Uniswap is no longer limited to the trading of long-tail assets.
Original title: “Uniswap: 5 billion market value, 11 employees”
Written by: Wang Arthur Source: Arthur Investment Notes
Last week, Coinbase announced that it will become a listed company through a direct listing (DPO). At almost the same time, Grayscale announced the new registration of UNI trust fund products.
We don’t know if this is a coincidence, but what is certain is that Coinbase is actively embracing the mainstream market, and Uniswap is being sought after by the mainstream market.
One is the world’s largest centralized exchange, and the other is the world’s largest decentralized exchange. Compared to Coinbase, I would like to talk more about Uniswap.
Excluding the fomo sentiment caused by the recent UNI currency price increase, I believe that most people may not have time to study it except for the Uniswap AMM mechanism and the $600 million airdrop last September.
But even in an impetuous circle like the currency circle, we still need to clarify its investment logic if we want to obtain stable investment income in the long term. A deep understanding of a “company” is the right start, and only then can we hold it.
Then why is Uniswap worthy of attention and investment? I have at least 4 reasons. Please look down.
Uniswap represents the direction of advanced productivity
User experience: User registration does not require KYC or AML, which saves users a lot of time and cost. It is ready to use, simple user interface and easy to operate;
In terms of liquidity: The innovation of the AMM mechanism has changed the operating mode of the traditional order book mode. There is no need to spend huge amounts of funds for liquidity hedging, and there is no need to spend a lot of money to ask a market maker to strengthen liquidity. Any ordinary user can become its market maker through pledge. At present, Uniswap’s total value locked amount (TVL) has reached 3 billion U.S. dollars, with an average daily transaction fee of 3 million U.S. dollars;
Token launch efficiency: Any project party or individual can take a few minutes to open the token liquidity pool on their own, saving a lot of docking time and communication costs. At present, the exchange has launched nearly 30,000 trading pairs. More than 100 are added every day, and the efficiency is hundreds of times that of centralized exchanges.
Some people may say that this unlimited currency listing method may result in a large number of counterfeit currencies, attracting fraudulent project parties.
What I want to say is that it is like giving up the use of cars in order to reduce car accidents and giving up the use of the Internet in order to reduce online fraud. Let us try our best to look at the problem with a developmental perspective. What is the direction that represents advanced productivity? Users will vote with actions.
Uniswap greatly reduces production costs
Coinbase has 1,100 employees in 2019, and there are 100 compliance personnel alone. How many employees does Uniswap have? Only 11 people!
This is not a difference of 10 times, but a difference of 100 times. Why can Uniswap do it? Let’s look at the comparison:
The operation of Coinbase relies on the technical system of the traditional Internet, which requires high server costs. Uniswap, which uses blockchain technology, has 0 servers and decentralized hosting, which greatly reduces server costs. Secondly, the operation of centralized platforms requires employment. A large number of operation and maintenance personnel, risk control personnel, security personnel, customer service personnel, marketing personnel, etc., these Uniswap hardly need.
Here is a particularly specific example. Centralized exchanges need to do special wallet development support for different main chain projects. After the development, server resources are needed to run the nodes. The entire process is as simple as one or two weeks. The complicated length is several months, which is an extremely consuming manpower, material resources, financial resources and time.
As a decentralized protocol, Uniswap can graft various wallet tools and various cross-chain protocols like building blocks, greatly reducing development time and cost.
Data on the chain is transparent, and user assets are controlled by themselves
Data transparency on the chain: With the progress of the financial industry and the improvement of informatization, users’ demands for information transparency will become more and more obvious. All of Uniswap’s business data is on the Ethereum network, open and transparent, and cannot be tampered with. Even if Coinbase is successfully listed, its operating data and financial data will be closed and lagging. What’s more, there are some unreliable listed companies. Will use “accounting magic” and even data fraud to deceive investors;
User assets are in their own hands: The wallets of centralized exchanges are stolen year after year, and there are also force majeure factors from supervision, which may stop withdrawing coins at any time, making people panic. Uniswap is stored in a decentralized manner, all of which are kept by users themselves. Based on this, in terms of security, there is no single point of entry or single point of failure, and it also avoids asset freezing caused by force majeure factors such as supervision. Decentralization gives users a double guarantee, and the safety factor increases exponentially.
Uniswap can give back the growth bonus of the platform to users
Uniswap’s AMM mechanism allows each participating user to obtain platform revenue through mining. UNI itself, in addition to applying liquidity incentives and transaction scenarios, is also an important community governance token.
Just 10 days ago, founder Hayden Adams tweeted that the current value of Uniswap’s community governance fund pool has exceeded 500 million U.S. dollars (currently worth 700 million U.S. dollars) and seeks advice from the community on how to use this money.
The token holders in the community are both “shareholders” and operators, and they have the right to manage the platform. They can also take on roles such as marketing personnel and service personnel. “Tap water” from all over the world is the driving force of Uniswap, the unicorn. Uniswap not only realizes the innovation of technological paradigm, but also realizes the innovation of organizational paradigm.
Opposing views in the market
Although Uniswap has achieved tremendous progress, there are still two opposing views in the market:
1. Uniswap’s trading experience is poor and imperfect. It can only trade long tail currencies. If the centralized exchange is a large supermarket, then Uniswap is like a crowdfunding vending machine
2. The AMM mechanism determines that Uniswap does not have the pricing power of the currency price. Its price essentially comes from the mirror image of the centralized exchange, which is easy to manipulate the currency price, so it can only be used as a vassal of the centralized exchange.
I try to refute the above two points.
Counterpoint 1: Uniswap has already passed the so-called vending machine stage. From the current development perspective, Uniswap or the entire DEX ecosystem is no longer limited to the trading of long-tail assets.
According to data on the chain, Uniswap’s top 5 token liquidity funds totaled more than 1 billion U.S. dollars, and the total 24-hour transaction volume exceeded 270 million U.S. dollars. The average daily transaction volume of its entire platform in January was close to 1 billion U.S. dollars, accounting for approximately 1/3 of Coinbase, the world’s largest centralized exchange. In September last year, Uniswap’s weekly trading volume even surpassed Coinbase briefly.
Since Uniswap was released in 2018, the technology has been iteratively improved. In the official V3 version plan, Uniswap will have the following updates:
- Limit order model;
- Optimistic Rollup expansion plan;
- Integrate ZK-SNARk and prevent early exchange;
- Distribution of fees for UNI holders
To sum up in one sentence is, a more perfect user experience, more powerful technical capabilities, and a more complete dividend mechanism. If the Uniswap V3 version is successfully implemented, the centralized exchange really has no advantages.
Rebuttal point 2: The lack of pricing power in the AMM mechanism is purely a misunderstanding. Anyone who has a certain knowledge of transactions knows that the price of currency pricing power has always followed liquidity. Whoever has greater liquidity will follow whoever has the most liquidity. In centralized exchanges, the top 3-5 exchanges in trading volume will be included in the index price by other exchanges as a weight reference. One is to stabilize the currency price, and the other is to prevent a single weight under extreme market conditions. Investment losses caused by currency price fluctuations.
It can be seen that even in centralized exchanges, it doesn’t matter who is whose vassal, liquidity is the most powerful factor.
So, under this premise, we assume that 95% of the transaction volume of a certain token comes from Uniswap. Does the price of a centralized exchange still matter at this time?
The problem of price manipulation at this stage is because the current AMM is still very early, so it may be easier to change the price on the AMM than on the order book. This is due to the low capital efficiency, but it will not exist for a long time. In the future, AMM The cost of manipulation is much higher than that of a centralized exchange.
