State of Hashflow Q1 2024

Key Insights

• Q1’24 was Hashflow’s first full quarter with the fee switch on. This drove $169,800 in fees earned in the quarter but may have had an impact on volumes (along with market maker migrations in Q4), which were down 9.1% QoQ.
• Ethereum remains Hashflow's largest deployment by volume, despite a 15% quarter-over-quarter decline. The end of the quarter saw a rebound in activity, with 45% of the quarter’s volume coming in the month of March alone. Strong market action drove non-stablecoin prices higher, leading activity and volume share on Hashflow to rise.
• Arbitrum volume also grew 20% QoQ to $242 million. The introduction of ARB rewards on February 17 to incentivize activity on Arbitrum highlights Hashflow's focus on user engagement and network growth.
• The average number of direct sources interacting directly with Hashflow contracts decreased from 507 in Q4 to 130 in Q1. This reflects a broader shift in strategy to compete on price execution rather than direct user acquisition, likely due to the high costs and uncertain value associated with the latter.
• Hashflow ended the quarter with the highest amount of HFT staked since launch. Furthermore, 92% of stakers and 68% of staked HFT were committed for over six months.

Primer

Hashflow (HFT) 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 a guaranteed execution price, MEV resistance, and no slippage. The offchain order routing enables significantly reduced costs and allows market makers to compete on price with CEXs. 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. For a full primer on Hashflow, refer to our Initiation of Coverage report.

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Key Metrics

Performance Analysis

Product Usage

Hashflow’s first full quarter with the fee switch turned on may have slightly impacted volumes. Despite a busier quarter in crypto, Hashflow volumes fell for a third consecutive quarter. The fee is designed to only turn on when Hashflow’s price is significantly better than other options. The amount that is significant and how much of that amount that is taken is what is still being optimized and iterated on. However, it is possible that the fee sharing has reduced the return for market makers, who widen spreads to make up the difference.

Volumes rebounded strongly at the end of the quarter, however, with 60% of the quarter’s volume coming in the last 45 days, as they completed liquidity and market maker migration to V3, which had lingering impacts on volume in Q1. In aggregate, first quarter volume fell 9% QoQ, led by a 15.6% fall in Ethereum volume. By the end of 1Q’24, Hashflow activity on Ethereum and Arbitrum dominated, accounting for a combined 95% of the quarter’s volume. On December 5, Hashflow announced it was expanding to Solana, which could open up a large growth opportunity and add a third high-volume deployment (note: Solana data is not included in this chart).

The number of daily active users (DAUs) measures how many externally owned accounts (EOAs) initiate transactions that get routed to Hashflow or use Hashflow directly. However, we measure the number of direct contract interactions with Hashflow, not necessarily how many end users (i.e., EOAs) are driving those transactions. We count “Sources” to be native users and aggregation routers that use Hashflow, thus excluding EOAs that interact with an aggregator directly instead of Hashflow.

The average number of contracts transacting with Hashflow fell from 507 in Q4 to 130 in Q1. Note that the fall in unique sources is very different from the number of daily average addresses that are sending trades through Hashflow, which is likely due to the increased usage of integrations and move away from the Hashflow front-end or direct trading. This means Hashflow is positioning to compete for best price execution, enabling its architecture and market makers to show the best price. This strategy is in favor of winning the end consumer, where customer and volume acquisition can be more costly with very uncertain lifetime value.

Trade count does not take into account the size of trades; instead, it largely displays the activity on rollups and alt-L1s, given their cheaper transaction costs. The average number of transactions per day fell by 37% from 2,541 to 1,858 in Q1’24, led by drops on Ethereum, Polygon, and BSC. Ethereum transaction counts, where 80% of Hashflow volume was traded in the quarter, fell 55% to 227 per day. Arbitrum, making up 15% of the quarter’s volume, saw transactions fall only 7% in the quarter.

Hashflow’s Ethereum deployment is by far its largest, by volumes traded. In Q1’24, it had its first QoQ decline in volume in at least 5 quarters, though still executing over $1 billion in 1Q’24. In November and December, Hashflow transitioned to V3 contracts, and the liquidity and market maker migration negatively impacted activity. That activity is beginning to rebound, with 45% of the quarter’s volume coming in the month of March alone. Strong market action drove non-stablecoin prices higher, leading activity and volume share on Hashflow to rise. Non-stablecoins were 42% of Hashflow volume in Q1’24, down from 46% in Q4’23. wETH was the highest volume asset on Ethereum again in Q1’24, responsible for 36% of Hashflow’s volume, or $386 million.

Volume on Hashflow’s Arbitrum instance, its second largest by volume, rose to $242 million. In February, the DAO voted to allocate some ARB rewards to incentivize more activity on the chain, likely helping buck the trend of the volume slowdown. Similar to Ethereum, wETH was the highest volume asset on Arbitrum, trading over $76 million. Stablecoins USDC and USDT combined for over $130 million in volume, good for 54% of the volume traded in the quarter. Along with ARB, the four largest assets by volume on Hashflow on Arbitrum combined to make up 91% of the volume on the DEX in Q1’24.

HFT Distribution and Staking

The number of HFT stakers increased by 15% in the fourth quarter. The amount of staked HFT climbed another 19%, ending the quarter with the highest end-of-quarter staked balance to date. Last quarter’s community vote to turn on fees has likely had an impact on HFT staking. As volumes and fees rise, the return on staking should also increase. Though the team is still early in optimizing the implementation of fees, the opportunity to provide real yield along with growth is unique in crypto assets.

While the absolute amount of HFT staked increased in the quarter, more impressive is the allocation of that stake. While 42% of the previously staked HFT was unlocked in Q1, new stakers and restakers dramatically increased their duration and committed to staking. At quarter’s end, 91% of stakers, or 1,547 addresses, have locked their HFT for over six months. In terms of HFT distribution, 68% of staked HFT is locked for at least six months, the most staked for that duration since Hashflow introduced staking in Q2’23.

Qualitative Analysis

Expanding as Best Price Infrastructure

In pursuit of its mission to bring the best DeFi trading experience to users, the Hashflow team is continuing to find new integrations and ways to get their best pricing product in front of users.

The integration with Solfare on January 3 marks a significant step towards broadening the protocol's accessibility and utility, allowing users to leverage Hashflow's decentralized exchange (DEX) capabilities more seamlessly. This move aligns with the broader vision of creating a more interconnected and user-friendly DeFi ecosystem where the barriers to entry and operation are minimized.

The expansion within the Solana ecosystem, as detailed in the January 17 announcement, further underscores Hashflow's commitment to deepening liquidity and broadening the range of tokens available to its users. By integrating more than eight new tokens, Hashflow not only enhances its market depth but also caters to a wider audience with varied investment interests and strategies. This strategic expansion is complemented by the Wormhole Case Study published on February 6, showcasing a significant reduction in network costs through EVM to non-EVM bridging. Such technological advancements not only improve the protocol's efficiency but also position Hashflow as a leader in cross-chain interoperability, a critical component for the future scalability of DeFi platforms.

The integration with Wowmax on February 14 and the introduction of ARB rewards on February 17 to incentivize activity on Arbitrum highlight Hashflow's focus on user engagement and network growth. These initiatives are designed to attract more users to the platform by offering tangible rewards and simplifying the user experience. The launch of Aggregator+ on Arbitrum on March 6 further exemplifies Hashflow's strategic approach to partnering with other teams to attract users who can benefit from Hashflow’s best price execution.

Collectively, these key events from the quarter reflect Hashflow's grander strategy of building a more accessible, efficient, and interconnected trading infrastructure. Through technological innovation, strategic partnerships, and user-centric incentives, Hashflow is not only expanding its protocol's capabilities but also enabling more users to get better execution.

Closing Summary

The first quarter of 2024 may have been a bit of a transition for Hashflow, though with many trends remaining strong. The commitment of stakers, likely bolstered by the new fee switch as they receive 50% of fees, has increased both in number of HFT staked and length of lockup. Volumes stumbled on Ethereum for the first time in Q1. The main transition for Hashflow is leaning into its best-price financial infrastructure, which will require more partnerships and integrations. With the launch of ARB incentives, the DAO and team are certainly not leaning away from direct user engagement. The fee mechanism is also a new tool that Hashflow is still optimizing and may need to tweak over time to maintain tight spreads and prices from market makers to win more trades and volume.

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This report was commissioned by Hashflow Foundation. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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