- Uniswap, the most popular decentralized platform, debuted their UNI token in September, reaching an all-time high price and congesting Ethereum’s network
- Uniswap’s trading volume broke records in the summer and fall months, but a change in their incentives program wiped out over $1B in TVL in DeFi
- Price predictions are difficult considering UNI’s September debut, but its reputation in serving the DeFi market will likely help its growth
At the time of this writing, Uniswap (UNI) is trading at $3.95 USD with a market capitalization of $966,747,410 USD on Coin Market Cap. The past few months have been generous to the cryptocurrency, which hit an all time high of $8.44 on September 18, 2020, the day the UNI token launched.
What caused that kind of price action? In this article, we’ll cover everything you need to know about Uniswap.
Let’s start with some background knowledge. Uniswap launched in November 2018 and was created by Ethereum developer, Hayden Adams. Uniswap is an automated market maker that, quite simply, facilitates automated trading. Uniswap is geared to the Decentralized Finance (DeFi) market and aims to create liquidity for the DeFi space.
The benefit of the Uniswap protocol is that it reduces costs for users, thereby incentivizing activity. The protocol also removes identity requirements, so anyone can create a liquidity pool.
Uniswap is the most popular decentralized exchange, allowing traders to access low-cap altcoins and other assets not available on other platforms like Kraken and Coinbase.
Uniswap Price Analysis – Recent Price Action
Before we get any further, let’s clarify something. Uniswap is a decentralized trading protocol. UNI is Uniswap’s governance token. Within hours of launch, UNI became one of the most valuable DeFi assets, congesting the Ethereum network.
Indeed, Uniswap transaction fees skyrocketed, and UNI accounted for 35% of the total gas consumption within 24 hours of launch. Gas consumption was ~700 gwei, a far cry away from the average gas price of 416 gwei. Data analytics firm Glassnode recorded UNI miner fees to range between $100K to $900K in less than an hour.
UNI entered the top 45 cryptocurrencies by market cap, also within 24 hours of launching. Similarly, UNI ranked within the top 10 DeFi tokens.
Soon after its debut, UNI entered a downturn. The token entered October with $4.17 and ended with $2.34. November saw UNI gain traction upwards, ending the month with $3.77, and it has persisted its climb as we enter December.
At the time of the UNI token launch, Uniswap (the platform) had $1.4B in total value locked (TVL), becoming the largest DeFi protocol.
Regarding trading volume, Uniswap had a lucrative August and September. Uniswap’s trading volume dwarfed preceding months. June 2020 saw daily trading volume hover around $1M, but that number ballooned to around $1B just a month later. July’s trading volume was ~$1.76B.
As a testament to the DeFi craze currently sweeping the crypto community, Uniswap’s August trading volume surpassed July’s milestone in under two weeks. The platform broke their own record again in September, surpassing their August numbers in just ten days. These developments set a strong foundation for the UNI token launch.
Then, Uniswap’s trading volume surged to $2.04 billion on October 26.
Uniswap’s Strategic Moves
On November 14, Uniswap posted a record high of $3.07B TVL. Just days later, on November 17, Uniswap ended their yield-farming incentives program, which promptly wiped out more than $1B within 24 hours. That’s right, Uniswap’s TVL dropped to $1.3B, a 57.5% drop.
Competitors were quick to fill the vacuum. SushiSwap’s TVL surged almost 160% from $407 million to $1.05 billion between November 17 – 19. Bancor and 1Inch also unveiled yield-farming incentives in the days after.
Worried about the economic fallout, UNI token holders started the process for submitting a new governance proposal hoping to reinstate rewards for liquidity providers. The new proposal would halve the liquidity reward from 2.5 million UNI tokens to 1.25 million for the following two months, which is approximately 4.6% of the current token pool.
UNI’s recent debut makes it more difficult to make price predictions with much confidence. A downturn is often expected soon after a token launches, and UNI was no exception.
Coin Market Cap outlines three scenarios for Uniswap. The first is that the exchange maintains its trading volume, and the fees earned by liquidity providers will bolster trust in the exchange’s governance.
The second scenario is that DeFi expands outside Ethereum, or something else happens, that leads Uniswap to lose liquidity, devaluing the UNI governance token.
The last scenario is one of adaptation. Uniswap serves the DeFi market in a different way, breathing new life into the UNI coin. Since Uniswap is still relatively young, the development team has been building the platform through grants and public goods.
Another factor that would likely influence UNI’s price is Ethereum. We mentioned before that UNI’s debut congested the Ethereum network, which could repel low volume traders who don’t want to pay exorbitant transaction fees.
Ethereum’s network congestion problems are well-known amongst traders, and layer-2 and ETH 2.0, the purported solutions, are still in development.
Despite the cautious sentiment given UNI’s fledgling status, Uniswap can still count on the DeFi market to raise the token’s profile and put it in a position for sustainable growth.