Uniswap, 1inch, and MetaMask: The Battle for Crypto User
In the cryptocurrency space, the applications that generate revenue fall into two primary categories: user-facing frontend applications and backend DeFi protocols.
Frontend applications like Uniswap, for instance, allow users to swap tokens but only on their own pools. This can lead to higher slippage for certain token pairs than users might find on other DEXs with larger pools for those specific pairs.
To address this issue, aggregators like 1inch have emerged. Aggregators enable users to select the tokens they wish to swap and the amount, and the aggregator then suggests the optimal route across multiple DEXs for that token pair. This significantly enhances the user experience. In this scenario, the only applications that can collect fees from the user are the aggregator itself (1inch in this example) and the DEX ultimately used for the swap.
Aggregators have also become prevalent in other DeFi operations such as lending and staking.
The most prominent user-facing application in cryptocurrency, however, is the wallet. Wallets can easily incorporate aggregator UIs for staking, bridging, swapping, and lending, thereby collecting a small percentage fee for these services. This poses a challenge to standalone aggregators unless they offer additional value to users that incentivizes them to choose the aggregator over their wallet, even when the wallet displays the best DeFi options.
MetaMask exemplifies this trend. It collects a monthly fee of $3 million by enabling users to seamlessly swap, bridge, and stake tokens directly within the wallet. MetaMask efficiently routes user requests to the optimal options in the protocols, taking a 0.875% fee in the process. To date, MetaMask has accrued $60 million in fees.
Uniswap and 1inch have responded to this trend by releasing their own crypto mobile wallets.
To succeed in this landscape, applications must either:
- Surpass existing protocols in terms of quality or target a new market by providing unique value.
- Offer a user interface so compelling that users prefer to interact with its frontend.
- Develop a protocol so efficient and cost-effective that aggregators route user transactions through it.
