Sonic DeFi leader Shadow: more outstanding "LP protection + fee capture" during the big dump

Written by: Deep Tide TechFlow

The market is undergoing post-disaster reconstruction after the crash on October 11, but many people have noticed an interesting contrast.

The blogger @0xyukiyuki stated in a post:

One benefit of high volatility is that DeFi can earn some nice additional APR regardless of the direction. The Shadow Exchange of the Sonic ecosystem is a great example. Due to the surge in trading volume, their weekly rewards doubled last week.

Upon further investigation, we found that on October 11, under severe price fluctuations, the liquidity pool APR of Sonic ecosystem leading DEX Shadow Exchange reached 43562% for $S /$USDC , with a 24-hour trading volume exceeding 12.8 million dollars and rewards surpassing 45,000 dollars.

Under the sharp decline, Shadow's income is higher, the rewards for ecosystem participants are also higher, and the participation enthusiasm among all parties within the ecosystem has increased.

Such data is hard not to arouse people's curiosity.

The crypto market believes that “crisis is an opportunity.” Amid the fierce competition in DEX and the on-chain attention being siphoned by Hyperliquid, Shadow Exchange, as the DeFi project with the highest trading volume and revenue in the Sonic ecosystem, easily showcased its differentiated competitive core advantage to the market through a crisis of plummeting prices:

With the x(3,3) model as the core innovation, Shadow Exchange is not just a robust and efficient trading platform but is also building a powerful DeFi ecosystem centered on liquidity incentives, with self-driving and self-evolving capabilities.

High APR Analysis: Shadow's Comprehensive Ecological Value Capture and Feedback

Shadow Exchange focuses on the core goal of “maximizing LP protection + better fee capture” to build a highly efficient and resilient liquidity infrastructure.

Unlike the static model of traditional DEXs, Shadow Exchange emphasizes active intervention and value circulation, ensuring that LPs can achieve sustainable returns in any market environment.

Now let's take the $S / $USDC liquidity pool as an example to break down how the multi-layered incentive design of Shadow Exchange behind high APR transforms a single liquidity contribution into a compound growth engine:

First of all, 100% of the transaction fees from the liquidity pool are used to support the ecosystem, forming the foundation of income. It is worth mentioning that Shadow supports two types of liquidity frameworks: one is the traditional liquidity framework and the other is the concentrated liquidity framework. Under the concentrated liquidity framework, LPs can precisely deploy funds within specific price ranges for “precise targeting,” greatly improving capital efficiency, while the fees generated will also be multiplied, bringing higher returns to LPs. Of course, high efficiency often comes with higher risks, and LPs need to closely monitor impermanent loss and utilize Shadow's dynamic fee adjustment mechanism to buffer potential impacts.

The $S token rewards from the Sonic ecosystem have also brought a higher yield base for Shadow. Sonic Labs allocates $S token rewards weekly to high-quality projects within the ecosystem. As the undisputed leader in DeFi of the Sonic ecosystem, liquidity pools with higher liquidity in Shadow will receive richer yield incentives, further enhancing returns for LPs.

In addition, the $SHADOW token rewards from Shadow Exchange reflect the endogenous incentive resilience of the protocol. Shadow Exchange dynamically adjusts the emission of the $SHADOW tokens based on the protocol's revenue for each epoch, ensuring that rewards are linked to the health of the ecosystem.

At the same time, by integrating with various DeFi products, it further opened up the leverage amplification channel for Shadow, such as by using lending protocols to cycle amplify the principal, achieving higher returns with a smaller initial cost.

This all-encompassing, no-dead-angle ecological value capture and feedback benefit not only from the underlying enhancement of the Sonic ecosystem but also from the deep understanding of DeFi that Shadow Exchange has to offer through its x(3,3) model. This model evolves from the ve (3,3) model, integrating the advantages of three major token designs, PVP Rebase, and automatic compound interest, further propelling Shadow Exchange to become the core engine of liquidity yield within the Sonic ecosystem.

Sonic bottoming out, x(3,3) Innovation: Co-constructing the Shadow liquidity incentive flywheel

Shadow Exchange is built on the Sonic blockchain crafted by Andre Cronje. Sonic not only inherits the high-performance genes of Fantom but also becomes a powerful accelerator for the development of Shadow Exchange through a series of cutting-edge innovations.

On one hand, Sonic's comprehensive performance enhancement enables Shadow Exchange to better support high-frequency DeFi scenarios. Through technological innovations like SonicVM, SonicDB, Sonic Gateway, and SonicCS 2.0, Sonic has achieved a throughput of over 2000 TPS, a transaction final confirmation time of 0.7 seconds, and an extremely low transaction cost of just 0.0001 dollars, all while being fully compatible with EVM. This allows Shadow to provide users with an efficient, secure, convenient, and low-cost asset trading experience.

When the crash on 10.11 came, Sonic and Shadow experienced the test of a high-volatility market: while other networks collapsed due to congestion and transaction failures, Sonic maintained full functionality with zero downtime. The powerful infrastructure of Sonic combined with the efficient Shadow further ensures that users can earn more liquidity while taking on lower risks.

On the other hand, Sonic's FeeM model injects sustainable economic incentives into the Shadow Exchange. Sonic's FeeM model allows up to 90% of on-chain fees to be directly returned to developers and ecological applications, aiming to further reward high-traffic projects and attract innovative developers to build applications on Sonic.

As a leading player in the ecological DeFi space, Shadow Exchange offers a 90% rebate on transaction fees, which is entirely used to support traders. This allows users to maximize their profits in a pressure-free environment, whether they are making position adjustments or implementing arbitrage strategies, ultimately driving an increase in overall trading volume.

In addition, the ecological application rewards of Sonic Labs mentioned earlier further promote the development of Shadow Exchange. Sonic Labs issues $S tokens as incentives based on the performance of the project in key metrics such as trading volume and number of users. This is not only a short-term traffic subsidy but also the cornerstone of long-term ecological governance. As a leading DeFi project in the Sonic ecosystem, Shadow receives a large amount of $S token rewards, and Shadow redistributes the rewards to users, achieving sustained growth.

Another often overlooked point is that whether Andre Cronje re-enters the scene or continues to leverage the advantages of Fantom, Sonic undoubtedly possesses a strong DeFi DNA. Various DeFi infrastructure and innovative projects are blooming in the ecosystem, and Shadow, through deep integration with the Sonic DeFi network, will provide users with a richer trading experience.

For more technical details and an introduction to the reward mechanism of Sonic, interested readers can review our previous in-depth article: “Changing the Soup but Not the Medicine: How is the Reconstructed Sonic Developing Now?”

In addition to the series of advantages brought by the construction based on Sonic, the x(3,3) model serves as a core innovation and is an important part of Shadow Exchange's realization of “comprehensive and all-encompassing ecological value capture and feedback.”

As a trading platform, it is essential to balance the interests of three core roles: the low-cost execution and incentives for traders, the risk buffer and high returns for LPs, and the governance rights and long-term appreciation for token holders, thereby creating a self-reinforcing ecosystem.

The model x(3,3) creates a closely connected “incentive chain” through three major tokens, achieving a positive cycle from value creation, capture, distribution to returning to participants.

$SHADOW is the ecological infrastructure entry:

$SHADOW is the native token of the Shadow ecosystem, with utilities such as trading, liquidity mining, and ecological incentives. The initial supply is 3 million, and the maximum supply is 10 million.

$SHADOW The emission will be flexibly adjusted according to the agreement's income for each cycle to adapt to the specific development of the agreement. When the income from multiple cycles of the agreement exceeds the emission amount, it largely indicates that a period of rapid development is approaching.

$xSHADOW is the core of ecological governance:

Users can stake $SHADOW to earn $xSHADOW.

Shadow allows users to exit the $xSHADOW lock-up at any time, but early withdrawal requires payment of a corresponding penalty. The penalty is 100% returned to the holders through the PVP Rebase mechanism, thereby protecting long-term holders.

xSHADOW holders vote weekly through Epoch to decide the token rewards for different liquidity pools of Shadow, while the project party can attract xSHADOW holders to vote by offering additional rewards.

Under the Sonic ecosystem FeeM model, 90% of the transaction fees returned to Shadow will be fully rewarded to $xShadow and holders of $x33 .

$x33 is the core vehicle for ecological liquidity release and compound interest creation:

Since $xSHADOW is only used for governance and cannot be freely traded, users can mint $x33 using $xSHADOW 1:1.

As a liquidity version of $xSHADOW , $x33 can be freely traded as an asset and can be applied to other lending or derivative DeFi protocols, enabling users to release liquidity while retaining governance rights and earnings, thereby creating greater value.

At the same time, $x33 has an automatic compound interest feature, and $xSHADOW continuously grows through $x33 , constantly pushing up the exchange rate between $xSHADOW and $x33 , attracting arbitrage bots to participate.

For more specific introductions and technical details about the Shadow x(3,3) model, interested readers can revisit our previously published in-depth article: “Sonic Ecological Trading Volume and Revenue Dual Champion: Shadow Carrying x(3,3) Interprets the Ultimate Evolution of DeFi Liquidity Incentives?”

In this way, Shadow Exchange has created a sophisticated positive cycle through the x(3,3) model:

Ecological incentives attract user participation → More active trading generates higher protocol revenue → Higher protocol revenue leads to higher ecological incentives → Higher ecological incentives attract a broader user participation.

In this cycle, traders benefit from low fees and high-frequency execution, LPs gain dynamic protection and amplified returns, while holders lock in long-term appreciation through governance and Rebase. By maximizing the interests of the three key roles, Shadow is endowed with the underlying momentum to truly achieve long-term sustainable development.

Data Performance: The Absolute DeFi Leader of the Sonic Ecosystem

Currently, Shadow Exchange supports a wide range of liquidity pools, including core stablecoin pairs, high-volatility Meme coin pools, and cross-ecosystem assets, covering a broad range of scenarios from traditional DeFi to emerging narratives.

The data dimensions outside of the product can better reflect Shadow's core position as the leader of the Sonic ecosystem in DeFi.

According to DeFi Llama data, Shadow Exchange's cumulative DEX trading volume has exceeded $12.517 billion. On February 21, 2025, Shadow's 24-hour trading volume reached $252,856,099, setting a new historical high, surpassing Hyperliquid.

On the user side, according to Messari's report, its daily active users (DAU) reached as high as 73,071, far exceeding most protocols within Sonic, reflecting strong community stickiness.

The income from the protocol and the distribution of rewards are equally worth paying attention to. According to official data, Shadow has currently accumulated over $38 million in transaction fee revenue and over $25 million in platform revenue.

During the week of the crash on October 11, Shadow's dynamic fees better protected LP from significant impermanent loss while prioritizing the earning of the highest possible fees, generating $172,243 in fees during this period and excellently achieving its goal of “maximizing LP protection + better fee capture” during the downturn.

According to official data, on October 16, 2025, Shadow will distribute rewards exceeding $353,737, with over $194,000 in the 38th cycle of $Shadow emissions.

In terms of penetration and coverage of the Sonic ecosystem, Shadow Exchange has a more impressive data performance:

In terms of trading volume, according to the Messari report, Shadow accounted for 53.0% of the trading volume of the Sonic ecosystem in the second quarter of 2025, and has accounted for 47.3% of the trading volume since its launch, peaking at as much as 69% of the trading volume.

In terms of revenue, Shadow is the top protocol in the Sonic ecosystem, contributing approximately 86% of Sonic's revenue during peak periods.

On the user side, 80% of Sonic active users use Shadow.

The market's attention is focused on DEX: Multi-dimensional measures accumulate Shadow's future growth power.

As the DeFi leader of the Sonic ecosystem, Shadow Exchange has built a self-reinforcing liquidity incentive flywheel through the innovative x(3,3) model. From a cumulative trading volume of $12.5 billion to holding a 53% market share in the Sonic ecosystem and an 80% coverage rate of ecosystem users, Shadow has proven its position as a key liquidity hub within Sonic.

As the on-chain trading heat continues to rise, the market's multiple favorable factors are accelerating the future growth potential of Shadow.

On one hand, under the heat led by Hyperliquid and Aster, on-chain trading activity continues to rise in 2025, and more and more people are focusing on the competition in DEX. In the process of searching for the next Hyperliquid and Aster, Shadow, with its unique innovation in liquidity incentives through the x(3,3) model, may become one of the competitors at the DEX battle table.

On the other hand, the Sonic ecosystem shows signs of recovery. Although the growth in TVL is not significant, data from various platforms indicates that Sonic's DEX trading volume and the number of stablecoin addresses are showing an upward trend, signaling an initial recovery for the Sonic ecosystem. As the core of the Sonic DeFi ecosystem, Shadow will benefit directly.

It is also worth noting that, affected by market fluctuations, whether from TVL, trading volume, or coin price, Shadow is currently in a “low starting point, high rebound space” stage. For investors who are optimistic about the Sonic ecosystem and Shadow, this may also mean a larger growth base for Shadow.

In the past few months, Shadow has been continuously refining its products and building its ecosystem, accumulating the strength for another outbreak.

On one hand, continuously optimizing incentive measures:

The 3 million $S token incentive program of Shadow continues to advance. Due to the fact that the Sonic Season 2 airdrop will no longer support GEM tokenization, Shadow will release 50% of the expected rewards for the Season 2 airdrop in advance, used for liquidity incentives and proactive market-making strategies, further encouraging users to participate in promoting ecosystem growth.

At the same time, Shadow modified the issuance framework, directly allocating $SHADOW to LP: replacing the previous model of issuing rewards in the form of xSHADOW, further enhancing capital flexibility.

On the other hand, the product features are continuously iterating and improving, and the ecosystem partners are constantly enriching and expanding.

In terms of product optimization, Shadow introduces Limit Orders and Time-Weighted Average Price (TWAP) features to further expand trading capabilities.

In terms of ecological construction, Shadow is also actively promoting cooperation with more projects, launching a diverse range of trading pairs that cover a comprehensive spectrum from stablecoins to highly volatile pairs.

In addition, Shadow also provides users with a seamless cross-chain experience by joining the Circle Alliance Directory and integrating versions v1 and v2 of CCTP.

In the near future, a series of key products and features from Shadow will be officially launched in the market:

On one hand, the repurchase arbitrage system and delayed reward mechanism will be launched, further protecting LP and strengthening the flywheel effect of x(3 and 3).

On the other hand, more disruptive is the lending market based on $x33 , which positions $x33 as a collateral asset, supporting leveraged lending and derivative strategies, maximizing the potential of $x33 .

Just as the essence of DeFi is to make finance more efficient and democratic, Shadow Exchange is practicing this concept through technological innovation and incentive mechanism design, and has withstood the test of the market crash.

As the jewel on the crown of the Sonic ecosystem's DeFi, with the continuous improvement of product functions and the deepening of ecological construction, the community also witnesses and looks forward to Shadow accumulating strength for the next phase of its comeback and again becoming an important player in leading DeFi liquidity innovation.