder Sam Bankman-Fried.
The FTX bankruptcy has had widespread impact on the cryptocurrency industry, also leading to the bankruptcy of the BlockFI exchange due to its exposure to FTX assets. The BlockFi collapse led to further investor losses.
Based on these factors, we can consider December 2022 as the beginning of the cryptocurrency market's winter season. Therefore, active user is defined as user conducting his/her first transaction before December 1st 2022 and his/her latest transactions after 1st December 2022.
Between December 2022 and September 2023, there was a noteworthy decline in the total number of Uniswap users, comprising both existing and new users, with each category experiencing a decrease of approximately 10,000 users. Among these months, May 2023 stands out as a remarkable point in time. During that month, Uniswap witnessed its peak user engagement, with an impressive 128,800 existing users and an even more remarkable 160,800 new users. It is also the only month when number of new users outnumbers number of existing users during this period.
The "Retention_percentage" values represent the percentage of users who continued to engage with the product in the specified month relative to the number of users in the initial month (M0). Generally, the retention percentages decline as the months progress. The first month (M1) typically has the highest retention percentage for each initial month (M0). This indicates that a significant number of users tend to continue to engage in Uniswap after their initial engagement.
Based on their usage patterns, we can categorize users into the following segments:
Hobbyist Trader: Users in this category typically engage in trading activities characterized by a relatively low level of frequency and volume. They are identified by having a monthly transaction count of five or fewer and an average monthly trading volume of $500 or less. These users are likely trading for personal interest or as a side hobby.
Professional Trader: This segment comprises users who exhibit a high level of activity and commitment to trading. They are distinguished by having a monthly transaction count of 20 or more and an average monthly trading volume of $500 or greater. These users are likely experienced traders who may rely on trading as a source of income or profession.
Investor: Investors are users who prioritize substantial trading volumes over transaction frequency. They are categorized by having a monthly transaction count of five or fewer but engage in significant trading with an average monthly trading volume of $5,000 or more. These users are focused on making larger investments with fewer transactions.
Newbie: The "Newbie" category includes users who are new to trading or have just started their trading journey. They are characterized by having a limited monthly transaction count of three or fewer. This category is often associated with users who are still learning the ropes of trading and may gradually increase their activity over time.
The majority of Uniswap users fall into the "Hobbyist Trader" and "Newbie Explorer" categories, indicating a strong presence of casual and exploratory users on the platform. "Investors" make up a notable portion of the user base, suggesting that Uniswap attracts users interested in cryptocurrency investments. "Professional Traders" represent a smaller but potentially high-impact group, as they may contribute significantly to trading volumes on Uniswap.
The data indicates a relatively stable trend in the number of active traders and the frequency of their swaps over time. However, a significant shift becomes evident when examining the USD swap amounts. This shift can be attributed to the influence of what's commonly referred to as the "crypto winter" on active users.
The "crypto winter" typically denotes a period of prolonged market downturn or volatility in the cryptocurrency space. During such times, users tend to exhibit caution and hesitancy in their trading activities. This caution is reflected in the significant decrease in the USD swap volume, as traders become apprehensive about executing large-volume trades in an unstable market.
Notably, the latest month in the dataset records the lowest USD swap volume during the observed period, underscoring the impact of this market sentiment. This observation suggests that users are not only trading less frequently but also reducing the size of their trades as they navigate the challenges posed by the crypto winter.
A significant number of Liquidity Providers, 13,424, continued to actively provide liquidity despite the challenges posed by the crypto winter. On the other hand, a larger group of 35,317 LPs became inactive during the crypto winter. This indicates that a substantial number of LPs may have reduced their participation or exited the market due to the adverse market conditions or a cautious approach. Looking at monthly fluctuations, we can see that number of active LPs declines since the winter crypto began. This decrease is unstoppable until now.
User Decline: Between December 2022 and September 2023, Uniswap experienced a notable decline in the total number of users, including both existing and new users. Each category witnessed a decrease of approximately 10,000 users during this period.
May 2023 Peak: May 2023 emerged as a remarkable month in Uniswap's history, recording the highest user engagement. It had an impressive 128,800 existing users and an even more remarkable 160,800 new users. Notably, it was the only month when the number of new users exceeded the number of existing users during this period.
User Retention: The data showcases user retention patterns, with retention percentages generally declining as months progress. The first month after initial engagement (M1) consistently has the highest retention percentage, indicating that many users continue to engage with Uniswap after their initial interaction.
User Segmentation: Users are categorized into distinct segments based on their trading behavior. These segments include Hobbyist Traders, Professional Traders, Investors, and Newbies. The majority of Uniswap users fall into the "Hobbyist Trader" and "Newbie Explorer" categories, indicating a strong presence of casual and exploratory users on the platform.
Crypto Winter Impact: The data reveals the influence of the "crypto winter" on user behavior. During this period of market volatility, users showed caution by reducing trading volumes. The latest month in the dataset had the lowest USD swap volume, highlighting user apprehension during the crypto winter.
Liquidity Provider Behavior: Liquidity Providers (LPs) were also impacted by the crypto winter. Some LPs continued to provide liquidity actively, while a larger group became inactive during this period. Monthly data indicates a consistent decline in active LPs since the beginning of the crypto winter.