The Rise of Uniswap
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Hey friends! Happy new year and thanks for your support over the last year. 2022 was a very challenging year for the crypto industry, especially with the FTX situation. While there have been many lows this year, the events that happened proved to be very educational for the crypto community. DeFi has been given a larger spotlight as a viable solution to ensure user funds are not impacted by human errors, deficiencies, or lapses of judgment. The largest DeFi project is Uniswap, a decentralized exchange (DEX) that is primed to reach the status of the top tech companies in web2.
Uniswap has over 4.5 million users cumulatively on the platform and earlier in 2022 the decentralized exchange had over one trillion dollars in volume. To put that in perspective, Coinbase has over 100 million users. After the FTX debacle, it is plausible that Uniswap penetrates the market and reaches a user count that rivals the likes of Coinbase and other centralized exchanges. Uniswap recognizes that the current crypto market is ripe for disruption and there are various untapped markets to reach.
Currently, the crypto market is still in the early adopter phase. According to Level Up Coding, bitcoin adoption is similar to the user adoption of the internet. As mentioned above, Uniswap has the ability to reach an untapped market. Recently, the organization has focused on onboarding this group of people by solidifying partnerships and making acquisitions. Earlier this year, Uniswap purchased Genie, an NFT aggregator which allows for users to purchase multiple NFTs in one transaction. This customer workflow is similar to the current journey that customers purchase goods on e-commerce sites. Additionally, Uniswap recognized this customer pain point and needed to compete with Opensea who acquired Gems, another NFT aggregator.
Towards the end of 2022, Uniswap continued to drive their adoption push by partnering with Moonpay to allow users to purchase assets with their debit cards. With the rising interest in digital assets, this partnership was made to reduce the barriers of entry to decentralized finance for the masses. Prior to this partnership with Moonpay, Uniswap required that users had existing crypto assets to use the platform. The partnership reduces the friction in the onboarding process which can spark more usage of the platform. This partnership is conveniently timed with the aforementioned FTX situation and Uniswap’s rapid growth of over 100 thousand users at the end of 2022.
To understand where Uniswap is today, let’s visit its origins. Founded in 2018 by Hayden Adams, a former mechanical engineer at Siemens, the exchange was built on Ethereum as an on-chain automated market maker. This is a concept that Vitalik Buterin, founder of Ethereum, suggested in this Reddit post. Vitalik is also credited with the creation of the name for Hayden’s decentralized exchange. Ironically, Hayden’s initial motivation for building Uniswap was to be a project that taught him more about smart contract development after he was laid off from his job, not to be a billion dollar startup. For much of the year when Hayden was unemployed and living off of his cryptocurrency investments (ouch!), he worked on Uniswap, traveled around the world to evangelize the platform, and developed a strong community with very little money or backing. Times have changed. The decentralized exchange raised over 165 million dollars in October from reputable VC’s like Polychain Capital. Talking about turning lemons into lemonade.
With this greater understanding of how Uniswap became the leading decentralized exchange, it will be curious to speculate what is next. With the aforementioned Genie acquisition and Moonpay partnership, it seems that Uniswap is focused on reducing friction for users to use the platform. Reducing friction can also encourage users to not rely on other services for transacting and increase user retention. With this in mind, Uniswap may be focused on other use cases that increase retention and reduce friction.
As more users leave centralized exchanges, Uniswap may consider adding other products that facilitate trading such as options or derivatives trading to the platform. This may prove to be safer than performing with centralized entities because all of the funds on DEX’s are on-chain, making this type of transaction more transparent.
One product that Uniswap could build that has been speculated is a wallet. Uniswap building a wallet would provide users with the opportunity to store their crypto safely while also having an easy on-ramp for currency exchange. Uniswap would be able to reduce the friction of having to connect third party wallets to the platform which can sometimes not be friendly to users without a heavier crypto or technological background. This improved user experience could lead to Uniswap to drive more transactions and enable more features for the platform.
Extending the use case of Uniswap creating a wallet, the platform could also veer into the lending space. Due to the collapse of centralized finance startups in this space, one may be cautious to enter the crypto lending sphere. However, DeFi lending has largely stayed intact. With nearly five million users on the platform, there may be demand for Uniswap’s customers to transact with each other. Uniswap can match borrowers and lenders in a trustless peer-to-peer manner that is not available on centralized exchanges. Relative to centralized lending, transactions will occur on chain in a transparent manner as the allotted capital will be visible.
Another product that Uniswap could venture to create is a payments infrastructure. This would allow for each party to seamlessly exchange the currencies that the users prefer to transact within one payment as reducing the manual steps to receive their desired tokens. For example, if “Person A” wants to send ethereum to “Person B” but needs to convert bitcoin to ethereum prior to sending, “Person A” would be able to send “Person B” their desired ethereum. Uniswap would convert the bitcoin prior to sending in the same user flow. A payments infrastructure also benefits users as they may be able to send and receive payments without the fees of using a centralized provider.
Lastly, DeFi needs a big business moment for the industry to be legitimized by the masses. Web3 organizational structures (i.e. DAOs) are very difficult for current business professionals to comprehend. In this market, Uniswap has an opportunity to make an acquisition of a centralized exchange. This will provide the optics to the market that DeFi businesses are official entities and should be trusted by consumers. The purchase of a centralized exchange can also be beneficial for talent acquisition as they would be able to attract more traditional tech talent. This tech talent can refer talented developers and other business functions to continue the growth of the Uniswap protocol.
Ultimately, Uniswap has dominated the decentralized exchange market and will continue its rapid growth in the years to come. After the collapse of FTX, it can be predicted that more users will stop using centralized exchanges and migrate to using DeFi products due to the security and freedom they provide. Uniswap has also taken advantage of the growing interest in web3 and is making strategic business moves that reduce friction in the customer journey. Uniswap will continue to work on reducing the friction of the user experience for their users by developing new products that provide immense value to its new and existing users. Although this was never the result Uniswaps founder, Hayden, had in mind at launch, it will be fun to watch Uniswap extend its leadership as a global financial power.
Hey friends, thank you so much for reading this newsletter. Follow @cryptojeter on Twitter and reshare your favorite articles.
If you found extraordinary value from this article, you can show your support by sending a tip to CryptoJeter.eth (crypto wallet) or $CryptoJeter(cash app). I am really grateful for your support.
Opinions are my own!!!
About the Author:
Hey friends! Thanks so much for checking out the Crypto Jeter newsletter. I’m Austin and I write this newsletter weekly to shine a light on emerging web3 startups and display the innovation and various evolutionary moments impacting the industry.
In 2017, during my sophomore year at Morehouse College, I bought my first fraction of a Bitcoin and have since been inspired by the financial access blockchain technology creates.
Over the last 5 years, I’ve built community and learned so much and am excited to share my thoughts with the crypto ecosystem
I truly enjoy meeting founders, investors, and contributors who are in the crypto space so please feel free to send me a DM on Twitter to @Cryptojeterif you’d like to chat.