“Platform currency does not necessarily make you rich, but at least it won’t make you lose money or go bankrupt.”
Since Uniswap announced the launch of its governance token on September 17, the controversy surrounding UNI has never disappeared.
Uniswap airdropped 150 million UNI to nearly 50,000 addresses that had invoked Uniswap V1 or V2 contracts, which was equivalent to a current price of more than 1 billion yuan. It was called a good story “in the history of miracles in the currency circle”.
Under its prestige, UNI rose by 125% in just two days. Supporters of UNI are a rare productive asset in the encryption field, calling UNI the “next BNB” or even the “next Bitcoin”.
It is also said that the best pit in UNI is the most buried person. The total market value of UNI is 35 billion yuan. “How many years will it take to pay back by dividends, and it doesn’t even have the right to distribute dividends, so it relies on the governance power of the virtual head and brain to fudge? Most of the tokens are in the hands of the project parties and investment shareholders. , To buy with cash, how much money does it take to buy the number of votes with such a little voice?” said the blogger “coin circle Zuo Lanqi”.
It is difficult to make a conclusion about which is right and which is wrong, but if Uniswap is placed in the competition sequence of the three major exchanges, how will UNI exist?
According to the exchange token equation issued by Multicoin Capital, exchange token network value = exchange generated value * efficiency of capturing token value.
The indicators for judging “value created by exchanges” include: income, daily users, website traffic, breadth of product supply, community credibility, quantity, liquidity, management team capabilities, etc.
The efficiency of value capture refers to the ability of the token price to increase as the market share of the exchange increases. Such as repurchase and destruction, cash flow, speed sinking, transaction discounts, voting rights, destruction/price ratio, inflation/distribution ratio.
According to the formula provided above, UNI is obviously not dominant. Regardless of the efficiency of exchange creation or value capture, the current UNI cannot be compared with the platform currency of the head centralized exchange.
Uniswap has a total turnover of more than 20 billion U.S. dollars in the past two years and has more than 250,000 unique addresses. The daily trading volume of top exchanges can reach 1 billion US dollars, and Binance had 9 million users at the end of 2018.
In comparison, the advantages of UNI are:
High efficiency and low cost. The Uniswap team has less than 20 people, and almost no server costs are needed. However, there are hundreds of thousands of employees in the head exchange, and maintenance and operation costs are expensive.
Holders of platform coins have no say in the economic development of tokens, while holders of UNI can participate in exchange governance.
At the same time, there are 6 hidden dangers behind UNI:
Uniswap adopts AMM (Automatic Market Maker System). AMM can only generate transaction prices and cannot find market prices. Therefore, arbitrageurs have to be introduced to fill the AMM prices until they converge with the market prices. In other words, Uniswap cannot exist alone for the time being, and must rely on the market price given by CEX.
The transaction on Uniswap requires the payment of Gas fees. This part of the cost is outflow and intercepted by the Ethereum miners. The transaction of the platform currency basically does not require additional handling fees, which is a closed system. For example, on September 17, the gas price of the Ethereum network continued to rise after the UNI was officially launched, and once exceeded 700Gwei.
There are doubts about governance issues. According to the rules, Uniswap needs 10 million UNI to initiate a proposal. OKEx chief researcher William said: “The current main function of UNI is to govern voting, but from the point of view of currency holding addresses, the top five addresses account for half of the usage. The actual value of UNI is very low.”
UNI is an inflation currency. After 4 years, the annual inflation rate of UNI will remain at about 2%, and the platform currency will continue to deflate due to repurchase and destruction.
OKEx stated that 30% of the handling fee per quarter is used to buy back OKB in the secondary market. Huobi said that 20% of the quarterly revenue of Huobi Global and Huobi DM is used for HT repurchase, while the previously announced burn amount of BNB is 20% of the quarterly net profit, until the number of BNB was reduced to 100 million, and the BNB burn ratio was no longer disclosed later.
What is the gain from holding UNI other than the rise and fall of tokens? It is reported that Uniswap’s 0.3% transaction fee was previously used to reward liquidity providers (LP). Now, UNI holders will charge 0.05% of the transaction fee per transaction, and the reward for liquidity providers is reduced to 0.25%. UNI does not have an advantage in dividends.
DeFi has risen rapidly. DeFi tokens such as LINK, YFI, LEND, and UNI have successively ranked among the top 100 or even the top 10 in encrypted market capitalization, but they are not comparable to UNI. UNI’s voice is louder and more ferocious, perhaps because it has launched an impact on the top of the encrypted world’s food chain: once UNI succeeds, the structure of the encrypted world will be reconstructed.
Unlike the platform currency, which has mature financial logic, part of the market value of UNI’s 15 billion is derived from the potential value in imagination, which shows that investors give hope to the track behind UNI, similar to the extremely high valuation of technology stocks in the securities market. .
Compared with UNI, which is in full swing, the prospect of platform currency looks much bleak.
From the perspective of value capture, compared with the governance tokens of DEX, the platform tokens of centralized exchanges are based on sound financial logic, and have practical uses such as “deduction of handling fees” and “participation in IEO”, which are profitable. , Dividends or repurchases make it exist for long-term appreciation, and continued deflation gives it more room for imagination.
But the objective fact is that under the impact of DeFi, the platform currency seems to have become “destroyed”, lacking wealth effects, and not being pursued by investors.
Why does the platform currency fall into price dilemma?
As mentioned above, the current appreciation logic established by most exchanges for platform coins lies in the deflation caused by repurchase and destruction. An inherent conflict arises here. Most of the exchange’s income is tokens, and it is necessary to sell coins to obtain profits. This will cause the price of the currency to fall; and repurchase or dividends are required, which may increase the price of the currency. So the question is, which operation has more impact?
In terms of specific repurchase strategies, the exchange will implement more strategies that are beneficial to the exchange, rather than the strategies of investors. This is an inherent contradiction between exchanges and users.
In the turbulent market cycle, the platform currency has gained more and more investors’ favor with the labels of “resistance”, “valuable” and “long-term rise”, but it is precisely because of this that the distribution of its chips has become increasingly scattered .
Overly scattered chips will inevitably lead to mutual restriction of investors’ trading behaviors. The final result is that platform currencies tend to fluctuate up and down within a range without generating a large market.
Therefore, in order for the price of the currency to rise, there must be a force to control and lock a certain percentage of the bargaining chips, which will cause a certain scarcity effect in the market, and at the same time be willing to buy at a higher price, thereby promoting the rise of the currency price. Arouse FOMO emotions.
As platform currency chips become more dispersed, the exchange’s ability to control platform currency chips will become weaker and weaker. In other words, the price of platform currency will become more market-oriented.
Due to the asymmetry of information, the platform currency will often become the “cash machine” for exchange employees. It can accurately ambush information by predicting important positive events in advance and wait for the good news to be shipped. Therefore, many top exchanges It is not surprising that the currency price has suddenly been smashed because the platform currency has not been fermented.
In the exchange system, in addition to the “face” of the exchange, the platform currency also assumes certain financial functions, such as as an incentive for ordinary employees and executives, and the exchange will use platform currency to pay wages. This is inevitable Continue to produce selling pressure, suppressing prices.
If we have to say, the last reason is that under the condition of scattered chips, the exchanges have insufficient control of orders, and the cost of pulling orders is increasing. Nowadays, exchanges are increasingly lacking the motivation to actively pull orders. More from the “excellent performance” of competitors’ platform coins and the corresponding competitive KPIs.
“Why use the money earned on the exchange to offer money to Leeks?” a senior exchange executive once said.
“My answer is that the platform currency is still worth long-term investment.” Shenchao analyst Li Feng said: “From the perspective of development trends, centralized exchanges are still the mainstream of transactions in the long-term. In terms of price discovery, matching efficiency, and comprehensive services, The platform has a great advantage, and the value of platform currency is supported by real profits.
As long as the business of the exchange grows, the value growth logic of the platform currency remains unchanged. Under the influence of continuous repurchase and destruction, the price of the platform currency will maintain a steady growth every year.
Even with the impact of DEX, centralized exchanges will rely on the exchange public chain to actively participate in the DeFi ecosystem, blurring the boundaries between DEX and CEX.
“If you have to make a suggestion to the exchange, then it is recommended that the exchange give the platform currency more governance functions.” Li Feng said: “The platform currency does not necessarily make you rich, but at least it will not make you lose money or go bankrupt. It’s a good word.”