In this edition, we’re briefing you on Trader Joe. In addition to being the #1 DEX on Avalanche, Trader Joe has continued to innovate and expand to new chains.
With the native $JOE token recently completing it’s emission schedule, it may be worth looking into what Trader Joe has been up to.
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Background on Trader Joe
Trader Joe is a DEX primarily present on Avalanche and Arbitrum.
The platform started off as a SushiSwap fork and soon grew into the leading DEX on Avalanche, before expanding to Arbitrum and building a significant presence there.
In 2022, innovation commenced with the announcement of Liquidity Book, a novel protocol for structuring liquidity aiming to pave the way for a new generation of AMMs.
It provides concentrated and composable Liquidity on Avalanche (now BSC and Arbitrum as well), with the goal being to rival Uniswap V3 design.
Trader Joe 2023 Performance
On December 27th, Trader Joe deployed on Arbitrum.
In 2023, the project’s Arbitrum deployment has grown to make up a significant portion of TVL:
Avalanche TVL: $82M
Arbitrum TVL: $35M
BSC TVL: $1.3M
ETH Mainnet TVL: $1M
TVL is more or less the same as it was at the start of the year, with the main difference being that Arbitrum’s stake has grown from 0 to 30% of platform TVL.
This past year, Trader Joe has continued to ink partnerships with projects on various chains including Swell Network, Savvy DeFi, Gains Network and Radiant, among others.
This past year, the native $JOE token also went multichain.
$sJOE, the staked version of $JOE which provides yield in USDC is also now available on Arbitrum.
2023 introduced Liquidity Book V2, which included:
Autopools: Automated strategy Execution Layer for Liquidity Book.
Permissionless Pools: Anyone can open a Liquidity Book Pool.
Fees now compound: Optimizing gas usage by ~30-40%.
Limit orders.
In April the project began a rebrand to appeal to new users and sunset veJOE.
Origin of Trader Joe
Tradr Joe Co-Foundr cryptofishx says that his crypto journey started in 2017.
A friend who was heavily invested in Chainlink introduced Fish to Avalanche during its ICO phase.
The friend emphasized Avalanche's potential as a fast and performant layer-1 solution.
Being relatively new with fewer established DeFi projects compared to Ethereum, Fish believed he could have more impact by contributing on Avalanche.
Alongside family friend and fellow Co-Founder 0xmurloc, Fish started Trader Joe as a side project that eventually became their full-time endeavor.
A friend who was heavily invested in Chainlink introduced Fish to Avalanche during its ICO phase.
The friend emphasized Avalanche's potential as a fast and performant layer-1 solution.
Being relatively new with fewer established DeFi projects compared to Ethereum, Fish believed he could have more impact by contributing on Avalanche.
Reflection on Founding a Decentralized Exchange
Fish initially invested heavily in a new decentralized exchange called Pandaswap on Avalanche.
There were rumors of a smart contract bug, so Fish offered to help find the bug as they had development experience.
They discovered that none of the team members were actual developers.
Despite the crowded space, the speaker realized that creating a decentralized exchange wasn't as difficult as they initially thought.
They believed they could create a better exchange than existing ones on Avalanche.
Fish saw an opportunity to innovate and differentiate themselves through branding and user experience.
Factors Contributing to Success
The Trader Joe team focused on thinking about emissions in a quantitative way, considering factors like volume and incentives for different pools.
They hired someone skilled in modeling emissions and expected TVL.
Branding and UI/UX played a significant role in attracting users.
Trader Joe, the mascot, brand story, and relatable persona resonated with people.
Even with just a landing page featuring graphics, users were drawn to their brand.
This significantly contributed to Trader Joe beating out Pangolin for the #1 DEX spot on Avalanche.
Focusing on Treasury Management
Fish says that it is important for the project to secure more runway for the next few years.
He mentions feeling embarrassed about selling at a low price during previous market highs.
He adds that founders often feel guilty about selling tokens but also recognize the need for cash to sustain the project.
Cash flow is crucial for survival, especially during bear markets.
Fish says that dumping all tokens at once can negatively impact holders and cause a massive price drop.
Selling tokens gradually over time is considered a better approach.
Raising Funds and Team Strength
Trader Joe raised funds twice, even when they didn't necessarily need it initially.
In September of 2021, $5M was raised from Defiance Capital, 3AC, Mechanism Capital, among others.
In October 2023, Trader Joe received an Arbitrum STIP grant, for around $1.17M (1.51M $ARB)
Having enough cash reserves was seen as essential.
The strength of their team played a significant role in surviving the bear market.
Despite token prices dropping significantly, there was never a sense of disbanding or low morale within the team.
Potential Perp DEX?
Fish expresses an interest in consumer-facing apps and decentralized exchanges (DEXs).
He mentions that CEXs and perp DEXs have more potential for generating revenue through fees compared to spot DEXs.
Fish says that being in the top five or even top ten in the world of DeFi is considered successful and sustainable.
He adds that there are no immediate plans to branch out Trader Joe in a different direction like a perpetual DEX, but it remains a possibility.
Cross-chain Compatibility & Volume Distribution
Trader Joe is cross-chain compatible, allowing users to trade assets across different blockchain networks.
Volume on Trader Joe primarily comes from Avalanche but also highlights the substantial volume from other chains like Arbitrum.
The decision to expand to new chains is based on cultural alignment and brand resonance with the target chain's community.
Each chain has its own unique culture and brand, and it is crucial to consider whether it aligns with Trader Joe's values and target audience.
The decision-making process within the team may involve conflicting views, but ultimately, they aim for a cohesive brand experience across different chains.
Reflecting on Ethereum Expansion
According to Fish, expanding to Ethereum mainnet has not been successful for Trader Joe, as they are not generating significant volume.
It is difficult to compete with established giants on Ethereum who have a strong network effect.
Even if Trader Joe's product is superior, it would need to be significantly better for users to switch their liquidity.
The long block times and increasingly high gas fees on Ethereum make it challenging to build a performant DEX.
Currently, Trader Joe is not concentrating on Ethereum due to the effort required and limited potential returns.
They believe that building a dream DEX with optimal performance may not be possible on Ethereum.
Despite this, there is a possibility that the project could shift to another chain in the future.
Patrick adds that recently, there has been a decline in Ethereum's share of DEX volume by 30% to 35%.
While Ethereum still dominates trading $ETH and meme coins, more complex DeFi activities are happening on other chains like Arbitrum and Optimism.
Expansion Plans for Trader Joe
Trader Joe has engaged in conversations with various stakeholders regarding partnerships and expansion into permissioned Avalanche subnets.
However, concrete plans have not yet been finalized due to bureaucratic processes involved in compliance.
JOE Fully Emitted
Emissions ending $JOE emissions does not mean Trader Joe has no tokens left.
They still have tokens in their treasury.
This is significant, as the treasury (valued at nearly $50M) is almost entirely comprised of the native JOE token.
Tokens will be used strategically to incentivize volume and considered as marketing spend when necessary.
Changing Trends in Crypto Market
Fish says that trends in the crypto market can quickly shift from being popular one minute to losing popularity the next.
Last year, there was a lot of hype around ve-tokenomics as the way forward.
However, it became apparent that ve-tokenomics was not suitable for every token.
It is important not to get caught up in chasing trends and instead focus on what works best for each specific token.
Future Utility Plans
At present, there are no plans for future utility with $JOE.
If a new product is created and generates revenue, there may be a possibility of distributing utility back to token holders.
The focus is on keeping things simple and easy to understand for users.
Fish finds real yield a strong utility option.
Simplicity and ease of understanding are key factors in determining utility options.
Future of DeFi
Fish believes that a significant portion of crypto activity will shift from centralized exchanges to on-chain platforms like decentralized exchanges.
DeFi infrastructure is crucial for supporting different use cases such as gaming and AI-related projects.
Exchanges play a vital role in facilitating token trading and liquidity across various applications.
While options trading may have its place, the focus is more on building robust infrastructure to support diverse use cases.
Fish acknowledges that people often talk about a lack of innovation in DeFi. Options trading is a potential area for growth, but it has been hindered by complexity.
Understanding options strategies and payoff schemes can be challenging for many users.
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