In 2021, total DEX volume for the DEX sector came in at $1.25 trillion USD, or an average of $104 billion per month. Between January and December, DEX volume grew at a CMGR (compound monthly growth rate) of 6.1%. If we assume a similar CMGR in 2022, we estimate that monthly DEX volume will amount to $146 billion in December, or an annualized $1.75 trillion.
2 Cross-chain volumeSo how much of that $1.75 trillion of DEX trading volume will be due to cross-chain swaps? A recent study by Fabian D. on the Economics of Thorchain found that around 43% of all trading over Binance (which accounts for around ⅔ of CEX volumes) occurs between two assets from different chains. Hence if we use a ratio of 40% as the potential cross-chain volume, we arrive at a cross-chain TAM of $703B.
3 Estimate of THORChain and THORSwapSo the TAM for cross-chain swaps is $703B on an annualized basis. This volume will be split by traditional wrapping solutions and spot trading, of which THORChain is currently the only solution. Given the obvious advantages of spot trading versus wrapping, we assume that 80% of trading volume will be spot trading. Therefore the TAM of THORChain is $563B. While there will inevitably be competition in the coming months or years, THORChain has the early leadership and hence potential to dominate the market. If we use Uniswap’s market share of DEX volume of 80%, then annualized volume across THORChain would be $450B. THORSwap currently has around 23% of THORChain volume. I would expect this to grow as THORSwap becomes the key aggregator, but even keeping this ratio constant, implies $103B annualized volume. ($8.5B/month). If we assume a standard 0.3% fee, THORSwap could generate an annualized $310m by year end. Implied valuationThe current market cap of DEX sector is $25B, with $1,400B of annualised volume. Assuming a 0.3% fee, that would equate to annual DEX revenue of $4.2B. Hence, the sector trades at 5.9x protocol revenue. At the fully diluted market cap of $445M, THOR is trading at a 1.4x protocol revenue.