SWOT Analysis: Uniswap (UNI)
*Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
Today, UniSwap(UNI), the industry’s leading decentralized exchange protocol and pioneer of the AMM trading model, will get a SWOT.
💪 Strengths (Internal) (Helpful)
1. First Mover Advantage
Uniswap as a project has been in development since early 2018, with conversations around its concept being brought to surface by Vitalik earlier in 2017. Having the longest history of ideation in the space alongside the brainpower of elite professional developers (who have been wholly committed to the creation of the protocol) puts Uniswap ahead of any other potential newcomers attempting to build a similar product. By solidifying its position as the first of its kind, Uniswaps strengthens is position perpetually just by virtue of being alive for so long.2. DEX Protocol With Most Liquidity
Maintaining a TVL over $3 Billion USD consistently puts Uniswap as the leading decentralized exchange venue by total value locked. This massive amount of capital existing inside a single protocol perpetuates a flywheel effect of value attribution similar to a network effect; the more capital that gets locked, the more capital becomes interested in joining, feeding a positive feedback loop. This positive feedback loop then trickles into other areas, such as trustworthiness and usefulness, further cementing the survivability of the protocol and making it more attractive for ancillary reasons.3. Robust infrastructure
Even though Uniswap is known as the most popular decentralized exchange platform, what is not commonly discussed is how much of the infrastructure in UniSwap has actually been built from scratch. Inside their core business logic behind the AMM order model are a multitude of nuances baked into the project, including elements such as the concentration of liquidity for AMMs. The granularity in fee structure (which gives owners of markets a higher degree of creative space). An adaptation of AMMs for NFT swaps (granted, this innovation was not originally Uniswaps, but due to the critical role that it plays, having this function basically arbitrates out the need for newcomers to build projects on this principle; arguably saving investors money and developers time, needlessly pursuing something that Uniswap is able to deploy with relative ease and quality guarantee). Moving on, UniSwap has its own Oracle system baked into the pools, which store price histories within themselves (stateful) and track the elapsing of time, which makes the pools “aware” of themselves/the assets within them and can adjust pricing more fluidity/naturally than if there were more intermediaries involved.4. New V4 Upgrade
New architectural capabilities are being introduced through a concept called “hooks,”; which are basically meshing complex multi-contract calls into single executions which bring native flexibility into the pool operations expanding their native surface area of utility to new limits. A new era of capital efficiency becomes possible with dynamic fee structures (so the pools fees can adjust based on some internal factors) and the arrival of on-chain AMM limit orders, which could, in turn constitute a greater degree of liquidity. Moreover, a new mechanism called TWAMM (Time-Weighted-Automated-Market-Making) could further increase efficiency by spreading out large orders based on availability over time, rather than single executions that could destabilize prices radically. This miracle of a protocol upgrade also includes utilizing out-of-range liquidity into lending protocols (which is abso-fu*king-lutely brilliant), internalizing MEV profits back to the LPs (holy amazing), and auto-compounding profits to amplify LP growth. This heightened level of customization is game-changing by improving experience by an order of magnitude (at least for market makers, it still doesn’t seem like users are the focal point of the upgrade). Worth noting here too that this new design module is NOT open source, it is protected by IP until 2027.5. Cumulative On-Chain State
Uniswap’s dominance and importance cannot be understated. The degree of its influence can be thoroughly understood whenever presented through the lens of its aggregate statistics. Easily supporting monthly volumes north of $12 Billion USD and hosting over $3 Billion USD worth of TVL even in the challenging economic environment of the last market downturn proves the anti-fragile state of the protocol. Facilitating over 155,000,000 trades worth an aggregate USD-denominated volume of $1.5 Trillion brings the nominal average trade side to approximately $10,000. Housing over 230,000 liquidity pairings across 110,000 Liquidity providers, the diversity of market makers and token pools is roughly 2:1. This is only the tip of the iceberg; to appreciate this information to its fullest, it is best to take a visual approach. Dive into the On-Chain Data via Dune Analytics here and see UniSwap Direct Data Source here. For those looking for more chart porn, here is DefiLlamma’s data set. (IMO, DefiLlamma provides the best insight for simple info and Dune for very specific data).6. Retail & Consumer Friendly Product
This is a factor that has already been known about Uniswap for a long time; the interface through which they provide their technology is possibly one of (if not the) most user-friendly experiences. The simplicity of the swap interface had a shift in usability reminiscent to that of Amazon’s one-click buy. Obviously, the back end of Uniswap of extremely complex, but they do a fantastic job of making it easy for the end users (not accounting for MEV).
😞 Weaknesses (Internal) (Harmful)
1. No Value Accrual to $UNI token
The $UNI token is extremely limited in its economic relationship to the Uniswap platform. It has no direct vector through which the exchange activity reflects itself in the token’s value. The single application of the $UNI token is governance. While this is potentially what will keep them out of the cross-hairs of politicking that will undoubtedly buckle other crypto projects, it is also a huge disappointment considering how much potential value is just being left on the table and keeping investors from developing greater monetary interest in the $UNI Token.2. Governance Power Centralized
A16Z owns an outsized portion of $UNI tokens and has exhibited that it is capable of swaying the development/direction of the project as they find fit. While the presence of such a powerful VC firm signals a very high degree of confidence in the project, it also denies the whole aspect of decentralization by masquerading it behind pseudonyms. While there have been two sides to the argument as to whether this is true or not, the simple fact that A16Z has actually made a public commitment to reduce their influence over the platform signals a subtle, silent yes (IMO).
🧐 Opportunities (External) (Helpful)
1. Integrations with nearly every Dapp
Uniswap is the go-to exchange solution that gets integrated into the interfaces/backends of most other projects. The level of trust, quality, settlement guarantee, and prominence that Uniswap has makes them the default option for other projects that are looking to integrate the swap function into their applications. Moreover, the API of Uniswap dominates the industry so deeply, that every new swap/exchange or aggregator is built with some degree of reliance on Uniswap.2. Untapped Chains
Currently, Uniswap is deployed across six major EVM networks, Ethereum, Binance Smart Chain, Arbitrum, Optimism, Polygon, and Celo. Considering that there are still swaths of EVM-compatible networks still awaiting Uniswap’s arrival (such as Fantom, Tron, Avalanche, Harmony, and so on) this ecosystem is still young. Whenever we take a step back and remember the gargantuan amount of non-EVM networks such as Solana, Polkadot, Ripple, Sui, Aptos, Cosmos, Hedera, VeChain, and so on), then it becomes clear that Uniswap is only beginning its ascension across the greater industry.3. No Regulatory Kerfuffle
Even though so many crypto projects have been in the line of regulatory fire, Uniswap seems to have been able to avoid legal pursuits. Perhaps they designed their systems with the highest degree of intelligence in this regard, or there could be insider action going on, but we’ll just have to give them the benefit of the doubt here.
😳 Threats (External) (Harmful)
1. Target for the most MEV
MEV is the Achilles heel in terms of quality user experience within DEFI. Uniswap being a focal point of liquidity that facilities the most exchange activity, it is the protocol that every single MEV bot targets. Early-stage or lesser-known protocols might be able to slide under the radar of being targeted by MEV, but Uniswap cannot have a single action take place without some nosey leech (in the form of an MEV operator) trying to squeeze and manipulate it. While this does not necessarily harm Uniswap at the protocol level, it does trickle the inefficiencies over to end users that then have sub-par experiences, which might then consider avoiding to use Uniswap, ultimately translating to a potential dissuasion from the user’s end.
Takeaway:
UniSwap is the King and Queen of Decentralized exchanges. Bordering on a monopolistic grasp on the industry's exchange liquidity, UniSwap is a force of cryptographic nature that will likely not have any competition large or intelligent enough (at least within the domain of crypto) to compete with them. They stay at the forefront of innovation by leading with technology, secure their position with excellent usability for the layman, and control the mind-share of developers that operate on different applications.
The negatives seem to be stemming from design decisions relating to political navigation. All of the externalities of undesirable properties relate primarily at the external and token level, neither of which is existentially threatening.
Conclusion:
Right now the project is tailored more to attracting liquidity and market makers/LPs than it is focused on usability. This feels like the final stage of internal technological evolution that must take place before they shift their efforts to focus on the retail side of things.
Their focus on growing the development of infrastructure without focusing on generating profits/revenues directly to themselves feels like what Amazon did by forgoing profit distributions and relentlessly cycling their profits back into growing the business.
My god, if Uniswap makes a few adjustments to its token logic, it would unleash a floodgate of demand for $UNI.
$UNI has the potential to be the Amazon of crypto. (NFA).
I have never actually had any $UNI because I was butthurt about missing out on their initial airdrop distribution.
It might be time for me to rethink my position on them and consider dialing in a small bag into the portfolio; nothing major, just something to keep around.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂
