In an evaluation, Anders Helseth, Vice President at K33 Research, has mounted a powerful case towards the viability of the Uniswap (UNI) token. His analysis pivots on the intriguing dynamics of the decentralized finance (DeFi) market, essentially difficult the present valuation and future potential of UNI.
Helseth begins his argument with a seemingly simple query: “The Uniswap protocol generates significant trading fees, but will the UNI token ever capture its (fair) share?” His conclusion is emphatically adverse.
Is The Uniswap (UNI) Token Worthless?
For context, UNI is a governance token for the Uniswap protocol, a decentralized alternate that earns a 0.3% payment on trades. However, as Helseth factors out, your complete buying and selling payment presently goes to liquidity suppliers, with UNI holders standing to realize provided that governance votes allow payment dividends to UNI holders.
Even in a sluggish DeFi market, the absolutely diluted worth of the UNI token is 15 occasions the annualized buying and selling charges paid when utilizing the protocol, presently round $6 billion. If the UNI token may seize all buying and selling charges, it will arguably current an irresistible purchase. However, Helseth makes a compelling argument on the contrary.
“The UNI token currently captures 0% of the 0.3% trading fee, which entirely goes to liquidity providers,” Helseth says, emphasizing the token’s present lack of intrinsic worth.
The crux of his argument revolves round three gamers within the DeFi area: the customers, the protocol (and therefore UNI token), and the liquidity suppliers. According to Helseth, the interaction between these actors is detrimental to the UNI token’s potential for income era. Helseth explains:
The total protocol may be precisely copied inside minutes at nearly no price. This argument implies that every one the ability lies with the liquidity suppliers within the battle for buying and selling charges.
The major concern for customers is liquidity and cost-effectiveness. If the identical protocol may be replicated at a whim, customers would inevitably gravitate in the direction of the model with probably the most liquidity – to attenuate slippage when executing trades. This dynamic considerably empowers liquidity suppliers who, not like UNI holders, maintain actual, invaluable tokens.
In addition, although switching to a different sensible contract could entail some prices, these are comparatively low, reinforcing the bargaining energy of liquidity suppliers.
Concluding, Helseth states: “Given this relatively low cost of switching from the users’ perspective, we cannot conclude with anything else than that the power lies with the liquidity providers. Hence, even though the Uniswap protocol generates significant trading fees, we believe the potential for the UNI token to capture any of this revenue to be almost non-existent.”
At press time, the UNI worth stood at $6.19 after being rejected on the 200-day EMA yesterday.
Featured picture from Guarda Wallet, chart from TradingView.com
