Preface

Uniswap is a DEX based on the AMM mechanism, which launched V3 in May 2021 and is expected to launch V4 after the Dencun upgrade in 2024. Uniswap's position in the DEX space is continuously expanding and remains resilient. With the Dencun upgrade and the launch of V4, it is expected to perform well in terms of price. However, the number of holders and balances of smart money, as well as the on-chain behavior of market makers, indicate that the possibility of a significant short-term increase in Uni is low, 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, which launched V3 in May 2021, achieving great success by introducing market mechanisms to enhance capital utilization, reduce fees, and increase LP income. The hooks being developed for V4 will bring programmability to Uni, which will enhance the composability of pools and allow for more refined capital efficiency control, offering significant imaginative potential.

1.1 Basic Information

Data cut-off date: November 30, 2023, https://www.coingecko.com/en/coins/Uniswap

1.2 Founding Team

Hayden Adams: Graduated from Stony Brook University, served as a researcher at Columbia University Medical Center in June 2012, joined Siemens in 2016 to conduct engineering simulations and design explorations for numerous clients in the automotive and aerospace industries. Founded Uniswap Lab in October 2017. He was also one of the developers of Ethereum. Personally invested in Lens protocol and Wallet connect.

Marvin Ammori: Chief Compliance Officer (CLO), graduated with a degree in business analytics from the University of Michigan and holds a JD from Harvard Law School. With 16 years of work experience, he has served as legal counsel for Free Press, New American Foundation, Virgin Hyperloop project, and Protocol Lab, and has also been a law professor at the University of Nebraska-Lincoln. He has a solid legal foundation. Joined Uniswap Lab in November 2020.

Mary-Catherine Lader: Chief Operating Officer (COO), graduated with a Bachelor’s degree in History from Brown University, an MBA from Harvard Business School, and a JD from Harvard University. Joined Goldman Sachs as an investment analyst in 2018, served as Global COO at Blackstone in 2015, and joined Uniswap in June 2021 to lead growth, strategy, and operations at Uniswap Labs.

Justin Wong: Chief Financial Officer (CFO), graduated with a Bachelor’s degree from Cornell University and an MBA from McCombs School of Business, University of Texas. Joined the Peace Corps in 2004, then worked at Deutsche Bank, Siemens, Virgin Hyperloop, and founded The F Suite, a private community aimed at bringing CFOs together to solve difficult problems, which operated for only 9 months before joining Uniswap in March 2021.

Raphaela S.: COO of the Uniswap Foundation, holds a Bachelor’s degree in Economics, previously worked as an analyst at Bank of America, investment associate at FF Venture Capital, and Blue {Seed} Collective, entered the blockchain industry in 2018, served as Vice President at Livepeer, and joined Uniswap in October 2022 as Chief Growth Officer to drive the growth and usage of the Uniswap protocol.

1.3 Investment and Financing Background

Paradigm has been with Uniswap from 0 to 1, helping Uniswap in resources, ecosystem building, funding, and development. Uniswap's current status is inseparable from the support and assistance of Paradigm.

2. Product Situation

2.1 Code and Developers

Code submission status

Number of developers
Considering the changes in code submissions and the number of developers, Uniswap's overall progress is currently stable, and the number of developers remains within a reasonable range, confirming that Uniswap's roadmap implementation and technical operations are very stable.

2.2 Product Evolution

As a popular decentralized trading platform (DEX), Uniswap has undergone several major upgrades from V1 to V3, each bringing new features and improvements. Additionally, Uniswap has released a draft for V4, which introduces Hooks and Singleton functionality, greatly enhancing Uniswap's composability, unlocking more underlying value, and increasing revenue opportunities while optimizing capital utilization.
Evolution from V1 to V3
Uniswap V1, launched in November 2018

• Simple model: Uses an automated market maker (AMM) model, allowing users to trade directly with smart contracts instead of a traditional buyer-seller market;
• Decentralization: Fully decentralized, with no centralized controlling entity;
• Support limited to ERC-20 tokens: V1 only supports swaps between ERC-20 tokens;

Uniswap V2, launched in May 2020

• ERC-20 trading: Introduced direct swaps between ERC-20 token pairs, not just ERC-20 to ETH swaps;
• Price oracle: Built-in price oracle to help other applications obtain cumulative price information for token pairs, preventing price manipulation;
• Flash swaps: This feature allows users to borrow any amount of ERC-20 tokens for a short period from the start to the end of a trade;

Uniswap V3, launched in May 2021

• Concentrated liquidity: Allows liquidity providers to specify a custom price range, increasing capital efficiency while reducing impermanent loss risk;
• Multiple fee tiers: Offers different fee tiers (e.g., 0.05%, 0.30%, 1.00%), allowing liquidity providers to choose different fee structures;
• Liquidity position NFTs: Each liquidity position is represented as an NFT, making liquidity management and transfer more flexible;

User Flow to V3

From the above images, we can see that Uni V1 is no longer in use, and a large number of LPs prefer V3. Uniswap V3 is essentially an improvement over V2, providing LPs with more flexible liquidity ranges and fee choices, but this improvement does not fundamentally change the underlying mechanism; V3 is fully compatible with V2, so subsequent LPs are likely to prefer V3.
Significant Advantages of V3

By comparing transaction data from V2 and V3 during the same period, in November 2023, the transaction volume using V2 was $3.637 billion, with a fee of 0.3%, resulting in $10.91 million as shown on Defillama. Therefore, excluding slippage, each transaction incurs a fee of 0.3%; V3's transaction volume was $36.041 billion, nearly ten times that of V2, with fee income of $44.12 million, which translates to 0.12%, meaning the average transaction cost has decreased by 60%.
V3 enhances capital utilization, reduces fees, and increases LP income by introducing market mechanisms. The Hooks in V4 will bring programmability to Uni, enhancing the composability of pools and offering significant imaginative potential. As the trend of front-end and back-end separation becomes increasingly evident, the programmability of LP pools becomes particularly important, allowing each transaction to bypass the front end but not the settings of the LP pools.
In other words, future competition at the front end will intensify, with various front ends adapting to different programming functionalities for LP pools, further breaking free from the constraints of Uniswap's official front end, truly promoting the most original characteristic of blockchain—composability. Singleton is designed to reduce gas consumption caused by searching for multiple paths.

What are Hooks?
Originally, when executing a trade, we directly call the trading function and then search for the optimal path to trade. Now, when we want to execute a trade, we first call a pre-trade Hook, which is a smart contract that can execute specified operations within a block before executing the trade, and then execute the Hook again afterward. This means that to execute a trade, we need to execute the corresponding functions of the LP pools along the specified path. Developers can innovate on top of the liquidity and security of the Uniswap protocol by creating customized AMM pools integrated with v4 smart contracts.
What is Singleton?
In V3, we need to search for different pools (i.e., different contracts) to perform multi-link (ETH→USDC→USDT, involving two contracts) token swaps. If all tokens are stored in one contract, then multi-link token swaps can be performed within a single contract, which will greatly reduce the gas consumption of creating LPs. This is referred to as Singleton by Uni.

2.3 Market Development

Development History
Social Media

Operational Data
Currently, Uniswap occupies about 65% of the spot DEX market share (according to Dune, there may be discrepancies due to different coverage of contracts by various websites). We believe that Uni's relentless innovation, along with the programmability, composability, and further enhancement of capital efficiency in V4, will allow Uniswap to maintain a favorable position in the next round of DEX competition. Specific competitive situations will be listed in the market and competition section.

TVL Data

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

3. Economic Model

3.1 Token Distribution

By the end of August 2024, 1 billion Uni tokens will be fully released, at which point they will be fully circulating, with subsequent selling pressure mainly coming from the community portion.

The Uni tokens are primarily allocated to the community, mainly for ecosystem development, contributions from community developers, grants, etc.

3.2 Holder Address Analysis

According to Nansen statistics: The VC with the most token holdings is a16z, holding about 5.35%, or approximately 53.5 million tokens, far exceeding the second-place VC Blockchain Capital's 2.5 million tokens.

a16z has consistently supported Uniswap, having not sold a single token in the past month, indicating its optimism about Uni's future and recognition of Uni's influence. Currently, the exchange with the most Uni tokens is Uniswap, while the centralized exchange is Binance.

3.3 Token Use Cases

Uniswap's token, commonly referred to as Uni, has several main uses:
Governance
Uni token holders can participate in the governance of the Uniswap platform. This includes voting on protocol improvements, fee structure adjustments, and other key decisions. This decentralized governance structure allows 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 provide liquidity by depositing tokens into Uniswap's liquidity pools to support the platform's token exchange functionality. In return, they may receive Uni tokens as rewards.
Voting Rights and Representation
Uni token holders not only can vote on governance decisions but also represent the interests of smaller token holders. This enhances the voice of users of various sizes within the Uniswap community.
Protocol Fees
Although Uniswap currently does not charge fees on trades, in the future, Uni tokens may be used to incentivize users participating in governance, such as by distributing a portion of trading 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 usage.

4. Market and Competition

4.1 Market Overview

Uniswap faces intense competition, not only from other DEXs but also from CEXs. Since the largest user base is in CEXs, it is very challenging for Uniswap to eat into CEXs, primarily due to the inability of DEXs to provide the same performance, liquidity, UI/UX, and product depth as CEXs.

In the DEX space alone, Uniswap has increased its market share from 37% during last year's bull market to nearly 65% today, mainly due to the upgrade to V3 and its recognized value in the market.

In terms of weekly trading volume ratios, Uniswap is undoubtedly the leader, and due to the accumulation of liquidity and the formation of user habits in the DEX space, a significant Matthew effect is likely to occur.

4.2 Competing Projects

Currently, PancakeSwap is the only competitor comparable to Uniswap, with a market share of 15.4%, and Curve with a market share of 5.1%. Since Pancake is a fork of Uniswap's code, it has relatively weak originality in competition, and Pancake is currently moving towards a gaming model, having built a gaming marketplace.

Currently, PancakeSwap has a TVL of $1.43 billion and supports 9 chains. Its user base mainly comes from BSC, with almost no dominance on other chains.

Although Uniswap has also deployed its protocol on BSC, using PancakeSwap on BSC may be rooted in the consensus of BSC users, making it difficult for Uni to challenge Pancake. However, a turning point may occur with the launch of V4, which still requires further observation.

4.3 Advantages and Risks

Competitive Advantages of Uniswap

• Capital advantage: Uniswap receives comprehensive support from Paradigm, has a highly effective team, and maintains steady development progress with a good version launch rhythm;
• Technical advantage: The upcoming V4 version will further enhance capital efficiency, composability, and programmability, making LPs the infrastructure of the DeFi world;
• First-mover advantage: Gaining a high market share through first-mover advantage, especially with the market share increasing from 37% to 65% after the launch of V3, poses little threat or challenge from Pancake;

Risks Facing Uniswap

• Legal risks: Primarily related to the permissionless mechanism of DEXs and potential securities issuance risks if tokens increase in distribution;
• Code risks: Even with audits, there are still potential risks that could lead to total loss of funds;
• Progress risks: There may be risks of development progress not meeting expectations, leading to token prices not meeting expectations;
• Iteration risks: The V4 version may bring more on-chain hidden dangers, which will raise requirements for the front end, necessitating the front end to filter LP pools for users;

5. Conclusion

Since its launch, Uniswap has been the leader in the DEX industry, occupying the largest market share. Through iterative upgrades of the AMM mechanism, price oracles, and concentrated liquidity, Uniswap has become increasingly accepted by more people. With the Dencun upgrade and the recent launch of Uniswap V4, Uniswap's market position in the DEX field will be further enhanced.
Although the UNI token has not shown remarkable performance for a long time, its potential has not diminished; rather, it has been increasing alongside Uniswap's development, especially in the absence of competitive products, UNI has significant upside potential. Once the overall market trend rises and enters a bull market, there is a high likelihood of a substantial breakout.
Note: All views above are for reference only and do not constitute investment advice. If there are any disagreements, please feel free to contact us for corrections.

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