The Rise of GAINS and the Fall of DFYN in the Polygon Ecosystem: Ratings Analysis
A Quick Overview
QuickSwap is currently the most traded decentralized exchange in the Polygon network. It is a fork of Uniswap. QuickSwap uses Uniswap v2's Constant Function Automated Market Maker (AMM) model. And QuickSwap charges a 0.3% fee on each trade allocated to liquidity providers and native token stakers.
Gains Network is a decentralized derivatives exchange. It currently supports perpetual contract trading with up to 150x leverage. In addition to cryptocurrency, the Gains Network also supports equity and forex trading.
Gains Network's primary product is its decentralized synthetic leveraged trading platform, gTrade. It's similar to GMX in that the traders are the counterparty to the $DAI vault and the trader's losses are deposited into the $DAI vault and the trader's profits are taken from the $DAI vault. The prices on gTrade are provided by Chainlink's node operator network (DON).
Gains Network also combines NFTs with trading, issuing five different levels of GNS NFTs. NFT holders have the premium to reduce spreads on trades. They can also stake NFTs to boost rewards.
QiDao is Polygon's first native stablecoin protocol. Its architecture is similar to MarkerDao, with a dual token model combining an over-collateralized stablecoin, $MAI, and its native governance token, $Qi. QiDao currently supports multiple networks, including Polygon, Fantom, and Avalanche. Users can use the QiDao protocol to create an over-collateralized vault, deposit crypto assets to borrow stablecoins at a 0% interest rate.
Dfyn Network started as an AMM DEX built on Polygon and went live in Q4 2020. With subsequent development, Dfyn has deployed its DEX to OKExChain, Arbitrum, and Fantom, and has developed functions such as the cross-chain bridge and the customized liquidity mining pool.
All four of the above projects fall under the DeFi category of the Polygon ecosystem. QuickSwap, Gains Network, and Dfyn Network are all decentralized exchanges. QiDao is a stablecoin protocol. These four projects also vary in terms of underlying technologies, token economics, and product types. We have rated each of these projects using our rating model. Next, we will analyze each project's performance in detail on different dimensions.
Underlying Technology & Security
All of the four projects mentioned have conducted and publicly disclosed their security audit reports related to smart contract code. Among them, QuickSwap has the best audit report with no vulnerabilities found. Gains Network, Dfyn Network, and QiDao all conducted at least two security audits. According to the summary of issues in the report, the security issues of these projects are basically low-level or informational security issues. In addition, all of the projects, except QiDao, have launched bug bounty programs.
In terms of GitHub performance, QuickSwap, as a fork of Uniswap, has performed relatively well among these projects, with the most Stars and Fork. QiDao is in second place, but its Star and Fork numbers are much fewer than QuickSwap's.
Of these projects, Gains Network and Dfyn Network have not experienced any security crises as of now. QuickSwap and QiDao, on the other hand, have suffered various levels of attacks or crises that have negatively impacted their security to some degree.
- On May 14, 2022, QuickSwap was affected by a domain name hostage attack due to a vulnerability at its hosting provider GoDaddy.
- On October 24, 2022, QuickSwap temporarily shut down its lending marketplace after losing $220,000 to a lightning lending attack due to a vulnerability in the Curve oracle used by Market XYZ.
- On February 8, 2022, hackers exploited a vulnerability in Superfluid, resulting in a loss of approximately $13 million to QiDao.
First, regarding the token utility, according to the publicly disclosed information, all the native tokens of the projects in this article include governance and staking. The token holder can gain the right to vote on project development decisions or stake their token for rewards. However, it is worth noting that Gains Network's token $GNS does not currently have a governance function. According to the Gains Network team's disclosure, $GNS will be used for governance after the DAO is established.
In addition, QiDao, the stablecoin protocol similar to Marker Dao, contains two types of tokens, its native token $Qi, and the stablecoin $MAI. $MAI is pegged 1:1 to $USD and can be borrowed via collateral. Currently accepted collateral assets include $MATIC, $LINK, $WETH, etc. Collateralization rates range from 130% - 150%, depending on the type of collateral assets.
On the staking side, as QuickSwap, Gains Network and Dfyn Network are all decentralized exchanges, a portion of their transaction fees are allocated to liquidity providers as well as to native token stakers as rewards. Gains Network allocates the most fees to stakers, accounting for about 40% of the overall fees. The remaining fees are allocated to the team, project funds, and LPs in the $GNS/$DAI liquidity pool on QuickSwap. QuickSwap and Dfyn Network have similar fee allocations, with the only difference being that 0.01% of QuickSawp's fees are allocated to the QuickSwap Foundation.
In terms of token allocation and vesting plan, the distributions of $GNS, $QUICK, and $QI are less centralized. The community portion is relatively high, allocating for more than 80% of the total supply. Among them, $GNS is 100% community allocated. On the other hand, Dfyn Network's token allocation is the most centralized and has a relatively short vesting period. The Team, Investors, partners & advisors each account for 15% of the total $DFYN supply, and together account for 45% of the total supply.
In addition, as we can see in the chart below, all projects except QiDao, have their own token incentive or deflation plans. Among them, Gains Network has a maximum supply and a deflationary mechanism to incentivize the growth of its token value in the long term. The initial supply of $GNS is 38,500,000 with a cap of 100 million. When the $DAI vault reaches a 130% over-collateralization rate, $GNS will be burned. As of now, Gains Network has burned 25% of its initial supply of tokens. On the other hand, both QuickSwap and Dfyn Network have set rewards for liquidity providers and thus facilitate long-term growth.
According to TokenInsight, QuickSwap's token performance is significantly ahead of other projects. As of December 28, 2022, $QUICK is listed on 32 exchanges, with the largest number of listing exchanges. At the same time, $QUICK also leads in 24h trading volume, being the only token with a daily volume of over $1 million, approximately $3 million.
Notably, $GNS has only been listed on 6 exchanges, but its 24h volume is well ahead of $DFYN at around $800k.
For the historical price, we have taken a 30-day history for comparison. In the chart below, we can see that the price of $DFYN has been fluctuating upwards since November, with a maximum increase of 30%. The price performance of $GNS and $QUICK is relatively stable, with no significant fluctuations. The price of $QI has performed worse, dropping nearly 50% from its initial price 30 days ago.
In addition, $GNS is currently about 70% of its all-time high price ($4.85 on January 10, 2022). And $QUICK, $QI, and $DFYN are all currently down more than 90% from their respective all-time highs.
Polygon Ecosystem Development
According to the data on DefiLlama, as of December 27, 2022, the Polygon ecosystem currently has a TVL of about $998m, which is the same stage as the Arbitrum ($1.06b), representing about 4.27% of the TVL of Ethereum.
Polygon has been expanding rapidly since its launch in 2020 until mid-2021, showing a rapid upward trend. Its TVL peaked on June 15, 2021, at $9.89b, accounting for about 15.31% of Ethereum's value over the same period. Since then, Polygon's TVL has rapidly shrunk due to its internal security concerns and multiple security attacks on projects within the ecosystem, resulting in a downward trend. Currently, Polygon's eco state is gradually stabilizing, and its TVL ranks #4 among all public chains after Ethereum, BNB Chain, and Tron.
Project Ecosystem Development Comparison
QuickSwap, currently the largest decentralized exchange in the Polygon network, ranks #2 in the Polygon ecosystem with a TVL of $165.66m, only next to AAVE ($252m), according to data from December 27, 2022. Its TVL ranks 10th among all decentralized exchanges and is approximately 45.76% of the TVL of the highest-ranked Curve Finance.
QiDao, Gains Network, and Dfyn Network are similarly positioned in the Polygon ecosystem at #12, #14, and #15, respectively. Notably, QiDao currently supports 12 chains, and is the project with the most chain support among the 4 projects. As of December 28th, QiDao had a total TVL of $48.16m across all chains.
In terms of community, according to TokenInsight, as of December 28, 2022, QuickSwap's community performance is relatively positive among the four projects and it is the project with the most number of operating communities. In addition to the five social media outlets counted in the chart below, QuickSwap also has its own official account on YouTube with 769 followers. In addition, QuickSwap has the largest number of followers on Twitter with nearly 80,000. On the other hand, although Gains Network operates the second largest number of communities after QuickSwap, its overall community performance is relatively poor, with about 35% of QuickSwap's Twitter followers.
As the largest decentralized exchange in the Polygon ecosystem, QuickSwap provides continuous liquidity to the Polygon network and helps other projects in the ecosystem to grow, making it one of the core projects supporting the Polygon ecosystem. Of the other three native projects, QiDao and Dfyn Network are currently in a bottleneck due to their early development, with high substitutability, and facing fierce competition from similar products. Gains Network, one of the few and more recent decentralized derivatives exchanges on Polygon, is developing fast, with an average daily trading volume reaching $60m over the last 7 days. (Related: Beginners Guide to Crypto Derivatives, Kwenta Case Study)
Roadmap & Progress
In terms of roadmap, except for QiDao, all the remaining projects have publicly disclosed their development roadmap through official channels. Among them, Gains Network, the newest project, has the clearest roadmap, which includes the development progress and future plans/goals for the whole year of 2022 to Q4 2023. The roadmap shows that Gains Network focused on product optimization, partner expansion, and security enhancements in 2022, and in 2023, Gains Network will focus on decentralization and transition to DAO governance.
Dfyn Network's roadmap includes the development process since the project went live until Q3 2022. While the disclosure is in detail, it currently stops at Q3 2022, and progress is not continuously updated. However, it is clear from its official community account that Dfyn Network has been actively working on product development and optimization. According to the post on its Twitter account on December 25, Dfyn Network's latest development is the launch of its V2 testnet.
QuickSwap's roadmap is relatively simple compared to the previous two projects, with no specific development progress or subsequent updates disclosed. The known developments are the launch of its V3 version and the addition of a Gaming Hub and Predictions section to assist with other projects in the Polygon ecosystem.
In summary, we believe that among the DeFi projects native to the Polygon ecosystem, Quickswap and Gains Network are performing better. Quickswap, as the exchange with the largest trading volume in the ecosystem, supports the liquidity of the entire Polygon ecosystem and the development of other DeFi projects. But because of this, Quickswap's security is even more important, as a malicious attack that causes trading to be suspended can affect the entire ecosystem. Gains Network, the newest decentralized derivatives exchange, is in its own formative years. In addition to the fact that all decentralized derivatives exchanges are booming due to events such as the FTX bankruptcy, its own trading volume, TVL and users are also growing at a very fast pace. We believe Gains Network has the opportunity to build on its current BB rating in the future. QiDao and Dfyn Network, on the other hand, have been in development for a long time, but their main products are highly substitutable and development activity has slowed since their launch, resulting in a steady loss of market share and poor secondary market performance for their native tokens. In the future, we will continue to monitor the development of Polygon's eco-projects and make timely adjustments and updates to the ratings.