It’s been a bloody past few weeks for the DeFi market. Most coins pertaining to this space have dropped over 70 percent from their all-time highs set in August or September. Yearn.finance (YFI), for one, recently dropped back into the four-digit region after peaking at $44,000 two months ago.
Uniswap (UNI) is another DeFi coin that has faced a steep drawdown. From its all-time high of $8.40, the coin has declined by over 72 percent. It now trades for $2.30, which still gives the protocol a fully diluted valuation of just over $2.5 billion.
A prominent crypto asset fund manager, who left Wall Street to pursue Bitcoin, recently explained that UNI remains cheap on a macro basis.
Top Ethereum coin Uniswap remains cheap: Arca CIO
According to the CIO of Arca, Jeff Dorman, Uniswap’s UNI still has a booming bull case despite the strong decline in DeFi, from the space’s offered yields to trading volume.
He first asserted that Uniswap remains the uncontested leader in decentralized exchanges:
“Uniswap is the clear market leader in DEX trading. Like “ETH vs smart contract protocols”, there’s not even a close second to $UNI in DEX Trading.”
This is important as Uniswap will soon integrate a model where UNI holders will obtain a portion of the trading fees generated by the platform:
“Expected annual earnings for Uniswap: $380mm (based on $360mm avg daily trade volume @ 0.30% fee).
-> $66mm distributed to $UNI token holders after the fee switch (1/6th of fees) -> 13% divd yield -> 1.30x Price/Sales -> 7.5x Price to distributed CFs.
That’s really cheap!”
As he explains, relative to other DeFi coins and even traditional financial service providers, the dividends offered for UNI holders make current valuations extremely “cheap.”
For comparison, the S&P 500 has an aggregate dividend yield of 1.7 percent and a 25 times forward price-to-earnings ratio, numbers far more expensive than Uniswap is in its current state.
Explaining the significance of these metrics, Dorman stated:
“As soon as market participants start giving $UNI the same benefit of the doubt that they give $ETH in terms of future value accrual, $UNI will be viewed as the single cheapest asset in all of digital assets and certainly all of #DeFi.”
A thread on Uniswap $UNI
The rationale for owning $ETH as an investment is that Ethereum is a clear market leader, w/ strong growth/usage, & tangible fee generation even though none of this value accrues to ETH token holders yet.
This is actually the same bull case for $UNI 👇
— Jeff Dorman, CFA (@jdorman81) October 30, 2020
John Todaro, an investor and data analyst in the space, shared the optimism. He recently stated that the transaction fees that Uniswap consumes make its UNI token an attractive investment compared to investments in centralized exchange coins:
“Uniswap network fees are still pretty attractive and volumes are still comparable to large centralized exchanges, yet UNI price continues to grind lower. There will be some good value hunting opps in DeFi tokens over the next few months as all eyes turn back to bitcoin.”
Uniswap v3 to drive further growth
One reason why Uniswap hasn’t absorbed more volume from centralized exchanges is due to certain user experience setbacks, such as the fifteen-second trading time and some concerns about slippage.
This is likely to be solved with the introduction of Uniswap v3, which is expected to be integrated into second-layer scaling solutions such as Optimism’s Optimistic Ethereum.
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