Sunday, November 29, 2020
Home The Capital How to Value Uniswap($UNI) Today

How to Value Uniswap($UNI) Today

Just as the major macro-case for Bitcoin is that it’s a bet against the fiat-run financial system, the major macro-case for Uniswap($UNI) is that it’s a bet on the future of crypto being driven by decentralized exchanges.

Image Credit to Uniswap

If crypto, as it is now, is the coming financial system, then Uniswap’s a glimpse at its second-iteration, far ahead of time. For those of you who may not be aware yet, Uniswap is what is called a decentralized cryptocurrency exchange or “DEX.”

In reality, all that means is that it allows anyone to buy, sell, or swap any cryptocurrency that its protocol (assorted smart contracts + the rules that go with them) supports, at any time, anywhere. During the transaction process, the only party that takes a fee is.

In other words, it’s a cryptocurrency exchange that’s controlled by its users, and the potential of such a business is immense.

To understand why, let’s take Bitcoin and its key value propositions into account, which I’ve previously written about for NBX(Norwegian Block Exchange). In summary, beyond “digital scarcity,” i.e., Bitcoin’s status as digital gold, I believe it’s greatest value proposition as a global macro hedge.

If you’re not familiar with that is, just imagine that Bitcoin protects investors against the effect of economic recessions on other assets/commodities, and you get the general picture. For a deeper dive, however, listen to Raoul Pal’s thoughts on Bitcoin, such as here on Stephen Livera’s podcast.

No, this is not a perfect case, and yes, Bitcoin’s untested in this respect, but that’s because a major global economic recession hasn’t occurred during its lifetime beyond that which we’re experiencing now (which isn’t really a recession yet).

Even so, Bitcoin’s shown true promise in working against the movements of bonds, which indicates that it can work as a bet against traditional monetary policy that’s bond-driven (from the bottom).

On top of this, though it fell with stocks this past March, for much of its history, its moved in an uncorrelated fashion with regards to stocks as well.

Therefore, for now, I stand with Raoul Pal and others in considering Bitcoin as at least a developing global-macro hedge.

Any theory has to start somewhere, and I believe that just as an investment in Bitcoin’s a bet against the fiat-run financial system, an investment in $UNI’s a bet for a crypto-driven future in which the average investor truly runs the show.

This is because of what Uniswap is at its core as well as because of where Uni’s utility (primary use case) lies. Only time will tell whether my thesis proves accurate since for it to work, $UNI will have to grow further from the pockets of VCs and exchanges and move more into the hands of the average investor.

If it doesn’t, it and Uniswap will end up as just another DEX that’s really a centralized exchange at the governance level. Working in favor of this unfavorable outcome is the fact that Sushiswap, which is not currently decentralized and truthfully controlled by the centralized exchange called FTX, owns 130,000 UNI(all of which are like votes on the protocol’s future).

Even so, one factor that works in favor of a bright future for the Uniswap ecosystem is the fact that those with true skin-in-the-game stand to gain the most control over the protocol.

Over the course of 4 years, 60% of the total $UNI supply that will be released is slated to go to the community, which refers to those who actually use the protocol to buy, sell, and swap cryptocurrencies. For the most part, the real winners in this respect are the liquidity providers since the bulk of those tokens will go them in exchange for keeping the system running by filling its token pools.

With that in mind, exchanges and VCs are faced with a two options:

  1. Keep Doing What They’ve Historically Done and Earn Less UNI tokens
  2. Actually Become Active Liquidity Providers and Control the Protocol’s Future, Making it Centralized

For now, only time will tell which they’ll choose.

In my case, I’m betting that true liquidity providers will win out, over the long-term. For that to happen, Uniswap’s average users(less deep-pocketed than exchanges and VCs) will need to band together and establish their own trusted delegates for the voting process.

This basic idea serves as the foundation of the initial thesis I’m running with for $UNI and Uniswap as mentioned above.

In my next post, I’ll expand upon the discussion above to attempt to illuminate my thoughts further, using the case of the Protocol Sink Thesis, which originated from the Bankless community. Until then, if you liked this piece, let me know here or on Twitter and stay tuned for more of the same!

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