This round of currency market conditions is gradually developing towards U.S. stocks and becoming more objective and rational. However, the currency price performance of UNI is not ideal, and there are even voices in the market that "value investing is dead". In fact, from the logic of value investment, regardless of handling fees and dividends, there are inherent reasons for the sluggish price of UNI currency.
From a business logic perspective: DEX cannot compete with CEX, and its tax collection capacity and track ceiling are far lower than CEX
(1) CEX accumulates user assets, has strong tax collection capabilities, and has very high user value. However, DEX does not accumulate user assets, and its moat is far less than that of CEX.
In the last bull market, CEX represented by $BNB demonstrated strong revenue capabilities and coin price performance. Therefore, after the emergence of Uniswap, many people compared UNI with BNB and believed that Uniswap would become a decentralized CEX. However, the business logic of DEX and CEX is completely different.
For example, when we transfer funds to CEX, we will most likely use the CEX for long-term transactions, and CEX can capture the future transaction fees of these funds. In addition, CEX can also expand a variety of businesses, such as lending, financial management, and staking. Since there are costs for withdrawing money, most users will continue to use the CEX to complete these businesses, so the value of a single user of CEX is higher.
On the contrary, the user funds of DEX are deposited on the chain and in the wallet. Users can choose different DEXs when trading on the chain, and the operation costs are the same. As an on-chain player, I will compare the handling fees and slippage of various DEXs every time I trade, and choose the best DEX for trading. Therefore, DEX has no real users, and every transaction faces fierce competition.
(2) Competition in DEX is far more intense than that in CEX. DEX cannot achieve a monopoly advantage like CEX. Each chain needs to compete.
Since CEX does not have the concept of chain, once users are obtained, users can trade all assets. However, the Matthew effect of DEX is weaker, and its competition is much more intense. The future is multi-chain, and ETH also has multiple Layer2s, each chain has its own native DEX. It is almost impossible for Uniswap to occupy the leading position on each chain.
Uniswap is also deployed on chains such as BSC and Base, but its market share is far less than that of native DEX. For example, Solana's Jupiter, Base's Aerodrome, and BSC's Pancake all firmly occupy the leading position in their respective native chains and are difficult to shake.
(3) DEX is more like a supplement to CEX, rather than a revolution or replacement for CEX
Although the future trend is on-chain development, the current DEX is not a substitute for CEX. In the long run, CEX and DEX will still coexist. The new experience needs to have more than ten times the advantage of the old experience to offset the migration cost. Compared with CEX, DEX does not have a strong reason to replace it.
The first advantage of DEX: If you are worried about the insecurity of CEX assets, you can still control your private keys with DEX. As the cryptocurrency industry gradually embraces regulation and compliance, the probability of large CEXs such as Mentougou and FTX going wrong has been greatly reduced. Most users do not need to withdraw their coins to on-chain transactions for safety reasons.
The second and most important advantage of DEX is that it does not require permission to list coins. CEX listing is more like traditional stock listing, endorsed and carefully selected by the exchange. Because DEX is completely open and free, those tokens that cannot be listed on the exchange can be freely traded in DEX. But in this respect, it is not a reason to replace CEX, but more of a supplement to CEX.
Uniswap's business data has not been good in the past two years
(1) Market share declines in horizontal comparison of the track
Although Uniswap has maintained its position as the DEX with the largest trading volume with a market share of 33.1%, its market share has gradually declined and is currently far lower than last year's high of over 50%. With the development of multiple chains, it is difficult for DEX to monopolize. (See Figure 1)
(2) Slow year-on-year growth
Uniswap's fee income and TVL (total locked value) are still far behind the peak of the bull market in 2021. Although BTC has reached a new high in this round of market, most altcoins are still at a low level, and the altcoin benefit effect is very poor, resulting in inactive altcoin trading volume. Since the biggest advantage of DEX is "no permission required to list coins", its trading volume is concentrated in altcoins, and the trading volume will only be good when the altcoin season breaks out. (See Figure 2)
Summarize
As a DEX token, UNI is difficult to compare with CEX tokens. From the perspective of the track, it is difficult for DEX to form a monopoly advantage and the user value is low. This is also the reason why Uniswap upgraded V4 to become more basic, otherwise the DEX business model is destined to gradually reduce its market share. I look forward to whether the upgrade of Uniswap V4 can change the current predicament through innovation.
At present, UNI is not a good value investment target in terms of both track and business data. But this does not mean that the price of UNI will not rise all the time, but it is difficult to bring the alpha income of CEX tokens in the past. Uniswap's main trading volume is on altcoins. If UNI wants to perform well, it needs to wait until the outbreak of the altcoin season, when the handling fee income can reach a higher level, and then push the price up. Even so, if the track dilemma cannot be solved, the ceiling of its valuation is still limited.
