Why DEX aggregators are the future of on-chain transactions

With Web 2.0, why do we need aggregators?

One thing in common between Web 2.0 and Web 3.0 is user demand for products and tools that increase convenience and reduce search costs.

Amazon, for example, has built an empire by creating a convenient experience for customers to buy goods and services online, optimizing costs and delivery times, while creating a global marketplace that benefits both buyers and sellers. Lowering barriers to entry and increasing competition would come at the expense of traditional business models, but it is good for the macro economy as it increases the productivity and purchasing power of retail customers.

In a parallel world where apps like Amazon don't exist, customers looking to buy a specific product online would have to browse different stores, interact with multiple front ends, and spend a lot of time comparing prices and quality from different suppliers.

For these reasons, customers prefer to interact with Amazon rather than individual stores, and similarly Web 3.0 users prefer to interact with aggregators rather than individual smart contracts. The more complex the product variety on the chain, the greater the user demand for the aggregator layer.

How important are aggregators today?

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Source: https://dune.xyz/queries/428905

As shown in the chart above, about 20% of the monthly on-chain transaction volume is generated through DEX aggregators, and there is a clear growth trend. The reason this number needs more attention is partly because the average aggregator represents non-robot trading volume (over 70% of aggregator volume is generated by non-robot traders). On the other hand, it is because the bot trading volume accounts for about 50% of the total transactions on the chain, which means that almost 1/3 of the trading volume generated by ordinary traders is conducted through DEX aggregators.

To support this claim, we use transaction frequency as a proxy for bot transactions. Assuming that the transaction frequency of bots is much higher than that of ordinary traders, it is reasonable to speculate that addresses with less than 25 transactions per day are likely to be ordinary traders, while a relatively conservative assumption is that addresses with more than 25 transactions per day are likely to be bots Traders, more than 50 times are almost certainly machines.

Following this classification, as shown in the pie chart below (top), more than 72.5% of the aggregator's transaction volume was generated by non-bot addresses. On the other hand, the chart below shows the total on-chain transaction volume, of which about 54.8% of the on-chain transaction volume was generated by non-bots.

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Total transaction volume of different user groups (Ethereum, data for the past 3 months), source: https://dune.xyz/queries/429061/817641

The main function of the aggregator

Aggregators basically perform two simple functions:

Search convenience
quality of execution
The former refers to the fact that, in some cases, a user may also intentionally buy some tokens offered on exchanges that he does not use frequently. With Matcha or an aggregator like 1inch, users can skip the repeated search for a place to list new tokens and buy any on-chain token directly.

These engines not only help users find newly listed tokens, but also ensure that any trades are executed optimally.

For example, below is a transaction executed via 1inch. Instead of simply exchanging more than 20 WBTC to USDC in one transaction, 1inch provides traders with the best slippage and gas fees through multiple exchanges and multiple gaps, including four different tokens .