DeFi is not a trend; it is a fundamental shift in the way that participants engage with the cryptoasset market, and we believe that it has only just begun.
Uniswap is one of the most interesting projects to launch on Ethereum in recent times. It is a protocol for decentralized exchange of tokens, but very different from the traditional ones seen today. Inspired by one of Vitalik’s reddit posts a few years ago, creator Hayden Adams initially sought to gain some Solidity practice. Soon after, though, this training exercise evolved into receiving a grant from the Ethereum Foundation. Uniswap is a set of smart contracts deployed to the Ethereum network, which means the entirety of this process takes place on-chain.
Uniswap’s unique architecture sheds the concept of a limit order book entirely. Strangely, market makers no longer specify price when providing liquidity. Instead, they merely supply the funds and Uniswap takes cares of the rest.
A market maker no longer specifies which prices they are willing to buy or sell ETH at. Instead, Uniswap pools everyone’s liquidity together and makes markets according to a deterministic algorithm. This algorithm, known as an automated market maker (AMM), quotes prices to the end user according to some pre-defined rule set. An example of a very simple AMM is a bot strategy that puts bids and offers every $1 away from the mid-market price, and constantly revises the order placement as the market moves around.
Not all AMMs are the same, and different strategies come with their own sets of trade-offs. Uniswap uses a variant they call the “Constant Product Market Maker Model.” This AMM has a particularly desirable feature where it can always provide liquidity, no matter how large the order size nor how tiny the liquidity pool. The trick is to asymptotically increase the price of the coin as the desired quantity increases. While larger orders tend to suffer, the system never has to worry about running out of liquidity. It will quite literally always work.
Uniswap regularly processes over 100,000 trades that contain hundreds of millions in volume each day. Realistically Uniswap is something you should be looking to hold for a decade. If it remains what it promises to be the upside potential is similar to that of Ethereum itself (I can count alts on one hand that are in the same bucket).
Currently, a 30 bps fee is charged by the network on the nominal amount of every swap. The fee goes to liquidity providers. UNI holders have full governance of the protocol, and there is a clause enabling the fee to be split; 5 bps will go towards UNI holders. Based off the current volume, this translates to 15% APY, equating a P/E ratio of 6.6. (more or less, price is fluctuating wildly of course).
If you compare this to other protocols, such as Kyber, which is at a P/E of 89 (others are >100), this makes UNI seem like a very good deal, if the new fee structure will be voted in. So it is more than just a governance token.
Uniswap tokenized governance is much more tangible compared to other projects. Uni holders can potentially get a cut of listed tokens fees and decide which tokens will be listed by default. While other DeFi protocol governance token holders get peanuts because the liquidity locked in their protocols is next to nothing, Uniswap's liquidity locked exceeds 2Bn as of now. Which is more than many others combined.
Imagine what happens when version 3 is rolled out with low slippage, approval fee optimisation, nearly instant, cheap and fairer transaction. The liquidity and volume might blow up like never before. At that point the biggest regrets of your life might be to sell too early and to stack too few if you are a uni token holder. Not a financial advice though. Nothing is guaranteed to happen. DYR
A prominent crypto asset fund manager, who left Wall Street to pursue Bitcoin, recently explained that UNI remains cheap on a macro basis. “Expected annual earnings for Uniswap: $380mm (based on $360mm avg daily trade volume @ 0.30% fee). -> $66mm distributed to $UNI token holders after the fee switch (1/6th of fees) -> 13% divd yield -> 1.30x Price/Sales -> 7.5x Price to distributed CFs.”
The premiums can make it prohibitively expensive for whales to transact large size. So what is so great about this style of exchange? In a nutshell, the pooled liquidity smooths out the depth of the order book. There are no more large holes or large bid/ask spreads. This is preferable for small traders who don’t want to have to deal with limit order books (the Uniswap UX is one of the slickest we’ve seen in all of crypto). No more having to make bids or offers or doing heavy calculations. Liquidity providers can also “set it and forget it.” There’s significantly less overhead in terms of management of orders and positions. It’s an incredibly passive way to provide liquidity and earn some fees.
Uniswap’s main distinction from other decentralized exchanges is the use of a pricing mechanism called the “Constant Product Market Maker Model.” Any token can be added to Uniswap by funding it with an equivalent value of ETH and the ERC20 token being traded. For example, if you wanted to make an exchange for an altcoin called LTL Token, you would launch a new Uniswap smart contract for LTL Token and create a liquidity pool with–for example–$10 worth of LTL Token and $10 worth of ETH. Where Uniswap differs is that instead of connecting buyers and sellers to determine the price of LTL Token, Uniswap uses a constant equation: x * y = k. In the equation, x and y represent the quantity of ETH and ERC20 tokens available in a liquidity pool and k is a constant value. This equation uses the balance between the ETH and ERC20 tokens–and supply and demand–to determine the price of a particular token. Whenever someone buys LTL Token with ETH, the supply of LTL Token decreases while the supply of ETH increases–the price of LTL Token goes up. As a result, the price of tokens on Uniswap can only change if trades occur. Essentially what Uniswap is doing is balancing out the value of tokens, and the swapping of them based on how much people want to buy and sell them.
Uniswap also breathes life back into app-to-app (or machine to machine) transactions. In a world with millions of microtransactions, it makes a lot more sense to dip into one giant liquidity pool than to have to be conscious of price specific liquidity needs. Lifting the best offer on a small order size isn’t dangerous anymore(imagine a DEX with an empty sell side order book). Another use case is for security tokens to utilize Uniswap to pay out dividends.
Uniswap's liquidity locked exceeds 2Bn as of now. CoinBase is basically trying to do a capital raising for $20 billion market cap. Uniswap fully diluted is only $4.5 billion market cap. UNI is a mega leveraged play on the whole ecosystem. Bullish on UNI. I see it around $25 in the next 24 months. Historically, exchanges have been the most profitable non-coin investments in the space. And now, the #DeFi community owns a small piece of the coolest and most futuristic exchange in the world today. Super excited for what Uniswap is going to do over the coming years. Current revenue x day is 200K$. Easy to spot why it will appreciate in time.
The 400 $UNI airdrop should remind ALL OF US the value that users bring to networks Facebook is worth $726B They could have pretty much done the same and give $FB to early users I am betting that this future will happen and we will all be better. Interesting to note that $UNI pure-crypto-VCs (who live and breathe 1000x returns) are willing to wait 4 years for their allocations to vest. They've probably been providing liquidity for months from multiple wallets to get a shitload of tokens separate from the vesting ones too. However, the program may now have a negative impact on the price performance of Uniswap’s governance token — with the rewards program airdropping more than $260,000 worth of tokens daily at the price of $3.13 each
AMM can finally make a large % of crypto holders control their own keys. That's what everyone wanted right?
There are concerns that UNI could be seen as a security, or that Uniswap could be deemed illegal by authorities similar to how authorities cracked down on the founder of an Ethereum-based order book decentralized exchange. By not participating in governance, the chances that UNI is deemed a security by regulators likely goes down dramatically
Uniswap pulls from the trustwallet asset repository on github. Add your token icon to that repo and it will appear on the frontend and on info.
The fundamental in the mid/long term 1) Uniswap is already generating more fees than the whole bitcoin blockchain 2) Uniswap will give every token hodler 0,05% of the volume traded on Uniswap 3) The average volume il already at 250m per day 4) there are 2.9 billions of liquidity on Uniswap 5) it’s already on Coinbase and Binance 6) the lead investor is Andreessen Horowitz, the best VC in tech 7) the social media are talking more about uni than other crypto except bitcoin