Uniswap Token: All you need to know
Anyone in the crypto space who’s not been living under a rock and ignoring the whole DeFi hype will know Uniswap. But what if you are that caveman hiding in your cave warming yourself with your bitcoin burns? Don’t worry I got you:
Uniswap is a decentralized exchange where users can swap any token that uses the famous ERC-20 protocol, used by Ethereum, USDT, Dai, AAVE, Binance coin etc. Uniswap makes it super easy to swap an ERC-20 token with another ERC-20 token with a few clicks by connecting your Metamask wallet to the exchange.
Why UNI is important
Uniswap has become so huge that it has surpassed mainstream centralized exchanges like Coinbase when it comes to 24 hour volume. This is a huge feat! This means that us, the community, is preferring to use a decentralized solution instead of entrusting a centralized authority that demands fees from us simply for operating. But what are they providing us? If you have USDT and I have ETH. and I want to exchange ETH for your USDT and you want to do the same, what business is it to a third party? This is exactly what Uniswap provides us with, without any fees. And now this decentralized protocol has a governance token. That governance token is called “UNI”.
Now not only will we the users be able to benefit from this amazing decentralized exchange service that Uniswap provides but we will also be able to shape Uniswap’s future into something that suits us. This is revolutionary! Could you ever imagine Coinbase or Binance ever doing this? Additionally Uniswap also decided that it wants to reward its users. If you have used Uniswap before 1st of September 2020, you will receive 400 UNI for free. Which at the current price of UNI is a total of $2000. This is bigger than the US government’s stimulus check!
UNI was launched on 18th of September 2020. Where it started off at around $3. It steadily climbed up to more than $8 and has now consolidated down to $5. One factor for such a huge surge in price in only 2 days is the power that the tokens hold. The Uniswap team will have no involvement in v2 protocol development and governance. It will be dependent solely on the people who hold UNI. From their blog they state:
UNI holders will have immediate ownership of:
- Uniswap governance
- UNI community treasury
- The protocol fee switch
- eth ENS
- Uniswap Default List (tokens.uniswap.eth)
- SOCKS liquidity tokens
What are price targets for UNI?
Now coming the part you were waiting for— Should I buy at this price? Should I sell at this price?
First and foremost, if you used Uniswap before 1st of September 2020, go claim your free 400 UNI!
Secondly, the best trade would have been to buy UNI as it came out. If you got that trade, you’ve already won.
But I missed that trade, do you think UNI will have another such run-up to > $8 levels?
At the time of this writing, UNI is at around $5.13. Uniswap’s blog clearly states that from the genesis UNI allocation, 150 million UNI will be given to its users. Currently 117 million is in circulation. So it doesn’t take a genius to figure out that more supply is coming and when supply goes up with demand staying the same, the price goes down. But will the demand exceed the supply and we see a crazy run up like we did earlier when UNI reached > $8? You never know in the world of crypto but I doubt it will have a run up to that extent. That initial hype was justified as UNI was new to the market and obviously started with almost zero demand and mostly free 400 tokens being distributed to historical users.
Is UNI currently at a fair price?
Now UNI’s market capitalization is at $600 million. How can we judge if this is a fair value for UNI? Let’s look at a good comparison for Uniswap’s UNI; Binance coin. Using Coingecko’s features let’s find out how much Binance’s 24 hour trading volume is:
Now let’s do the same for Uniswap.
Binance’s 24 hour volube is $2.653 billion whereas Uniswap’s is around $488 million. The ratio between these two is: 488/2653 ~= 0.18. Now let’s find the total market cap of Binance coin and UNI on Coingecko:
Both these images give us the market cap of each coin. Binance coin’s market cap is approximately $3.863 billion. Whereas UNI’s market cap is $595 million. The ratio between these two numbers is 595/3863 ~= 0.15.
Uniswap and Binance are similar. While the former is decentralized and the latter is centralized, they both are exchanges. If we go simply by this theory then 0.18, the ratio between their 24 hour volumes, i.e. essentially — how popular they are, and the ratio between their coin’s prices 0.15 show a discrepancy. If they provide exactly the same value then UNI’s market capitalization should be at 18% of Binance Coin’s. So if we do $3.863 billion times by 0.18 we get $695 million. This calculation would prove that UNI is $100 million under its potential.
However what about the missing unclaimed tokens? We know that 150 million UNI are claimable by historical users but the current circulating supply is only 117 million. If we add the remaining 33 million at a price of $5 we get $165 million. $595 million + $165 million would then put UNI’s total market capitalization at $760 million. Which would make it overvalued according to our formula that compares it with Binance. UNI however does provide extra features such as governance and others listed above, so one could argue that UNI should be valued higher than that ratio suggests. But with derivatives trading and credit card purchases, it could also be argued that so does Binance.
What am I doing?
Fortunately I was able to get into UNI at $2.9 and exit at $5.5. This, along with the free 400 UNI, provided me with a great profit and I’m happy with my trades at the moment. With my reasoning listed above, I believe that UNI will continue to trade sideways for a while and not show much jumps up or down, unless the whole crypto market goes up or down. But UNI’s market capitalization when compared to Binance Coin and other cryptocurrencies, will remain in a similar position. So I will simply wait. Nonetheless if you have money invested in UNI, it will eventually rise with the whole crypto market going up as we ease into this long awaited start of a bull market cycle.
I believe that we have too little data to do a technical analysis on UNI. However, so far it does seem that there is not much support below $5 as you can see from this chart below:
So, I will be watching if UNI crashes past $5, I will slowly start buying in at around $4, provided the circulating supply of UNI has not increased dramatically with a lot of users claiming their free UNI and a lot of users buying more.
Disclaimer: this is my personal analysis that I will use. I have made profits from my above described trades but I cannot guarantee that you will. If you choose to trade your own hard-earned money on cryptocurrency, do your own research, your own analysis and make up your own mind. If you lose money, it will be solely your responsibility. If you make money, it will be solely your gains! Do not trust people on the internet more than you trust yourself.