Investor’s Guide to Uniswap: King of the DEXs

Uniswap Revenue King of the DEXs

With the lion’s share of the DEX market, Uniswap continues reigning as the undisputed DeFi revolution leader. With low trading fees and a growing user base, Uniswap remains the king of DEXs.

With no centralized order book, the exchange relies on an intelligent algorithm to set prices on hundreds of ERC-20 token pairs available on the platform. This fact, along with low trading fees and a growing user base, has led Uniswap to maintain its status as the king of DEXs.

But plenty of competitors want to claim the throne.

This leads to a few natural questions: Is Uniswap’s UNI still a good investment? Who may unseat it? Is that even possible?

Read on to learn the answers to these questions and more.

Table of Contents

  1. What Is Uniswap?
  2. What Is the Uniswap Token (UNI)?
  3. What Are Uniswap Fees and Revenues?
  4. Uniswap Fees vs. the DEX Market
  5. Who Benefits from Uniswap Fees?
  6. Uniswap Tokens and Fundraising
  7. Uniswap Liquidity Pool Revenues
  8. Why Is Uniswap Important for Investors?
  9. Investor Takeaway
  10. Frequently Asked Questions

What Is Uniswap?

Uniswap is a Decentralized Exchange (DEX) supporting automated trending for crypto tokens. Uniswap remains the largest decentralized exchange in 2024, handling the lion’s share of DEX trading volumes.

This lion’s share of volume brings benefits to its users. For example, with such a significant Total Value Locked (TVL), liquidity is rarely a concern for Uniswap users.

Due to the sheer size of the crypto funds on the platform regarding Total Value Locked (TVL), liquidity is never a concern for Uniswap users.

For comparison, here is a quick look at the recent Total Value Locked (TVL) for major DEXs:

Uniswap is taking the lion’s share of the total value locked across the DEX market.

Because Uniswap was the first of its kind it enjoys a first-mover advantage that remains to this day. Users also appreciate the simple interface, which makes Uniswap easy to use.

Add in the security of Uniswap and the platform’s focus on privacy – it doesn’t ask for your personal information on sign-up – and you can see the reasons for its enduring popularity.

Pricing in Decentralized Exchanges

Traditional centralized exchanges (CEXs) like Coinbase and Binance rely on an order book – a list of all the buyers and sellers for specific security – to set the prices on the exchange.

Decentralized exchanges (DEXs) like Uniswap rely on mathematical formulae to price the assets. This technology, called an Automated Market Maker (AMM), removes the need for a middleman to set the market prices of assets.

Because of this, where CEXs were slow to add new tokens (they had to vet each one carefully), Uniswap can automatically support any Ethereum-compatible token with enough supply and demand.

The original version of the Uniswap protocol was launched on the Ethereum mainnet in November 2018. Since then, there have been several incremental upgrades:

  • Version 1: Allowed users to trade between ETH and any ERC-20 tokens.
  • Version 2: Launched in May 2020, this version added new features and functionality like increased decentralization, flash swaps, and ERC-20 pools, allowing direct exchange between Ethereum-based tokens.
  • Version 3: Launched in May 2021, it includes improved security and efficiency, with features like concentrated liquidity, range orders, NFTs, and flexible fees.
  • Version 4: Currently under development, version 4 is expected to be an incremental upgrade focusing on QoL changes like a better UI, built-in wallet, NFT aggregation, and possibly a batched auction system to combat MEVs.
  • UniswapX: This is a complementary protocol to version 4, focused on finding the best liquidity sources by creating a market for swap fulfillment.

What Is the Uniswap Token (UNI)?

The native token of the Uniswap protocol (UNI). Its stated purpose is to serve as the governance token of the protocol, though our thesis is that investing in UNI is like buying Uniswap “stock.”

UNI was launched without any ICO/token sale in September 2020. Instead, community members, protocol users, and liquidity providers were given free airdrops of the token, up to 400 UNI (worth approx $1500 at the time). Synthetix founder Kain Warwick called the airdrop a “galaxy brain move” since it rewarded early users for their loyalty.

Uniswap logo

What Are Uniswap Fees and Revenues?

As a DEX, Uniswap’s revenue/fee structure fares better from a user perspective when compared to centralized exchanges like Coinbase or Binance.

Uniswap version 2 had a flat fee of 0.3% on all swaps. It also added the option for a “fee switch.” This option would allow the protocol (i.e., the Uniswap company itself) to take a percentage of the fees collected from trades if switched on. (Like retained earnings, this could theoretically be paid out to UNI tokenholders.)

When Uniswap launched version 3, they kept the fee switch option in place. The main change was the addition of different fee tiers, ranging from 0.01% to 1%.

In general, the swap fees charged depend on the relative stability of the trading pairs. For most pairs, the standard fee of 0.30% will apply. The fee is lowered to 0.05% for stable pairs, with the most stable pairs charging a 0.01% fee. If you swap high-risk or “exotic” pairs, expect a maximum fee of 1%.

The decision to turn on the fee switch can only be taken through an open vote among the protocol governance forums (i.e., UNI token holders must approve it). In June 2023, a proposal to enable protocol fees on all swaps and trades was narrowly defeated by 45.32% “No” votes against 42.34% “Yes” votes.

Since the fee switch has not been implemented, all the revenues generated to date have been paid to liquidity providers. This means that the Uniswap “company” is not retaining any “revenue.” However, that can change if another proposal gets enough votes from the governance token holders.

The History of Uniswap Fees

Uniswap started to take off after the launch of version 2 in 2020, which allowed users to trade any ERC-20 token pairs. (Before that, version 1 only allowed users to trade ERC-20 tokens against ETH.)

Monthly revenues for liquidity providers climbed from $4.8 million in July 2020 to $35 million by December that year. However, the real spike in Uniswap revenues occurred in 2021, as version 3 upgrades added further efficiency and features.

The protocol gained widespread acceptance, and monthly revenues quickly exceeded $100 million by March 2021. Uniswap hit a new peak in May, with revenues awarded to liquidity providers reaching an all-time high of $285 million.

Uniswap fees declined briefly in Q3 2021 before regaining steam in Q4, rallying to $180 million in November. In 2022, Uniswap broke several records in fees collected.

In June 2022, the average daily fee earned on the protocols reached $4.87 million, surpassing Ethereum at $4.8 million. By August 2022, Uniswap's 7-day average fees were nearly double that of Ethereum ($8.7 million vs $4.07 million).

However, the meltdown in the broader crypto market in Q3 and Q4 2022 wiped out most of these gains. It took the crypto market several quarters to reverse the decline.

After the chaos of 2022, the broader crypto market has seen signs of recovery in 2023. While it is still too early for celebrations, there appears to be some space for cautious optimism.

In Q1, 2023, Uniswap overtook Coinbase in quarterly spot trading volumes for the first time, with trades worth $155 billion against the latter’s $145 billion. They maintained the lead in Q2, posting $110 billion in trades over Coinswap’s $90 billion.

Since the market crash, both exchanges have lost significant trading activity. However, Coinbase appears to be worse off, experiencing an 83% drawdown since Q4 2021.

Meanwhile, Uniswap has lost roughly 50% of its trading volumes in the same period.

Annualized revenues earned by liquidity providers on Uniswap in 2023 amount to around $356 million, far ahead of the nearest competitor protocol, Aave ($117 million).

These trends show the relative resilience of DEX platforms over their CEX counterparts. Especially after the catastrophic collapse of centralized exchanges, like FTX, there is renewed interest in the market for DEXs, and Uniswap is in pole position to capitalize on it.

Uniswap also benefits from the increased activity on Ethereum in 2023 following its transition to Proof-of-Work. According to CryptoFees data, Ethereum remains king of the hill:

Uniswap Fees vs. the DEX Market

Several contenders have emerged in the last 3-4 years, providing stiff competition for the DEX throne. Uniswap is no longer the only popular DEX in the market. Let’s take a quick look at some of the DEX competitors:

  • SushiSwap and PancakeSwap: Both are clones of Uniswap, built using the latter’s open-source source code and offering similar features and similar/lower fees as a competitive advantage.
  • Compound: Launched in 2017, this specialized DEX creates tokens for assets locked on the platform. The tokens allow users to earn interest while retaining the freedom to transfer and use the assets on other platforms.
  • Curve Finance: Another specialized DEX focused exclusively on stablecoins like USDT, USDC, DAI, and TUSD. Users can stake their stablecoins in liquidity pools or swap between coins on the trading platform.
  • dYdX: Another DEX, dYdX launched in 2017, giving additional options to users in the form of derivative trading. It briefly overtook Uniswap as the top DEX regarding trading volume in September 2021.

Let’s compare Uniswap’s revenues against the contenders:

(Uniswap fees are shown as revenues since the platform does not accrue revenues)

It is undeniable that the rise of clones like PancakeSwap and SushiSwap has eaten a chunk out of Uniswap’s business. Together, these clone DEXs accrued $1.5 billion in revenues prior to the 2022 downturn despite launching after Uniswap.

Regarding TVL, Uniswap remains the king of the hill with $3.4 billion locked. Curve is second with $1.9 billion, and PancakeSwap is third at $1.2 billion.

And dYdX has been steadily eating away at the market share of Uniswap since 2021. With the advantage of an order book, derivative trading, and a massive airdrop of the dYdX token, the protocol has rapidly closed in on Uniswap over the last two years.

As of Q4 2023, dYdX ranks at the top in the DEX tables with $324 billion in annualized trading volumes. Uniswap is a distant second with $66 billion, Thorchain at $60 billion, and PancakeSwap further behind at $24.5 billion.

However, in terms of crypto fees generated from trades, none of these DEX contenders come close to the numbers generated by Uniswap in early Q4 2023 - $36 million monthly and $449 million in 30 days annualized.

The nearest is dYdX, with $6.65 million in 30 days, followed by Pancakeswap at $4.6 million.

Curve needs to catch up at $3.6 million, just a fraction of the revenues generated by Uniswap for its liquidity providers.

Who Benefits from Uniswap Fees?

As we’ve mentioned, 100% of the revenues generated from trading fees on Uniswap go back to liquidity providers through direct deposit into their liquidity pools.

Neither the team behind the protocol nor the holders of the UNI governance token earn anything from the revenue generated on Uniswap.

In 2023, GFXLabs, one of the contributors to the Uniswap project, advanced a proposal to turn on the fee switch and move a portion of the revenues to protocol treasury.

The proposal would have implemented a protocol fee of 20% on the collected fees from version 3 and also turned on the fee switch on version 2. Based on projections released by GFXLabs, the proposed 1/5th fee would have generated over $52 million in revenues for the protocol across six months (based on average fees generated in May 2023).

In theory, part or all of this revenue could be shared with UNI holders — like a stock dividend. Of course, any such move would also directly impact the revenue generation of liquidity providers, who could leave for competing exchanges.

For many UNI investors, that risk would outweigh the reward. This was reflected in the July vote on the proposal, which was narrowly defeated, with 45.32% of the votes going to the “no fee” camp.

The remaining 54.68% of the vote was split between people in favor of the one-fifth fee (42.34%), and people in favor of a lower one-tenth fee (12.3%). A minority (0.04%) voted to charge one-sixth of the fees.

The vote indicates that the Uniswap DAO can enable the fee switch in the future if a proposal with a lower fee structure is put to vote.

Uniswap Tokens and Fundraising

The protocol is managed by Uniswap Labs, formed by founder Hayden Adams. The company has recently conducted two funding rounds, raising over $176 million.

  • The Series A round in August 2020 was led by Andreessen Horowitz (a16z crypto) and raised $11 million. There were eight investors in total, including Union Square Ventures, A. Capital Ventures, SVA, and Variant Alternative Income Fund.
  • The Series B round ran in October 2022. Conducted amid the crypto winter, the initiative was a remarkable success, bringing in $165 million.

Since the company currently does not take any trading fees, the primary source of value/revenue for the project is its native token, UNI. Although most tokens were airdropped to community members, liquidity providers, and protocol users on launch, 20% of the UNI supply has been kept in reserve.

The total supply of UNI is 1 billion. At the time of writing, UNI had a price of $4.91, putting the value of the 21.27% reserve at $1.04 billion, which is set aside for the team behind the Uniswap project. Depending on UNI’s market price, they can sell these holdings for cash to run the business — but of course, that will only last so long.

If the protocol fee switch activation is passed in a future vote, the revenues for the protocol and team behind Uniswap could increase by up to $50 million/year. Such proposals in the past have sought to spend these additional revenues to fund new projects and education programs.

Uniswap Liquidity Pool Revenues

Anybody with available crypto assets can become a liquidity provider or LP. A decentralized exchange cannot function without LPs, making the trades possible. Thus, Uniswap wants to encourage as many people as possible to become LPs.

In an AMM exchange, the counterparty is not one person but a pool of funds supplied by many different users, with the smart contract setting the price and executing the trade.

This is where LPs enter the equation: the cryptos they lock into Uniswap provide liquidity to the smart contract. Instead of a buyer and seller, you have a buyer and a liquidity pool. People make up the pool.

In Uniswap, these pools are usually based on token pairs like ETH/BTC or SOL/DAI. To participate in a liquidity pool, you deposit equal amounts of the two tokens in a 50:50 ratio (for example, 50% ETH/50% BTC).

Since they are integral to an AMM, the company rewards liquidity providers handsomely. Uniswap earned $466 million in fees between January 2023 and November 2023, all of which were paid to the LPs.

It can pay to play in the pool. This is why turning on the fee switch could be problematic: LPs may simply go to competitor DEXs, where they can make more money.

gold coins with uniswap logo

Why Is Uniswap Important for Investors?

Uniswap is the most successful DEX based on the AMM model.

Moreover, maintaining high revenues and stability proves that a crypto exchange can work without a centralized order book or market maker.

The entire concept of blockchain is based on decentralization: trusted transactions on a transparent yet highly secure network. Uniswap brings that vision to the crypto exchange market — like handling your money yourself.

Conversely, mainstream crypto exchanges use centralized architectures to provide a better user experience and more user safety — like trusting a broker or banker to handle your money.

While 2022 was a challenging year for everyone in the crypto market, developments in 2023 have shown that there is still room for hope and optimism. Under optimal conditions, the UNI token could reach as high as $11.59 in 2024.

Trading volumes on Uniswap have increased dramatically, and the DEX continues to pull in over $11.1 million in 7-day average fees as of this writing. LPs earn more on this DEX than other exchanges due to its generous fee structure.

But if Uniswap votes to implement platform fees, it could impact investor confidence. A few LPs could leave the protocol as the fee would be directly taken from their share of the revenues.

Investor Takeaway

Uniswap faces an uncertain but hopeful future. Though it has a vast user base, it is losing market share to competing DEXs that still need the AMM model. Many LPs face an uphill battle to retain profits in AMMs due to “impermanent loss.”

With the rise of knockoffs and non-AMM alternatives, Uniswap has its work cut out: it must continue to innovate, adding new features and improving its user experience, all areas where it has traditionally performed well.

Still, Uniswap has a history of innovation and delivering significant protocol upgrades. (Uniswap ships.) It is also far more accessible for the average user to understand and use than tech-heavy sites like dYdX.

Of course, much will also depend on the future trajectory of the crypto market. Uniswap remains our top pick for the long-term DEX winner, so we continue to hold UNI as part of our Future Winners Portfolio.


Is Uniswap a good investment?

The Ethereum blockchain is the most popular and vibrant crypto ecosystem globally. It will also likely receive significant upgrades to efficiency, gas fees, and transaction times over the next several years, making it hard for other Layer 1 chains to overtake it.

As the pre-eminent decentralized exchange on Ethereum, with access to over 7,951 trading pairs, Uniswap still has much to offer investors interested in staking their assets in liquidity pools.

Our investment thesis is that buying and holding UNI is like a long-term investment in the Uniswap company. Despite the challenges listed above, we believe in Uniswap’s ability to execute and currently have the token as a part of our Future Winners Portfolio.

How does Uniswap make money?

Uniswap makes money by charging a 0.3% fee for each trade on the platform. Currently, all of this is paid out as a reward to liquidity providers in proportion to their token contributions. The company also earns revenue via its holdings of the governance token UNI, which can be appreciated with changes in the crypto markets.

However, in the present scenario, nearly 50% of LPs on Uniswap are losing money due to impermanent loss (read our guide here). In a highly volatile crypto environment, loss in the value of a token is not compensated by the fees of a transaction on the DEX.

This causes a loss in dollar value to investors on the platform. In the future, this may change with an improved algorithm. But as long as they fail to address impermanent loss, Uniswap will remain a sub-optimal investment option for liquidity providers.

Should you trade on Uniswap?

DEXs like Uniswap require some technical expertise: you must own a crypto wallet like Metamask and understand how to navigate gas fees. In addition, the interface may provide little hand-holding, unlike centralized exchanges. With those caveats, if you want to buy or sell any ERC-20 tokens, Uniswap is one of the best DEXs on the market.


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