Introduction

Uniswap is a DEX based on the AMM mechanism. It will launch V3 in May 2021 and is expected to launch the V4 version after the Dencun upgrade in 2024. As Uniswap’s position on the DEX track continues to expand and is not easily shaken, with the Dencun upgrade and the launch of the V4 version, it is expected to have better price performance. However, the number of Holders and Balances of Smart money, as well as the on-chain behavior of market makers, indicate that Uni is less likely to rise significantly in the short term, and it may be necessary to observe the specific on-chain situation after Dencun.

1. Project Overview

Uniswap is a DEX based on the AMM mechanism. It launched V3 in May 2021, which has brought great success. It has improved capital utilization, reduced handling fees, and increased LP income by introducing market mechanisms. The V4 Hooks under development bring programmability to Uni. This property will enhance the composability of the pool and provide more refined capital efficiency control, leaving a lot of room for imagination.

1.1 Basic information

Source: https://www.coingecko.com/en/coins/Uniswap (As of November 30, 2023)

1.2 Founding Team

Hayden Adams: Graduated from Stony Brook University in New York. He worked as a researcher at Columbia University Medical Center in June 2012. He joined Siemens in 2016 and conducts engineering simulation and design exploration for many customers in the automotive and aerospace industries. Uniswap Lab was established in October 2017. He was also one of the developers of Ethereum. I personally invested in Lens protocol and Wallet connect.

Marvin Ammori: Chief Compliance Officer CLO, graduated from the University of Michigan with a major in business analysis, and received a JD master’s degree from Harvard Law School. With 16 years of work experience, he has served as a legal consultant at Free Press, New Aemrican Foundation, Virgin Hyperloop Project, Protocol Lab, and as a law professor at the University of Nebraska-Lincoln. He possesses a relatively profound legal foundation and joined Uniswap Lab in November 2020.

Mary-Catherine Lader: Chief Operating Officer COO. She graduated with a BA in history from Brown University, an MBA from Harvard Business School, and a JD from Harvard University. She joined Goldman Sachs as an investment analyst in 2018 and Blackstone as global chief operating officer in 2015. In June 2021, she joined Uniswap to lead the growth, strategy and operations of Uniswap Labs.

Justin Wong: Chief Financial Officer HOF, graduated from Cornell University with a bachelor’s degree and an MBA from McCombs School of Business in Texas. He joined the Peace Corps in 2004 and then worked for Deutsche Bank, Siemens, Virgin Hyperloop and other companies. He once founded The F Suite, a private community dedicated to bringing CFOs together to solve insurmountable problems, but it was only open for 9 years. He joined in March 2021.

Raphaela S.: COO of Uniswap Foundation. She has a bachelor’s degree in economics, used to work as an analyst at Bank of America, FF Venture Capital, Blue {Seed} Collective investment assistant, started to enter the blockchain industry in 2018, and once served as vice president of Livepeer. In October 2022, she joined Uniswap as chief growth officer to promote the growth and use of the Uniswap protocol.

1.3 Investment and Financing Background

Paradigm has been accompanying Uniswap from 0 to 1, helping Uniswap in terms of resources, ecological construction, funding, and development. Uniswap’s success today is inseparable from Paradigm’s support and help.

2. About Product

2.1 Code and developers

Code submission status

Number of developers

Combined with changes in code submissions and the number of developers, Uniswap’s overall progress is currently stable, and the number of developers is also maintained within a reasonable range. It can be determined that Uniswap’s Roadmap implementation and technical operations are very stable.

2.2 Product evolution

As a popular decentralized exchange platform (DEX), Uniswap has experienced several major upgrades from V1 to V3. Each version has brought new features and improvements. In addition, Uniswap has released a V4 draft, which introduces Hooks and Singleton functions that can greatly improve the composability of Uniswap, release more underlying value, increase more revenue opportunities, and optimize capital utilization.

Evolution from V1 to V3

Uniswap V1: released in November 2018

• Simple model: Adopt an automated market maker (AMM) model that allows users to trade directly with smart contracts instead of the traditional buyer and seller market;
• Decentralization: Completely decentralized, no centralized control entity;
• Support is limited to ERC-20 tokens: V1 only supports exchange between ERC-20 tokens;

Uniswap V2: released in May 2020

• ERC-20 trading: Introducing the direct exchange of ERC-20 token pairs but not just the exchange of ERC-20 with ETH;
• Price oracle: Built-in price oracle, which can help other applications obtain cumulative price information of token pairs and prevent price manipulation;
• Lightning Transactions: This feature allows users to lend any amount of ERC-20 tokens for a short period of time from the start to the end of the transaction;

Uniswap V3: released in May 2021

• Centralized liquidity: allows liquidity providers to specify a custom price range, increasing capital efficiency while reducing the risk of impermanent losses;
• Multi-tier rates: Provide different rate levels (such as 0.05%, 0.30%, 1.00%), and allow liquidity providers to choose different rates;
• Liquidity Position NFT: Each liquidity position is represented as an NFT, making the management and transfer of liquidity more flexible;

Users flow to V3

We can see from the graph above that currently Uni V1 is no longer used, and a large number of LPs prefer V3. Uniswap V3 is essentially an improvement of the V2 version, providing LP with more flexible liquidity ranges and rate options, but this improvement has not changed from the lowest level mechanism. V3 is fully compatible with V2, so there is a high probability that the subsequent LP will give priority to V3.

Significant advantages of V3

Extracting trading data from V2 and V3 for the same time period: in November 2023, the trading volume using V2 amounted to $3.637 billion, with a fee of 0.3%, as indicated on Defillama, equivalent to $10.91 million. Therefore, users do not incur slippage, and the fee per transaction is 0.3%. The trading volume for V3 was $36.041 billion, nearly ten times that of V2, while the fee income was $44.12 million, equivalent to 0.12%, representing a 60% decrease in average transaction costs.

V3 improves capital utilization, reduces fees, and increases LP income by introducing market mechanisms. The Hooks for V4 bring programmability to Uni, enhancing the composability of pools and providing great room for imagination. This aligns with the increasingly apparent trend of separating the front and back ends, making the programmability of LP pools particularly important, as each transaction bypasses the front end but cannot bypass the LP pool settings.

In other words, future competition on the front end will intensify. Various front ends for LP pools with different programming functionalities will compete, further breaking away from the limitations of Uniswap’s official front end and truly promoting the most primitive characteristic of blockchain—composability. Singleton is designed to reduce gas consumption from searching multiple paths.

What are Hooks?

Originally, we executed a transaction, directly called the transaction function, and then found the optimal path to trade. Now when we make a transaction, we need to first call the Hook before the transaction. This Hook is a smart contract that can perform a given operation within a block, then execute the transaction, and finally execute the Hook again. In other words, to execute a transaction, we need to perform the corresponding function of the LP pool front end along the path. Developers can innovate on top of the liquidity and security of the Uniswap protocol, creating custom AMM pools through hooks integrated with v4 smart contracts.

What is a Singleton?

In V3, we need to search different pools (that is, different contracts) for multi-link (ETH→USDC→USDT, involving two contracts) token swaps. If all tokens are stored in one contract, then multi-link swaps of tokens only need to be performed within one contract, which will greatly reduce the gas consumption of creating LP. This is called Singleton by Uni.

2.3 Market development

Development journey

Historical Timeline:

June 2017: Vitalik publishes the article “On Path Independence,” introducing the concept of AMM.

November 2018: Uniswap V1 is released, supporting only conversions between ETH and ERC20 tokens.

March 2020: Uniswap V2 is released, allowing for the exchange of any ERC20 tokens.

September 2020: Tokens are issued to resist the vampire attack by Pancakeswap.

May 2021: Uniswap V3 is released, increasing LP capital efficiency and introducing the concept of concentrated liquidity.

June 2023: Uniswap V4 is proposed, introducing Hooks and Singleton concepts, still under development, expected earliest in Q1 2024, following the Dencun upgrade.

July 2023: Uniswap X is released, aggregating on-chain and off-chain liquidity, with MEV protection.

Social Media:

Twitter: 1,180,130 followers. Average tweet receives around 16k views, 100 likes, and approximately 50 retweets.

Discord: 6,174 online, and 43,859 members are discussing frequently in the group.

Reddit: 72K members, Top 2% Rank by size. Average daily posts are in single digits, less active.

Operational Data:

Uniswap currently occupies about 65% of the spot DEX market share (using Dune as a statistical basis, there may be deviations due to inconsistent coverage of contracts on different websites). We believe that Uni’s unremitting innovation and V4’s programmability and composability, with the further improvement of capital efficiency, Uniswap will still occupy a favorable position in the next round of Dex competition. The specific situation of the same track will be listed in the Market and Competition Department.

TVL data

In terms of TVL, a large amount of TVL on V3 is still concentrated on Ethereum, but its share is currently gradually declining, and on-chain activities are gradually migrating to Layer 2. The share of the main network will further decline with the arrival of the Dencun upgrade, and the activity of Layer 2 will also further increase.

3. Economic model

3.1 Token distribution

At the end of August 2024, 1 billion Uni will be completely released and fully circulated at this time. The subsequent selling pressure will mainly come from the community part.

Uni tokens are mainly allocated to Community, which is mainly used for ecological development, community developer contributions, Grants, etc.

3.2 Holder Address Analysis

Nansen statistics: The VC with the largest number of currency holding addresses currently is a16z, accounting for approximately 5.35% and approximately 53.5 million tokens. Far more than the 2.5 million tokens of the second VC Blockchain Capital.

a16z has always maintained a supportive attitude towards Uniswap and has not sold a single token in the past month, which represents its optimism about Uni’s market outlook and its recognition of Uni’s influence. The exchange currently holding the most Uni tokens is Uniswap, and the centralized exchange is Binance.

3.3 Token Utility

The token of Uniswap, commonly referred to as Uni, serves several primary purposes:

Governance: Uni token holders can participate in governing the Uniswap platform. This includes voting on protocol improvements, fee structures adjustments, and other critical decisions. This decentralized governance structure enables Uni token holders to directly influence the future direction of Uniswap.

Liquidity Incentives: Uniswap sometimes incentivizes users to provide liquidity by rewarding them with Uni tokens. Users contribute liquidity by depositing tokens into Uniswap’s liquidity pools to support the platform’s token swapping functionality. In return, they may receive Uni tokens as rewards.

Voting Rights and Representation: Uni token holders not only have voting rights in governance decisions but also represent the interests of small token holders. This enhances the voice of users of all sizes within the Uniswap community.

Protocol Fees: Although Uniswap currently does not charge fees for transactions, Uni tokens may be used in the future to incentivize users participating in governance, such as by allocating a portion of transaction fees to these users.

Community Fund: Uni tokens can also be used to support community projects and proposals aimed at improving the protocol and expanding its utility.

4. Market and Competition

4.1 Market Overview

Uniswap is facing fierce competition, not only facing competition among DEXs, but also among CEXs. Because the largest basic market is CEX, it is very difficult for Uniswap to cannibalize CEX. The main difficulty is that DEX cannot provide the same performance, liquidity, UI/UX and product depth as CEX.

In the DEX track alone, Uniswap has gone from a 37% market share during the bull market last year to nearly 65% ​​today. This is mainly due to the upgrade of V3 and its value and market recognition.

In terms of (weekly) trading volume ratio, Uniswap is also in a well-deserved leading position, and once liquidity accumulates and user habits are formed in the DEX track, a more obvious Matthew effect will appear.

4.2 Track events

Currently, competitors comparable to Uniswap include PancakeSwap with a market share of 15.4% and Curve with a market share of 5.1%. Since PancakeSwap is a fork of Uniswap’s code, its original competitive advantage is relatively weak. In fact, PancakeSwap has even ventured into the gaming realm, establishing a gaming market.

Currently, Pancakeswa’s TVL is US$1.43 billion and supports 9 chains. Its basic base mainly comes from BSC, and it has almost no dominance in other chains.

Although Uniswap has also deployed the protocol on BSC, the use of PancakeSwap on BSC may be rooted in the consensus of BSC users. It is also difficult for Uni to challenge Pancake, but the turning point may appear when the v4 version is online. It still needs to be observed.

4.3 Advantages and risks

Uniswap’s competitive advantages

• Capital Advantage: Uniswap benefits from comprehensive support from Paradigm, with a highly capable team, steady development progress, and a good pace of version launches.
• Technical Advantage: The release of V4 will further enhance capital efficiency, composability, and programmability, turning LP into the infrastructure of the DeFi world.
• First-mover Advantage: Uniswap’s early entry into the market has secured a high market share, especially after the launch of V3, which saw its market share increase from 37% to 65%. This has resulted in lesser threats and challenges from PancakeSwap.

Risks Faced by Uniswap

• Legal Risk: Primarily due to the permissionless nature of DEX and the potential issuance of tokens in the future, which may face securities issuance risks.
• Code Risk: Despite code audits, there remains the potential risk of code vulnerabilities leading to total loss of funds.
• Progress Risk: There may be delays in development progress, resulting in token prices not meeting expectations.
• Iterative Risk: The release of V4 may introduce more on-chain vulnerabilities, increasing the frontend’s requirements to screen LP pools for users.

5. Summary

Uniswap has been a leader in the DEX industry since its inception, holding the largest market share. Through iterations involving the AMM mechanism, price oracles, and centralized liquidity, Uniswap has gained acceptance among an increasing number of users. With the upcoming Dencun upgrade and the recent launch of Uniswap V4, Uniswap’s market position in the DEX field is expected to further improve.

Although the UNI token has not shown significant performance for some time, its potential has not diminished. Instead, it has been increasing along with Uniswap’s development, especially in the absence of competing products. UNI has significant upside potential, especially in a bullish market scenario.

Note: All opinions above are for reference only and not intended as investment advice. If there are objections, feel free to reach out for corrections.

Disclaimer：

1. This article is reprinted from [Miixcapital], All copyrights belong to the original author [Miixcapital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.