Date

May 15, 2025

Uniswap: A Protocol Embodying the Evolution of Crypto

Uniswap stands out as one of the most successful and widely adopted protocols in crypto. Since its early days in this nascent space, it has consistently evolved, spearheading innovation in decentralized finance (DeFi). A protocol maintaining its leadership position and continuing to scale over such an extended period is truly exceptional.

What is Uniswap? The Linchpin of the DeFi Ecosystem

Uniswap is a decentralized exchange (DEX) operating on the blockchain, and its Automated Market Maker (AMM) mechanism was a game-changer. By enabling token swaps through liquidity pools and algorithms, rather than relying on traditional order books, it democratized trading, allowing anyone to transact without intermediaries.

Before Uniswap, crypto trading primarily occurred on centralized exchanges (CEXs). However, CEXs were plagued by issues like custodial risk, security vulnerabilities, censorship by operators, a lack of transparency, and hefty intermediary fees. Uniswap emerged to address these pain points, offering a trustless and permissionless trading infrastructure.

Its evolutionary journey has been remarkable, from its initial version (V1) to V2, which enhanced liquidity provision efficiency, then V3, introducing concentrated liquidity by allowing liquidity providers to specify price ranges, and now V4, which significantly improves modularity with "Hooks," enabling developers to build diverse financial applications on top of Uniswap. Uniswap consistently remains at the forefront of DeFi innovation.

Uniswap is no longer just a DEX; it has evolved into a foundational infrastructure within the DeFi ecosystem, enabling composable financial innovation.

Why Tané Invested in Uniswap

Our investment in Uniswap is rooted in a fundamental question: "Where will value accrue as crypto grows?" We have deep conviction based on the following key reasons and a long-term perspective:

1. Uniswap as a Core Primitive Underpinning the DeFi Ecosystem

We believe Uniswap is an indispensable "core primitive" for the DeFi ecosystem.

Think of it like the servers, domain names, or security protocols like SSL during the internet's rise. Today's internet boom wouldn't have been possible without these foundational technologies.

Similarly, the swap and liquidity provision functionalities offered by Uniswap are essential building blocks for developing and operating DeFi applications.

As crypto adoption continues its upward trajectory, we anticipate sustained and exponential growth in the demand for these fundamental financial services. We see Uniswap as strategically positioned to capture this growth.

In the venture capital and startup world, the "power law" strongly applies, where market winners capture the majority of the overall market value. This is particularly evident in platform-based businesses and areas with strong network effects.

Uniswap is establishing itself as the central hub for trading and liquidity in DeFi, and we believe it has the potential to be a prime beneficiary of this power law.

2. Undervaluation of the UNI Token and Potential for Future Value Appreciation

Source: CoinMarketCap

The UNI token is undervalued for several reasons. We believe we are now at a point where these factors contributing to its undervaluation are poised to dissipate.

Easing Regulatory Pressure

Under the Biden administration, Uniswap faced a lawsuit from the SEC. Regulatory headwinds and caution from US financial institutions towards DeFi weighed heavily on the UNI token.

However, with the potential for regulatory clarity under a Trump administration, we anticipate a reduction in this uncertainty, which could trigger increased investor interest and buying pressure.

Reflecting Revenue Generation

Uniswap Cumulative Trading Volume

Currently, the primary utility of the UNI token is governance participation within the Uniswap protocol. However, the significant economic value Uniswap has generated – over $2.7 trillion in cumulative trading volume and over $4.5 billion in cumulative protocol fees – is not adequately reflected in the UNI token price.

Uniswap Cumulative Fees

Source: DefiLama

We believe there's a strong possibility of regulatory clarity regarding crypto under a potential Trump administration – particularly around the definition of securities. This could pave the way for the implementation of the "fee switch," which would distribute a portion of the protocol fees to UNI token holders.

If realized, the UNI token would directly benefit from the protocol's growth, significantly enhancing its intrinsic value.

The Potential of Unichain

The launch of Unichain as an Ethereum L2 is a logical strategic move for a DeFi leader handling massive transaction flow to onboard that order flow into its own ecosystem.

We believe Unichain will contribute to the appreciation of the UNI token's value in two key ways:

UNI Token Yield: The upcoming Unichain Validator Network (UVN) will enable staking rewards. While distinct from the fee switch that has faced securities classification concerns, this will provide support for the UNI token's value.
Beyond a DeFi Platform: While often viewed as a DeFi-specific L2, Unichain, built in collaboration with Flashbots and Optimism, boasts high speed and interoperability, giving it the potential to become a significant player as a general-purpose L2.

Considering these points, along with Uniswap's inherent value and the future growth of the DeFi market, we assess that the current market price of the UNI token potentially significantly undervalues its long-term potential.

3. Beyond a Mere DEX: Uniswap's Evolution as Essential DeFi Infrastructure

Uniswap's evolution shows no signs of slowing down. The "Hooks" feature, slated for introduction in V4, will dramatically enhance Uniswap's capabilities as a platform. Hooks will allow developers to "hook" custom functionalities into Uniswap's core logic, enabling granular control over liquidity pool behavior and the creation of novel financial instruments, leading to the development of highly flexible and sophisticated applications.

This will transform Uniswap from a simple token exchange into a broader financial infrastructure that accelerates innovation within DeFi. It's not hard to envision a future where various financial services, such as order book DEXs, lending protocols, and derivatives platforms, are built on top of Uniswap.

As the ecosystem expands and more developers and users engage with Uniswap, network effects will kick in, potentially driving exponential growth in Uniswap's value.

Looking Ahead

Through our investment in Uniswap, we aim not only to pursue returns but also to contribute to the long-term development of DeFi, a new financial system.

Tailwinds from Market Maturation and Evolving Regulations

As crypto matures and regulatory frameworks develop globally, the credibility and social acceptance of DeFi protocols will steadily increase. Protocols like Uniswap, with their transparency and autonomous operation via smart contracts, will become increasingly attractive options for a broader range of market participants, including institutional investors. We anticipate an acceleration of capital inflow into established protocols like Uniswap as institutional adoption of DeFi gains momentum.

Further Expansion of Unichain and the Ecosystem

Uniswap recently launched the Mainnet for "Unichain," its own blockchain as an Ethereum Layer 2 scaling solution.

If the Unichain concept is fully realized, transactions on Uniswap will become faster and cheaper, significantly improving the user experience. Resolving scalability issues will unlock new use cases on Uniswap, such as micropayments and high-frequency trading, further expanding the ecosystem.

The successful implementation of Unichain has the potential to enhance the utility of the UNI token and drive its value.

Unwavering Conviction Gained Through Governance Participation

Our involvement extends beyond simply holding UNI tokens; we actively participate in Uniswap's governance. For instance, we closely monitor and contribute as community members to critical decision-making processes that shape the protocol's future, such as discussions around the protocol fee distribution mechanism (fee switch), the Uniswap V4 development roadmap, and the operational policies of grant programs.

Through these governance activities, we've experienced firsthand Uniswap's mature governance and the community's passion. The open and transparent discussions, constructive feedback, and the genuine commitment of participants to improve the protocol have reinforced our conviction that Uniswap will continue to grow sustainably and overcome challenges.

Uniswap stands out as a remarkable example of effective decentralized governance.

Long-Term Perspective: The Power Law and the Promise of Non-Linear Growth

The DeFi market is still in its early innings, and its growth potential is immense. The vision of DeFi – to overcome the inefficiencies and opacity of centralized financial systems and provide more open and equitable financial services to people worldwide – is incredibly powerful.

Uniswap is a central protocol in realizing this vision and will generate significant value in the process. We are committed to looking beyond short-term market noise and betting on the disruptive innovation and long-term growth potential of Uniswap.

Building the Future of Decentralized Finance, Together

For Tané, our investment in Uniswap is a commitment rooted in our belief in building a more open, transparent, and accessible financial system – decentralized finance.

We are confident that Uniswap, with its exceptional technology and vibrant community, is one of the most critical protocols in shaping the future of DeFi. As UNI token holders and active governance participants, we are excited to actively support Uniswap's continued growth and development and build the foundation of the future financial system together.

We hope this piece provides insight into our conviction in Uniswap and the potential of DeFi.

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Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment. It should not be used to evaluate the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors. It is not made on behalf of Tané or its affiliates and does not necessarily reflect the opinions of Tané, its affiliates or individuals associated with Tané. The opinions reflected herein are subject to change without being updated.

Uniswap - Liquidity layer of Internet