Is Uniswap's UNI token totally worthless?
If not then what's true value for it?
Since UNI was airdropped last week, I've been asked this question several times. Most people who didn't sell their airdrop immediately, were confused for whether they should be holding (or buying more) UNI or selling it. I confess, I myself was one among them.
To be honest, on day-1, when I received the UNI airdrop, I thought it of no value except it confers right to participation in Uniswap's governance. Uniswap as a platform doesn't make any money for now. So what can token holders expect from a platform that itself doesn't earn a penny?
But since the governance tokens has a lot of craze due to all the buzz surrounding decentralization and community participation, I decided to hold to ride the hype.
The burning question in my mind was - upto what price point you can ride this new wave of excitement. So I decided to sell it off within 2 days of the start of yield farming of UNI. Although its farming rate was not much, my thinking was that yield farmers will start dumping the new supply within 2-3 days.
Thus as soon as yield farming began, I started to keep an eye on UNI market price. But the token was pumping like anything. When it reached $7, I clicked to sell it. But you know, Uniswap takes 2 transactions (approval + transfer) to sell it. And Ethereum network was not capable to keep with the speed of price movement. So I lost money in failed transactions. More importantly, it was difficult to continuously keep an eye on screen to execute my swap order.
So ironically, I had to transfer my UNI tokens to some CEX for putting a limit order. I was monitoring its prices at 3 CEXes simultaneously. I saw a huge sell wall around $8, so I put my order for $7.5.
At the same time, I was surprised by the volume and momentum its price had gained. So somewhere, I was double-minded for the possibility of UNI surpassing $8. You know, how greed works?😉 So I wanted to move to the next psychological barrier of $10. But somehow, I chose not to change my position.
At that time, I was chatting with a friend. And he asked me if I was putting a sell order or buy order? I told him that it's a sell order! To that he said he would rather buy at $7.
Now this statement shook me off. I thought whether I was selling it too cheap! May be, I can get $10. And I cancelled my sell order. But by then quarter of my sell order had already executed. Anyway, I was happy with it and thought to compensate for my executed sell order, I'd now sell it for $14 ...LOL! However, the token dumped soon after it get past $8.
It's really difficult to gauge the strength of market sentiments.
So what's true value of UNI?
Uniswap has got over $2B as TVL and about $500M as daily trade volume But what all these figures mean when the platform isn't earning a dime?
I delved into the Uniswap project and found it has raised venture capital funding not once but twice in the past year. About 5-6 venture capital firms has funded Uniswap project. So what were they expecting?
This reminded me of Twitter. In its initial years, Twitter had no earning model and at one point it got too difficult for it to even survive with no funds to pay salaries. But VCs funded it. Later on Twitter intergrated advetisements into its platform to earn revenue. Thus platforms can work out revenue model later too.
20% of UNI tokens were distributed to its investors (with a 4 year lock in period). So these tokens must be worth something to offer its investors a good return.
Last quarter, when Uniswap launched its Version-2, it coded-in a protocol switch which if flipped on, the Liquidity Providers will get only 0.25% of 0.3% swap fee they currently earn. The remaining 0.05% fee will be transferred to the Uniswap platform. However, this switch is currently turned off.
We all know that Uniswap's fork Sushiswap used this 0.05% fee share to distribute among its token holders. Uniswap can easily do the same too.
But the question is when this protocol switch will be turned on.
With distribution of governance token UNI, community has now got the right to participate in governance decisions. Although 60% of token holders are Uniswap's team and its investors, they are locked for 4 years. I don't know if they can particpate in governace before unlocking it but I think even if they could, they won't.
Also right for governance of Treasury would be conferred a month later. So may be, we'll see some important decisions made by the community in this aspect that would provide a real value to UNI tokens. There should be some pump in its prices at that point.
If we consider $500M as Uniswap's daily average volume, 0.05% fee can get it $100M revenue per annum. Whatever community choose to do with this fee isn't very important. But this fee itself easily gives Uniswap over a billion dollar valuation with 10% in annual revenue. And I expect this revenue to rise in the coming days, esp. with the launch of its v3.
However, that 0.05% share will take a lot of time even if community decide to activate the protocol switch as there is a 6 month time lock contract for it.
And as I write this, I see a proposal to this effect already active on off-chain polling page on Snapshot (which was also put up today only). So far, no one has voted to activate the switch but the voting is live until 31st October. So there is a plenty of time to it:
Sooner or later, this protocol switch needs to be activated. Otherwise, I don't see much value in UNI token.
Uniswap v3 is coming soon
And as Uniswap founder Hayden keep saying that Uniswap v3 will blow your mind. It's actually going to be so feature packed that it will solve all exisitng problems of DEX. Yes, all!
Whether it's scalability, gas-fee, speed, security, TA tools with candle stick graphs, cross-chain asset inter-operability, Ethereum Layer-2 ...you name it, and it got it!
And Layer-2 doesn't mean some side-chain but every transction will be on-chain.
Yes, Uniswap v3 will be on Eth Layer-2. Hayden has dropped this hint several times that it's no secret anymore.
With v3 launch, all Uniswap forked projects are going to be a waste. Not only forks but projects working on Ethereum mainnet to enhance featuers of Uniswap like UniTrade, 1inch, Mooniswap etc. will need to re-evaluate their strategy to survive. Whatever they are offering will already be included in v3.
So everything is coming with v3.
If you have ever visited beta.uniswap.info then you know candle stick graphs are there. If you know Unipig, you know Layer2 swaps are being worked upon:
So if v3 is launched soon, it will eat up many projects. However projects like PolkaSwap may improve upon v3 with additional AMM pool algos but I guess, it will take a lot of time.
So with a near market monopoly in AMM, Uniswap v3 will reap a lot of rewards for UNI token holders. It can easily reach double figures by next month.
Just imagine if protocol switch is turned on and all revenue is distributed to token holders ...and if Uniswap earns 170M in the first year then each UNI token will earn $1. So if you consider 10% return as a reasonable return, the token should be worth at least $10. But with time, there may be more ways to earn revenue. Let's see, how much value this token can get to. Because, you know, market doesn't go with logic. It acts more on sentiments. 🙃
What do you say?