According to token terminal statistics, UNI, the native token of Uniswap, was trading at a 16.20x multiple to the yearly fees it produced.
Uniswap users paid around $420 million in trading fees every year, however, the disparity between the fees produced and the entire market cap of UNI might indicate that the token is overpriced.
Uniswap’s low fees might have a big influence on the platform’s growth. The fees are designed to reward liquidity providers for taking on the risk of supplying liquidity to the exchange while also ensuring market stability.
With minimal costs, however, liquidity providers may be disinclined to continue supplying liquidity to the platform, resulting in a decrease in the overall liquidity available on Uniswap.
Another indicator that UNI was overvalued was the rising MVRV (market value to realized value) ratio. The increasing MVRV ratio implied that the majority of UNI holders would profit if they sold.
This might encourage investors to sell their UNI holdings in the near future, potentially causing the token’s value to fall.
Furthermore, the velocity of the UNI token has decreased in recent weeks, indicating that the frequency with which UNI was exchanged has decreased.
To close the gap between UNI’s market cap and the fees it generates, Uniswap’s protocol would need to be improved.
Uniswap might improve by limiting the increasing number of bot transactions on the Uniswap DEX. At the time of publication, bot transactions on the Uniswap network accounted for 48.2% of the total transaction volume. These bots accounted for just 5.2% of the whole network.
This development may have an effect on dependability since bot transactions may alter the accuracy of asset values on the platform.
Another source of worry for Uniswap was its Order Flow Toxicity, which is the technique of manipulating prices by utilizing the platform’s order book.
This might give certain traders an unfair edge and harm the general user experience on the DEX. To solve this issue, Uniswap might install safeguards on its platform to monitor and avoid order flow toxicity.
The implementation of Uniswap on Osmosis, a blockchain platform that offers DeFi solutions, might result in constructive collaboration and improve the protocol’s status.
Having said that, Uniswap still has the capacity to improve and drive expansion through partnerships and protocol changes, despite the indicators of overvaluation.