The release of the Uniswap token (UNI) is the latest in a long line of governance tokens that have been released by popular DeFi protocols. Anyone who made a trade on Uniswap before 01 September 2020 Is entitled to a distribution of the Uniswap token. In this article, I'll show you the basics of how to claim your tokens. Just as importantly, I'll discuss my thoughts on why I believe the Uniswap model to be one of the fairest models of governance token distribution and discuss my strategy for spending/saving the profits from this UNI airdrop.
We'll start with the most important news upfront. It's incredibly easy to claim your UNI distribution. All you have to do is log into Uniswap with a wallet that you have previously made a transaction with. Uniswap will automatically detect whether or not you are eligible for the 400 token drop. If you are eligible, you simply sign in and confirm the transaction and pay a small ETH gas fee.
One of the things that I like the most about the Uniswap airdrop is that they are rewarding past users of the protocol while simultaneously implementing a model that incentivizes users to continue using the protocol and providing liquidity. In contrast to some of the other protocols that have released the governance tokens, Uniswap decided to reward past users of the exchange.
Every address that has made a transaction on Uniswap prior to the cutoff deadline of September 1st, 2020 is entitled to a distribution of 400 UNI. I wholeheartedly support this decision because I believe that it's important to reward the early users and early adopters that helped build the Uniswap platform and take it to where it currently is. I'd like to personally thank the team for recognizing and rewarding those of us who used the protocol. Moreover, the flat rate distribution of 400 UNI treats everyone fairly. Someone who made ten transactions is treated just the same as someone that made one transaction or a thousand transactions.
You've Got UNI......Now What?
The actual financial value of the Uniswap airdrop is quite significant as well. At the time of writing, the 400 tokens are valued at $5.41 which means that the total value is about $2160. This represents quite a significant amount of money, and I realize that everyone has a different strategy of what they want to do with this money. Some people will want to immediately spend it, some people will reinvest the UNI tokens back into liquidity pools, and other people will simply sell the UNI for another crypto.
First off, I'd like to be clear that none of this is financial advice, but I'd like to share my strategy of how I plan to utilize my UNI distribution. Especially for those of us in the United States, we have to remember that any kind of crypto airdrop counts as earned income. Further, the amount of taxable income depends on the value of the cryptocurrency at the time that it was received. So, if you HODL UNI, and it drops from $5 to $1 you still owe taxes on the full $2,000 distribution that you first received, not the remaining value of $400 that is left at the end of the year. It's highly unlikely, but its possible that the value of UNI could drop so far by the end of the year that you end up owing more in taxes, based on the original valuation, then what you have leftover.
Thus, my first concern with the UNI distribution is protecting my downside and covering any potential tax liabilities. A second concern is locking in profits. The simple fact of the matter is that no one knows what's going to happen to the price of any cryptocurrency in the future. The price of UNI may skyrocket, but it's also possible that it will experience a sharp decline. So, its important to develop a strategy that locks in profit while also giving us the ability to share in future price increases.
I don't think that either completely selling or completely holding are the right answer. Rather, I chose to take the middle road by selling a portion of my UNI while holding the rest. This strategy will
1) Allow me to already pre-cover my tax liability
Tax liabilities are a major concern because they are the single event that can cause you to lose money as a result of an airdrop. Imagine actually getting an airdrop and OWING money at the end of the year. It's crazy, but theoretically possible due to US tax treatment of cryptos. By selling enough UNI and converting it to fiat, I can ensure that no matter what happens with the actual valuation of the UNI token, the worst I can do is break even.
2). Allow me to invest in other projects. I chose to use some of the proceeds from my UNI airdrop to make more decentralized lending investments on Compound, but other people may have different ideas. Since the Uniswap airdrop was completely unexpected, you won’t “miss “ the money, and it might be a perfect opportunity to invest in that one crypto that you have been waiting to purchase.
3). Allow me to benefit from continued UNI price appreciation. And I've mentioned in previous articles, Uniswap is my favorite decentralized exchange. I believe in the future of the exchange as well as the potential for further price appreciation of the UNI token. Selling all of my UNI would make me feel like I was missing out on a golden opportunity.
I would like to conclude this article by once again giving a huge thanks to the Uniswap team for their unexpected, but very welcome distribution of the UNI token. It represents a significant amount of money, and with everything that's going on in the world right now, it's going to be a huge relief to a lot of people. At the end of the day, everyone will have a different strategy for what they plan to do with their UNI tokens, but I’d like to hear what you all are doing. Are you going to HODL it all, sell it, or something in between?
Thanks for reading!