The buzz around Uniswap’s UNI token launch and what it means for DeFi projects

18 Sep, 2020

While Bitcoin hovered around $11,000 USD this week and pundits speculated on the rise of a bull crypto market, Decentralized Finance (DeFi) was having yet another moment. On Wednesday, Uniswap airdropped its new UNI governance protocol token into the wallets of users of the Ethereum-based automated liquidity protocol. The crypto sphere buzzed with excitement at the novel unveiling of UNI (“free coins”) as well as the potential for continued growth and strength of the DeFi market.

“Having proven product-market fit for highly decentralized financial infrastructure with a platform that has thrived independently, Uniswap is now particularly well positioned for community-led growth, development, and self-sustainability,” Uniswap said in its release of UNI. “The introduction of UNI (ERC-20) serves this purpose, enabling shared community ownership and a vibrant, diverse, and dedicated governance system, which will actively guide the protocol towards the future.

The initial 15% of the tokens were airdropped in batches of 400 coins into the wallets of current Uniswap users, representing about $1,400 of free UNI per wallet ready to be claimed.  One billion UNI tokens will be distributed over the next four years, Uniswap said in its UNI announcement.  Of that, 60% will go to community members, and 40% to team members, investors and advisors who have a vesting period of four years. After four years, the token’s annual inflation rate will be 2%.

While the token’s debut was anticipated, the move to airdrop the coins into current users’ wallets appeared to catch the digital coin market by surprise.  Uniswap users moved the market as they claimed their coins in a frenzy of smart contract transactions.

“In a time when people are being greedy and malicious, they (Uniswap) did something generous and benevolent, and the fact that it was unexpected was really special,” Meltem Demirors, strategy officer at CoinShares, told CoinDesk.

Moving coins into the wallets of current users was also seen as a savvy marketing move designed to ensure immediate success of UNI.  And the strategy proved to be a sound one.  In less than a day, UNI became a top 10 DeFi token.  As of today, Uniswap is the largest DeFi protocol in terms of TLV, with nearly $1.4B and slightly ahead of Aave at $1.34B according to DeFi Pulse.

But for all the positive buzz around UNI, DeFi market traders saw a downside to the token’s release as gas prices on the Ethereum network skyrocketed.

“This has been my biggest anxiety about this bull market.” Ryan Watkins, research analyst at Messari told Coindesk News as transaction fees quickly rose and the network slowed with the UNI launch. “The protocols are ready, the infrastructure is not.”

So what’s it all mean for traders in the DeFi sphere?  Some say it’s the beginning of a DeFi war between Uniswap and its competitor SushiSwap, which recently tried to lure away Uniswap users to its automated market maker protocol (AMM). The move to migrate assets out of Uniswap became mired in what was called an “exit scam” by its creator.

“Kinda meh about the UNI launch,” said Andre Cronje, the creator of the Yearn.finance protocol, said in an interview with Forbes. “The launch itself is perfect,  surprise launch and retrospective. Exactly how it should be done nowadays But I can't help but feel that the launch was simply in response to SUSHI. Never let other people set the pace for you, move at your own pace,”

Time will only tell the full impact of the UNI launch on DeFi. But one thing is for certain: as Bitcoin remains firmly locked in traders’ wallets, the market is looking for movement in the continued growth of digital coins.  DeFi offers experienced traders – as well as new ones – opportunity to capitalize on the surging interest in these versatile tokens.

Joyce Pavia Hanson
Contributor

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