State of Hashflow Q1 2023

Key Insights

• Nearly $7 billion has been executed on Hashflow in the last twelve months, with roughly 2,000 users leveraging the hybrid DEX daily.
• The HFT incentive rewards simplification in November has likely driven more volumes toward non-stablecoins, which significantly increased their volume share across chains in Q1’23.
• Layer-2 solutions Arbitrum and Polygon made up 58% of unique addresses trading with Hashflow in Q1’23 and 63% of total trades.
• The legal concerns about Binance in Q4’22 along with the Arbitrum token airdrop in Q1’23 led to a large shift in volume on Hashflow from Binance to Ethereum and Arbitrum in Q1’23.
• The decentralization process is in motion with 17 proposals to date and the launch of the Hashverse expected in H1’23.
  
  

Primer on Hashflow

Hashflow is a decentralized exchange (DEX) that uses a request-for-quote model with pricing provided by professional market makers. Hashflow's signature-based pricing offers traders guaranteed execution price, MEV-resistance, and no slippage. Hashflow was founded in 2020 by Varun Kumar, Victor Ionescu, and Vinod Raghavan. After launching in Private Alpha in April 2021, Hashflow fully launched in August 2021. Since initially launching on Ethereum, it has expanded to Arbitrum, Avalanche, BNB, Polygon, and Optimism. Hashflow also offers cross-chain trading, allowing traders to exchange assets on different chains without escrowing or bridging assets between chains. HFT is the governance token for the Hashflow protocol. In early 2023, the Hashflow Foundation announced the Hashverse, a gamified experience to onboard new users, diversify HFT ownership, and promote usage.

Key Metrics

Performance Analysis

Usage by Chain

Hashflow's total trading volume of $1.5 billion in Q1 2023 underwent a significant shift in composition from previous quarters. Over the last year, Ethereum accounted for 50% of Hashflow volumes, with Binance (BSC) accounting for 22% and Polygon 11%. The trading share flipped to 65% Ethereum, 13% Arbitrum, and only 12% Binance in Q1’23, likely due to legal concerns about Binance and the ARB airdrop. Since launching in April 2021, Hashflow has cleared over $13 billion in total trade volume, making it a top 10 DEX by volume.

Hashflow’s guaranteed price offering and zero slippage trading are well-suited for DEX aggregators, which continue to onboard Hashflow’s RFQ protocol. Currently, 1inch is the most common originator of trading volume for Hashflow’s Ethereum instance. About 3.5% of 1inch’s trading volume on Ethereum was routed to Hashflow for execution in Q1’23. It accounted for 83% of Hashflow’s volume on Ethereum in Q1.

Based on how many unique addresses executed a trade, Hashflow's most trafficked instances over the last year were Arbitrum (38%), Avalanche (18%), and Polygon (16%). Nearly 300,000 unique wallets benefited from Hashflow’s no-slippage prices, with many indirectly working through aggregators.

Layer-2 instances Arbitrum and Polygon accounted for over 50% of the 1.5 million trades in the last year, with 34% on Arbitrum and 20% on Polygon. Once again, the increase in activity on Arbitrum led to increased usage of Hashflow relative to other instances, making up 48% of the 383,000 trades in Q1.

Cross-Chain Activity

In the second week of December 2022, news was released that U.S. prosecutors could be levying charges on Binance. Using Hashflow’s cross-chain trading capabilities, traders moved nearly $1 million in seven days, primarily sending their balances to Ethereum. As the news calmed in the first quarter, roughly $125,000 moved back to BSC, and all other Hashflow instances showed net outflows in Q1.

Volume by Token

In 2022, 83.4% of the $3.1 billion of trading volume on Hashflow’s Ethereum instance was stablecoins USDC, USDT, and DAI. The first quarter of 2023 saw both a change in mix and an increase in volumes to $950 million or a $3.8 billion annual pace. Relative to Q1’22, volumes were up 43.7%, and relative to Q4’22 volumes were up 15.2%.

The change in mix on Ethereum has drastically favored non-stablecoin cryptoassets, which increased their share from 8.7% in Q4’22 to 42.1% in Q1’23. Specifically, wETH volumes increased 604% from $45 million to $319 million, and wBTC volumes increased 78.8% from $17 million to $30 million. Activity in right-tail assets (not USDC, USDT, DAI, wETH, or wBTC) also increased from 1.2% in Q4’22 to 5.4% in Q1’23.

The drastic shift to non-stablecoin cryptoassets came after one of the first community votes to simplify HFT rewards for trading. On November 28, 2022, the DAO voted to reward non-stablecoin trades by 5x as much as stablecoin trades (0.0005 HFT per USD value of non-stablecoin traded). The vote also implemented a monthly cap of 225,000 HFT for non-stablecoin trades and a 125,000 HFT monthly cap for stablecoin trades. The bullish price action in Q1 could also be playing a role in alt-coin volumes.

Similar to behavior on the Ethereum instance, volumes on Hashflow’s Arbitrum instance began to diversify after HFT reward distribution changed. wETH rose from 3.4% of trading volume in 2022 to 30.6% in Q1’23. Hashflow also added GMX on February 23,, which then did $2.2 million in volume in the final five weeks of the quarter (2.4% of total volume).

HFT Distribution and Staking

The Hashflow Foundation is in the process of decentralizing the protocol. It uses token voting for off-chain governance, with an optional vote escrow staking mechanism for holders to increase their voting power depending on the length of the escrow. At quarter end, there were over 9,000 HFT holders, which should grow with the launch of the Hashverse likely in H1’23.

Of the nearly 2,000 stakers, 42% of them are staking for over two years (the maximum is 4 years). They are also earning voting power, HFT rewards (targeting 10% APY), and a higher power level in the Hashverse, which can increase future HFT earnings.

There are also many shorter-term lockers, which could lead to potential changes in HFT liquidity. At quarter end, there was 1.3 million HFT coming out of vote escrow locking in the second quarter. In total, 6.2 million HFT, or 3.6% of circulating supply, is locked as veHFT.

Note: The HFT tokens being unlocked are not necessarily being sold — they’re being made available for sale. They could also be re-locked or simply held.

Qualitative Analysis

The Hashflow Foundation released its 2023 roadmap outlining its priorities for the year. These include expanding its product offerings, improving its user experience, and increasing its liquidity sources.

Overall, Hashflow's first quarter of 2023 was marked by significant integrations and partnerships, security and development initiatives, and the continued protocol decentralization. These actions align with the team's goal to become a leading decentralized liquidity aggregator and provider of optimal pricing for DeFi users.

Hashverse Coming Soon

The opening of the Hashverse is a key step in distributing control to a broad holder base and decentralizing control of the protocol. One of the most significant developments for Hashflow this quarter was its partnership with Magic Eden, a launchpad for new decentralized projects. Magic Eden and Hashflow joined forces to launch their "Enter the Hashverse Season 1 Battle Pack," a special offering that allows users to participate in a tournament-style event with prizes. When the battle packs minted on Ethereum on April 6, Hashflow became Magic Eden’s first partner on Ethereum.

To ensure the security and reliability of its platform, Hashflow enlisted the help of Quantstamp, a security auditor for web3 applications. Quantstamp completed a comprehensive audit of its Hashverse contract in March. The audit provided Hashflow with valuable insights and recommendations to improve its smart contract.

Quests in the Hashverse are now live on Layer 3.

Aggregators and HFT Liquidity

Integrating with wallets and aggregators has been key for Hashflow's growth. So far, the team has integrated with leading platforms such as the Brave browser and wallet, TrustWallet, and DefiLlama's DEX meta aggregator, among others. These integrations have allowed users to access Hashflow's liquidity aggregation services across different platforms and wallets.

Hashflow's growing popularity in the DeFi space was also evident with the addition of two HFT pools on Binance in January. Binance users can now access Hashflow's liquidity without having to leave the exchange.

Major Governance Decisions and ARB Airdrop

The Hashflow DAO has now had 17 proposals voted on on Snapshot as the community builds and takes control of the protocol. The launch of the Hashverse, expected in Q2’23, should accelerate the decentralized voting process. The introduction of staking and vote escrow contracts in the first quarter should also give more governance control to long-term holders.

Perhaps the most influential votes have been around the HFT release schedule. Roughly 80% of the token supply has yet to vest/unlock. Votes to reduce LP rewards, simplify trading rewards, and align NFT-holder HFT vesting with core team have reduced the expected HFT release in 2023 by nearly 50 million. Along with the community treasury HFT allocation from the token generation event, the DAO will have more funds to allocate after Hashflow received 386,000 ARB from the ARB airdrop in March. The funds will be under the control of the DAO.

Source: Hashflow Blog

Closing Summary

Hashflow's Q1 2023 trading volume of $1.5 billion showed a significant shift in the mix of trading activity by chain, with Ethereum accounting for 65%, Arbitrum 13%, and Binance (BSC) 12%. Arbitrum, Avalanche, and Polygon were the most used instances of Hashflow, respectively responsible for 38%, 18%, and 16% of the unique addresses executing trades. Q1 2023 saw a drastic shift towards non-stablecoin cryptoassets, which increased their share from 8.7% to 42.1%. The drastic shift followed a community vote to reward non-stablecoin trades by 5x as much as stablecoin trades. The decentralization process is still underway and has a big milestone in Q2’23 with the much anticipated launch of the Hashverse.

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