Belgium (CoinChapter.com) — Decentralized exchanges are of vital importance to the cryptocurrency industry. Not only do they compete with traditional trading platforms, but they also empower users directly. Uniswap V3, which is coming soon, will introduce several worthwhile features, yet none will make UNI more valuable by default.
What To Expect From Uniswap V3
Despite numerous decentralized exchanges coming to market lately, Uniswap maintains a dominant industry lead. It has tremendous liquidity in total value locked and generates more trading volume than competing projects. Even so, it is essential to push the envelope even further. The third iteration of the DEX, Uniswap v3, aims to make this project the most flexible and efficient Automated Market Maker (AMM) in the industry.
To achieve that goal, the developers aim to introduce two crucial features. The addition of multiple fee tiers will prove interesting for liquidity providers. Letting LPs acquire the correct compensation depending on their risk preference is a positive change. Not every liquidity provider wants to explore the entire price spectrum, and giving users more options is never a bad idea.
The bigger change is the introduction of concentrated liquidity. Every individual LP will have more precise control over the price ranges they allocate capital to. All unique positions can be combined into a single pool for others to trade against. The Uniswap team is confident this will help achieve up to 4000x capital efficiency compared to the current Uniswap iteration. High expectations to live up to, but more efficiency will always prove beneficial.
The final big change is the improved oracle service Uniswap V3 will provide. The blog post mentions how these oracles will be cheaper to integrate and remove the need for integrators to checkpoint historical values. Combined with a solution to impermanent loss through concentrated liquidity, things can get very interesting for users of this exchange.
Will it Impact The UNI Price?
There are several reasons why UNI, the native Uniswap token, has the value people see today. It is not a “useful” token in the traditional sense, as UNI offers no reduction on trading fees or other benefits. However, it serves as a governance token and a liquidity token on Uniswap for users to earn fees from. As such, the value of $44 per UNI is mainly speculative in nature, rather than driven by value.
The launch of Uniswap V3 will do nothing to make UNI more useful than it is today. Nor will it make the currency less useful for governance or liquidity providing purposes. However, there appears to be a way to attract more attention to the platform. By “gamifying” the concept of providing liquidity, it is plausible to assume Uniswap V3 can receive another liquidity injection after its launch. However, none of that will bring more value to UNI itself, other than perhaps slightly more speculative value.
In terms of price potential, there are some exciting opinions. While everyone agrees UNI will merely remain a governance and liquidity token for the foreseeable future, there isn’t too much competition in this segment either. Uniswap is the largest DEX by a significant margin and no other decentralized exchange will introduce crucial upgrades in the coming months.
Without extra functionality to bring value to UNI; however, there is no reason for its price to go up for the foreseeable future. Other than serving as a liquidity token for the exchange itself and the governance aspect, there isn’t enough “backing” to give it its current value. For a token with a market cap of nearly $23 billion today, it has very few use cases now, and will not gain more functionality in the future either.
Market Cap Vs TVL Is Very High
One way to gauge a DeFi or DEX token value is to compare its market cap with the total value locked. For decentralized exchanges, the TVL represents liquidity across different markets. Uniswap’s market cap is 2.61 times as high as the liquidity on the protocol. That indicates the current UNI price of $44 is already too high and overvalued by a big margin.
However, the option to earn passive trading fees from UNI enhances its appeal. With the expectation of more trading fees going to UNI holders when Uniswap V3 launches, there is an extra incentive to own this token and hold on to it for a more extended period. However, it is too early to say if this fee structure will change drastically, as the upgrade is not live yet.
Closing Thoughts
Based on the information available today, it is impossible to determine whether the UNI price will go up or down once Uniswap V3 launches. The DEX will become more viable, useful, and cheaper to use. At the same time, there is a promise of yielding higher trading fees for liquidity providers, which will prove worthwhile to keep an eye on. Whether that warrants a UNI value of $44 like today, or one that is either much higher or lower, will primarily depend on speculation.
For anyone looking to invest in this asset, careful research is essential. There are many reasons why people favor this token, although none of them grant it any tangible value. While that applies to more currencies and tokens on the market, Uniswap V3 will have to deliver on high expectations to keep its momentum going.
Header image corutesy of Pixabay,
JP Buntinx has been writing about cryptocurrency since 2012. His interest in crypto, blockchain, fintech, and finance allows him to cover a broad range of different topics.
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