The biggest event of this week was definitely the sudden release of Uniswap’s token, UNI, which enriched many DeFi users by at least $1200 each.
Uniswap gave 400 of its tokens to anyone who had ever traded with the protocol, even if the interaction somehow failed. And by “anyone” I mean “any wallet” — some people almost certainly got more than one such allocation by having multiple wallets.
Sadly, I wasn’t one of them, and to be honest I barely used Uniswap anyway. In my treatise about decentralized exchanges I highlighted a few disadvantages of Uniswap and others like it. For me it was mostly the cost — trading fees are high, gas fees are high, slippage is high. Not saying that Uniswap is bad, it just didn’t satisfy my needs and I had better alternatives.
Obviously Uniswap launched a yield farming incentive shortly after, but this one is actually quite great. No Ponzi pools with UNI rewards for holding UNI itself, the emission schedule is fairly tame (as are yields), and the protocol directly benefits from this liquidity.
The pools used to farm UNI are a few iterations of Ether-to-stablecoin pairs and ETH to Wrapped Bitcoin. The latter is getting the most liquidity so far, which makes sense as it’s the pool least subject to impermanent loss. That one’s another major issue of Uniswap — liquidity providers may easily end up taking out less than they put in initially if sudden price changes occur. It’s easy to see how an ETH/BTC pair would have smaller price swings.
The incentives allowed Uniswap to break all total value locked records once again and become remarkably liquid, perhaps more so than many centralized exchanges. As an example, exchanging $100,000 worth of Ether into USDC only results in 0.06% slippage. That’s low, enough that liquidity is no longer a concern when dealing with these decentralized swaps.