Uniswap Liquidity Flows in the August 2024 Drawdown

From mid-July through early August 2024, major cryptocurrencies experienced 25-40% drawdowns. The majority of this price movement occurred during extremely rapidly in a 24 hour period ending August 5th, 2024 14:00 UTC. During this critical 24 hour period, a total of over $6B worth of liquidity was added and removed from pools in the protocol in response to these price changes.

However, perhaps somewhat surprisingly, only about $133M of that liquidity (or around 4.26% of the total liquidity removed) was removed from the protocol completely during this time period.

After backing out the $133M leaving the protocol, around $42M (around 2.69% of total liquidity removed) of net liquidity moved from one pool to another. This leaves $2.95B (around 98.3% of of total liquidity removed from pools) that was redeployed in a new price range within the same pool (albeit possibly by an account other than the one removing liquidity.)

At the individual account level, the vast majority of liquidity providers (LPs) largely kept their assets in the protocol seeking to profit from the volatility in prices. Looking at net flows on the per-account level, flows of around $194M (or 6.21% of total liquidity removed) left the protocol and $61M (1.95% of total liquidity removed) of new liquidity came in. Even if you assume all the accounts were independently controlled (which is unlikely, but we'll make the most conservative assumption for the sake of argument) well over 90% of the liquidity moving during this period was within same account and the same pool and merely an adjustment of the range of concentrated liquidity as prices moved. The stability of the liquidity in the protocol relative to the instability of the asset prices reinforces the robustness of the exchange and its LP base, even in the face of extreme volatility.

Though indvidual pools generally had modest in and out flows relative to the overall protocol liquidity, there were some noticeable patterns in the movement of this liquidity. The top three pools experiencing the highest inflows are all Bitcoin-Stable pairs, signalling that there was a significant appetite to accumulate Bitcoin as prices of that asset declined in terms of USD. The was also a clear relative shift from lower fee to higher fee pools, with the lower fee pools containing volatile assets seeing the largest outflows.

We believe these data points are a strong demonstration of the maturity of Uniswap V3 protocol and DeFi ecosystem. Even during periods of extreme volatility, onchain investors can expect DEX liquidity to remain robust though they may potentially find relatively more liquidity in higher fee pools during these periods. Potential future directions for research in this area are to investigate these flows over longer time horizons and over a mix of market conditions, and to specifically examine the movement of concentrated liquidity in response to price movements.