Uniswap is still the top 1 project in Dex in particular, and is still a pillar in the Crypto market in general. But is the UNI Token worth investing in, does it still have the potential to increase in price in the long term? Let's analyze in this 14th issue of Tokenomics Research!
Tokenomics Research #14: Uniswap (UNI) - The story of conflict behind a Governance Token
Overview of Uniswap
Surely Uniswap is a very familiar name to those who have participated in the crypto market for a long time, especially those who specialize in the DEX system.
Uniswap is a decentralized exchange (Decentralized Exchange - DEX) built by Hayden Adams, launched to the community in 2018. Initially, Uniswap was built on Ethereum, allowing users to trade any ERC Token ERC-20 in a decentralized way.
Simply put, Uniswap is an exchange similar to Binance, OKX or Huobi that we often use, the only difference is that it is built in a decentralized way and is completely not controlled by a third party. any.
The problems the project solves
Uniswap was built to solve the problems of Centralized Exchange such as Binance, OKX, Huobi..., specifically:
The decentralized market requires a decentralized exchange model
In the financial market, trading floors are almost an indispensable component, regardless of whether it is the stock market, currency, oil, commodities, gold... or Crypto market. Currently, most of us participating in the Crypto market have at least 1 account at a centralized exchange to buy, sell, store Token, coins or cash-in/cash-out.
However, unlike traditional financial markets, the crypto market itself is associated with blockchain technology, therefore, aiming for decentralization. As Ethereum emerges and grows stronger into a potential ecosystem, the need to build a decentralized exchange on Ethereum becomes increasingly stronger.
Open up the trading market for new trends
Along with the development of the market, trading and investing are no longer limited to Token/coins listed on traditional exchanges but have become more diverse, including many low cap Token , memecoins... For investors to easily access these new Token , decentralized exchanges like Uniswap are needed.
Create a new option for the community
We cannot deny the Vai and position of CEX exchanges in the market. However, CEX itself also has many risks. Surely you have not forgotten about the collapse of FTX or some other FUD related to CEXs. Clearly, the market needs more options that can replace CEX and supplement CEX's shortcomings.
How Uniswap works
From 2018 up to now, Uniswap has undergone many updates in technology, interface and parameters related to transaction costs, liquidity pool setup..., of which the biggest are the updates from V1 to V4. .
However, Uniswap 's basic operating model is still an AMM (Automated Market Maker). This is a solution to replace the old liquidation model (Order Book ) on centralized exchanges. Uniswap will establish liquidation pools consisting of 2 pairs of Token according to the formula x*y = k (k is a constant). Buy and sell orders will be processed automatically through this liquidation curve. Buy/sell transactions will change the number of Token , thereby affecting the price in the pool naturally according to the rules of supply and demand.
You can learn more details about AMM in this article .
Some highlights in the current Uniswap protocol:
Liquidation Liquidity
Liquidation on Uniswap will be distributed across price ranges, thereby helping liquidation concentrate in the price zones where transactions occur the most, thereby optimizing liquidation and increasing profits for LPs.
You can read more about concentrated liquidation in the article: Preparing to welcome the wave of Concentrated Liquidity Part 1 and Part 2 .
Fees (fee mechanism)
With the adoption of centralized liquidation , the current fee mechanism on Uniswap will operate as follows: when a transaction is made, the swap fee will be calculated and allocated to the entire liquidation position within the trading price range. pandemic. If the trading price goes out of a position's range, that position will not receive a swap fee. Currently, with Uniswap V3, LP can create tiers for fees, depending on the volatility and liquidation of asset types.
Oracle
Unlike other protocols, Uniswap V3 itself has a separate oracle to serve its own product. All Uniswap V3 pools can Vai as Oracles, providing access to historical price and liquidation data.
Range Orders
Customizable liquidation positions, along with one-way asset offerings, enable a new type of swap with market makers: range orders.
In regular CEXs, it is easy to place limit orders (limit orders - buy or sell an asset at a specific, predetermined price, allowing the order to be executed at an unspecified time). Future). However, with DEX, this becomes much more difficult, so quite a few people still do not choose DEX to trade regularly.
Uniswap V3 makes it possible for users to place a limit order by providing a single asset as liquidation within a specific range. Like traditional limit orders, range orders can be placed with the expectation that they will execute at some point in the future, with the target asset available for withdrawal once the spot price has been exceeded. over the entire scope of the command.
UNI Tokenomics
UNI is the native Token of the project, launched through retroactive form and also created a huge buzz at that time.
General information
Token code: UNI
Max Supply (Max Supply): 1,000,000,000 (1B) Token
Current Circulating Supply: 753,766,667 Token
Capital capitalization (FDV): 7.6 billion USD
Current market Capital (Market Cap): 5.7 billion USD
Token Allocation (Allocation)
In the first 4 years, UNI 's allocation rate will be as follows:
Source: Uniswap
- Community (60%): 60% of the Token are allocated to the community, of which 15% (compared to the total supply) will be the amount of Token Airdrop to early users.
- Team (21.51%): this is the amount of Token for the protocol building team, gradually unlocked over 4 years.
- Investors (17.8%): is the amount of Token for early investors, gradually unlocked over 4 years.
- Advisors (0.69%): is the amount of Token for the advisory team, unlocked in 04 years.
UNI's unlocking schedule. Source: Uniswap
After 4 years, UNI 's tokenomics will change when UNI will inflate at a rate of 2% per year, thereby causing the total supply and allocation to change (this inflation is mainly for the community).
Functions of UNI
UNI currently has only one most important use-case: administration. Besides, UNI is also used as a liquidation provision reward.
Basically, UNI 's use-case is similar to LDO or JTO that we recently analyzed.
In summary, from the information about UNI's tokenomics, we can draw some observations as follows:
UNI 's use-case is nothing special compared to other DeFi projects, and is even inferior to later development projects such as GMX and PancakeSwap . Therefore, if nothing changes, UNI can only increase again when Uniswap has big enough changes in the "quality" of the project (changes in tokenomics, product improvements at a large level, cooperation with other partners). major partners...).
Because it has been released for a long time, currently, the UNI unlocking schedule is reaching the final stage (full payment will be around Q3 2024). This will be an important time for us to reassess the project in general and what investment funds are doing with their UNI Token in particular. The Q3 2024 timeline has another interesting "coincidence" that I will analyze in the following section.
To give you a more detailed view, I will analyze more deeply the operations and important updates of Uniswap in recent times.
Uniswap 's operating situation
overview
First, we will talk about the growth rate of Total Value Locked (TVL) on the protocol.
Change TVL on Uniswap. Source: defillama, February 6, 2024
Since the DeFi summer boom and Uniswap reached its ATH TVL with a value of about 9.7 billion USD in April 2021, we have witnessed a relatively difficult period afterward when the TVL gradually decreased to around the mark. about 4 - 5 billion USD and is still moving sideways around this level.
Explaining the above decrease, the main reasons can be mentioned as follows:
The Crypto market has witnessed a major decline in BTC and almost all altcoins, causing a massive outflow of money and therefore, Uniswap was also greatly affected.
With the emergence of the Multi-Chain trend and countless DEXs on it, Uniswap faces increasing competition.
Although from 2022 until now, the market has still had a few booming periods, however, DeFi in general has not been able to really come back strongly, facing great difficulties in attracting cash flow. new. Uniswap also suffers this same "fate".
One more interesting detail that I want to mention here is that Uniswap 's TVLs all have impressive milestones when they launch new versions of their products. Specifically, Uniswap V2 has helped Uniswap 's TVL grow impressively from less than 100 million USD to several billion USD. Next, updating Uniswap V3 also helped the project's TVL peak. Thus, it can be seen that major product updates through each version of Uniswap are important factors affecting the cash flow and growth of the project. Therefore, with the roadmap to launch Uniswap V4 in Q3 2024, Uniswap can once again help the project regain stronger growth momentum.
Some important changes and updates
Acquires Genie and expands to Non-Fungible Token Marketplace
Not to be outdone by other competitors, in June 2022, Uniswap officially acquired the Genie platform , integrating with its own project, allowing users to trade Non Fungible Tokens on Uniswap. This is an effort for Uniswap to expand its products horizontally, helping users have a DEX that can both trade traditional Token and buy and sell Non-Fungible Token more easily.
Successfully raised Capital
In October 2022, Uniswap successfully raised Capital for Serise B round with a value of 165 million USD, raising the company's valuation to 1.66 billion USD. The Capital call round had the participation of many famous investment funds such as Polychain, a16z, Paradigm.
Integrate buying/selling crypto via card/bank account
In December 2022, Uniswap continued to show its ambition to connect DeFi and CeFi closer, by allowing users to buy/sell certain types of crypto through visa cards or bank accounts.
Launching crypto wallet on smartphones
To better support user experience, especially on smartphone devices, Uniswap launched the Uniswap Wallet app in March 2023. This will be a Non-Custodial wallet similar to Metamask, connecting directly to Uniswap.
Expand to many new chain
With the rapid development of Layer-1 and Layer-2, Uniswap cannot stand out of the Multi-Chain race. They quickly brought the project to new ecosystems such as Arbitrum, Optimism, BNB Chain, Polygon zkEVM, Base... to expand market share and attract users.
Introducing and planning the deployment of Uniswap V4
As I mentioned above, 2024 is expected to be an important year for Uniswap when they introduce and plan to officially deploy V4. In V4, Uniswap will have many important changes, the most notable of which is the concept of "Hooks". This is a mechanism that allows programmers to customize liquidation pools, adjust transaction fees flexibly, and support new transaction order types.
You can learn more about Uniswap V4 in this detailed article .
Comment: it can be said that Uniswap is doing quite well and is consistent with its development path, specifically:
The project team remains steadfast in building and developing Uniswap into the best DEX on the market. All changes revolve around and focus on serving this purpose. Unlike many "drop-the-market" and "plow-the-road" projects, Uniswap still focuses on developing core products, instead of following other trends in the market.
Although Uniswap 's changes and updates are not too many, they are all trying to improve the user experience, connecting DeFi and CeFi, thereby attracting users and attracting cash flow (the most important thing for an exchange).
In my opinion, the implementation of Multi-Chain is timely and effective, in the context that Ethereum is still quite slow and expensive.
Uniswap V4 brings many notable changes, especially the Hooks mechanism, which can create a competition between projects to attract liquidation.
Comparison with competitors
With a lot of changes, updates and development directions. We continue to compare Uniswap with some other top DEXs on the market today:
Compare Uniswap with some other top DEXs. Source: defillama, Token Terminal (February 19, 2024)
You can see that in the 4 criteria I listed, Uniswap is currently top 1 in all 3/4 criteria .
- Currently, this exchange still has the largest amount of TVL, and is almost 2.5 times higher than its top 2 competitor, Curve .
- In terms of volume, in the last 7 days, Uniswap reached 7.4 billion USD in Volume and accounted for 29% of the DEX market share (nearly ⅓).
- Uniswap is only inferior in revenue (7 days) when compared to PancakeSwap. However, don't forget that PancakeSwap is currently not simply a DEX, but also includes products such as IFO, Lottery, Perpetual Trade ( Derivative trading) and even Non-Fungible Token Marketplace.
Therefore, the dominance over Uniswap when comparing revenue is quite understandable. I believe that if we only compare the DEX segment, Uniswap will still be top 1 in terms of revenue.
Thus, although the market is facing difficulties, with necessary and timely changes, Uniswap still maintains its current top 1 DEX position.
Some issues
Besides the positive aspects of product improvement, Uniswap still has some problems in DAO operations, thus directly affecting the UNI Token itself.
First, the problem of manipulating DAO governance still occurs. If you remember, at the time Uniswap voted to test and select a cross-chain solution for this project on BNB Chain, a16z used all of the UNI they held to interfere in the vote, resulting in The results change according to their wishes.
Although many still believe that a16z is simply exercising their voting rights, the community is also concerned about a DeFi project being overly centralized.
In fact, this is a valid concern, especially since the recent preliminary vote on a proposal to Chia protocol fees among UNI holders continues to create some controversy. The Uniswap community showed Chia in the preliminary vote on the proposal to allocate Uniswap v3 transaction fees to UNI holders.
Specifically, more than 40 million UNI were used to vote, with 45.32% choosing the "Oppose" option, while the remaining 54.68% chose "Support" but Shard . for different rates, such as 1/5, 1/6 and 1/10.
Since the most selected option was “No”, the preliminary vote could be XEM as having failed to get the community to support the allocation of fees to UNI holders.
Comment: Currently, UNI only has one use-case which is administration, however, the issue of reconciling administrative rights and community benefits is still an issue that the project is facing. This makes many retailers no longer interested in holding UNI.
Conclusion
From the above analysis, we can draw some conclusions as follows:
(1) Uniswap is still the top 1 project in DEX in particular, and is still a pillar in the Crypto market in general. Trusting and investing in Uniswap in the medium and long term is still quite safe for many people. Large investment funds have clearly shown their confidence in the project when continuing to "pour money" into Uniswap in the Series B round.
(2) The UNI Token is designed quite boringly. Therefore, UNI can only explode again if and only when Uniswap changes in quality and creates a boost for the project itself as well as the entire DeFi market. This push could come from Uniswap V4. Updating “Hooks” makes it possible for projects to compete more fairly for liquidation , attract LPs and attract trading Volume , thereby opening up a new ve-tokenomics mechanism for UNI.
(3) In V4, Uniswap will support many new command modes. This is an update that will greatly improve the user experience, bringing the experience on Uniswap closer to a regular CEX, and at the same time opening up room to further develop the Perpetual Trading segment (similar to DYDX, GMX...), from That helps Uniswap compete more fairly with CEXs.
(4) With much room for development, the amount of fees collected on Uniswap will be huge. This will make the conflict between the team, investment funds holding large amounts of UNI and the interests of investors even more intense. Uniswap will have to choose between trying to collect the maximum amount of fees for itself or balancing the interests of the organization with the interests of the community. Whether or not UNI explodes depends a lot on this choice.
(5) With tokenomics unlocking in Q3 2024, which is also the launch of Uniswap V4, this coincidence makes us think of a time when TVL and UNI Token could explode at the same time. This is even more evident when the project successfully called for Capital in October 2022 with a value of up to 165 million USD.
Would you bet on UNI in the long term? Leave a comment to discuss with me. See you again in the next articles.
Poseidon
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