Uniswap has attracted a lot of attention to itself over the past two years as the flagship product of the DeFi movement. Everyone knows about Uniswap, but people really don’t know how much it’s worth.
Unfortunately, it’s difficult to measure Uniswap’s worth strictly in terms of locked liquidity or trading volume nor do precise measurements like that offer the true value of Uniswap.
This is why we will cover some of the things that make Uniswap valuable other than just the locked liquidity.
The Problems Uniswap Solves
Uniswap solves two major problems. The ability of Uniswap to solve these problems allows it to offer many more benefits than a traditional, centralized exchange like Coinbase or Binance.
The biggest problem that Uniswap solves is the centralization occurs around a centralized exchange. For instance, Coinbase is a private company that is essentially a cryptocurrency brokerage.
This means that Coinbase, and other centralized exchanges, have the ability to essentially control prices and other aspects of cryptocurrency.
Of course, this is the most convenient way to operate, but it does go against the core principle of cryptocurrency – power to the people.
Anyway, Uniswap flips that right on its head. It offers a cryptocurrency exchange that operates in the same manner as the blockchain of the cryptocurrencies it sells – decentralized.
This means that Uniswap cannot close your account for sending cryptocurrency to a banned address or other nonsense reasons like that.
That is a huge benefit to a decentralized exchange like Uniswap. It’s also why Uniswap has attracted so much attention in 2020 and 2021.
Next, Uniswap solves the security and privacy problem of centralized exchanges. This is especially true with privacy for one important reason:
You can trade on Uniswap without submitting identity documents. In fact, Uniswap does not even require an account.
All you must do is attach your Ethereum wallet to the exchange and you can swap any ERC-20 token in a pool.
As for security, the exchange is founded on smart contracts. Those contracts are completely available to the public. It’s not totally secure, but it relies on security by publicity.
If the contract with millions of dollars worth of cryptocurrency is hackable, then someone would have hacked it.
We find that much more secure than centralized exchanges that rely on security through obfuscation.
We covered the problems that Uniswap solves, but this next section will cover some of the positives of Uniswap and what makes it so popular.
Liquidity Provider Rewards
We’ll cut right to the point – Uniswap is popular because of liquidity provider (LP) rewards. To understand LP rewards, you first must understand how Uniswap trading works.
Basically, Uniswap does not have a traditional order book. Instead, it has an automatic market maker (AMM) that relies on a trading pair having a certain price peg that then receives a data stream from a few different price oracles collecting prices from other exchanges.
That isn’t that important, though.
What is important is that users must provide liquidity to the trading pool in the form of locking in their tokens for a period of time. The reward for doing so is something called Uniswap tokens (UNI), which are a standard ERC-20 token. These UNI tokens can be sold on a variety of different exchanges including some centralized exchanges like Coinbase Pro.
We touched on this in the previous section, but it’s worth mentioning again for clarity.
Uniswap is private – there is no need to submit identity verification. In fact, there is no way to submit identity verification, so Uniswap has no way to check your identity.
Can this be used for nefarious purposes?
Sure, but that’s not the responsibility of Uniswap. Uniswap simply provides a service to users that allows them to buy and sell ERC-20 tokens.
More Trading Pairs
Next, Uniswap has a lot of trading pairs on it. Basically, any ERC-20 token can be placed on Uniswap.
Remember, Uniswap is a decentralized exchange, so anyone can list any compatible token if they can provide the appropriate amount of liquidity.
This, of course, opens up Uniswap to a lot of scams involving junk tokens getting pumped on Telegram. Yet again, this is not a problem for Uniswap. One must do proper research before investing in any cryptocurrency to ensure they are not getting scammed.
Also, a common concern is that Uniswap does not have Bitcoin because Bitcoin is not an ERC-20 token.
That’s technically correct, but there is a workaround for it.
It’s something called Wrapped Bitcoin (wBTC). This is an ERC-20 token that is 1:1 backed by bitcoin. You can think of it as a bitcoin stablecoin.
This means you can trade bitcoin on Uniswap using Wrapped Bitcoin or any other bitcoin backed ERC-20 token.
Easy to Use
Finally, Uniswap is easy to use. All you must do is connect your Ethereum wallet to begin swapping out tokens on the exchange.
No account, identity verification, or bank transfers are necessary to purchase tokens.
Literally, anyone in the world with an internet connection can use Uniswap.
The Different Valuations of Uniswap
We have already covered the non-monetary value of Uniswap – privacy, speed, and security.
But is it possible to put a dollar value on Uniswap?
Yes, it is possible to put a dollar value on Uniswap. There are a few different metrics that are commonly used. These metrics can be a little flawed for various reasons, but they are often cited as the value of Uniswap.
Total Value Locked (TVL)
TVL refers to the total amount of cryptocurrency locked into liquidity pools. Uniswap has increased in popularity at the beginning of 2021.
The TVL of Uniswap is $30 billion.
That’s quite the increase from the billion dollars of TVL that Uniswap had just a few months ago.
However, this metric is not always the best because much of the TVL comes from people locking in value because Uniswap pays great returns.
This was shown when Uniswap cut liquidity providing rewards and saw a massive decrease in TVL as LPs went to other decentralized exchanges offering higher rewards.
That said, as long as Uniswap can maintain a high LP reward, then they will continue to see a high TVL.
Monthly Trading Volume
Uniswap is a decentralized exchange, so monthly trading volume is a good metric to measure the success of the exchange.
Uniswap’s monthly trading volume is $25 billion. That’s nearly one billion dollars per day, which is great.
For reference, Coinbase has about $13 billion in monthly trading volume and Binance has about $130 billion in monthly volume.
Anyway, Uniswap has an excellent monthly trading volume for a decentralized exchange that only really offers ERC-20 tokens.
Uniswap has quickly emerged as one of the leading decentralized exchanges available today. The outlook on Uniswap is very bright.
Simply put, there isn’t much that can really bring Uniswap. Plus, the benefit of being a decentralized exchange is that if Uniswap does fail, then someone else will emerge to replace them.
The high dollar amount of value going around on Uniswap combined with the benefits of a decentralized exchange make it one of the most valuable cryptocurrency exchanges on the market today.