The cost of buying a UniSwap (UNI) token rose by almost 24 percent in just two trading days.
UNI / USD hit a five-day high of $ 4.010 on Friday morning. The upward trend came after the UniSwap community submitted a governance proposal to expand the UNI rewards program for liquidity providers. The program expired on November 17th and coincided with the UNI / USD dropping to a weekly low of $ 3.23 this Thursday.
The UniSwap background
In retrospect, UniSwap acts as an automated market maker who provides the users’ liquidity for the operation of its decentralized exchange. In return, it pays them returns in the form of UNI. Beneficiaries can choose to sell the native token on the open market for other assets and / or use their UNI property rights to vote for changes in the UniSwap protocol.
UniSwap Total Value Locked shows signs of a rebound. Source: DeFi Pulse
One of those earnings programs was completed this week. It consisted of four ETH-based liquidity pools, each yielding 583,333 UNI. This helped bring the total value blocked with UniSwap to the top of the DeFi list.
After November 17, most of UniSwap’s reserves migrated to competing revenue projects. On November 19, liquidity provided by UniSwap users was 50 percent below $ 3.06 billion on November 14. In contrast, the liquidity pools of Bancor and SushiSwap skyrocketed after the introduction of opportunistic agricultural reward programs.
The price of a SUSHI token rose almost 54 percent in the past two days.
SushiSwap Total Value Locked. Source: DeFi Pulse
This prompted the UniSwap community to start a reward for high yield farming. So traders believe that relaunching the program would be optimistic for UNI. As a result, they have increased their token exposure in the past 48 hours.
TVLs don’t matter
However, for Jeff Dorman, Arca’s chief investment officer, the total number of values locked in liquidity pools does not determine the value of the governance token. It’s the volume that does it.
“Uniswap pools had more liquidity than needed to facilitate trading, and the excess liquidity was left over once UNIVERSITY Agriculture ended, ”he said said. “This has no effect on the volume. TVL is pointless for Uniswap if there is more capital than necessary. ”
“Uniswaps TVL began to rise at the end of August and has now“ crashed ”back to the level three months ago. But Uniswap’s volume peaked BEFORE TVL even increased, and the volume decreased as TVL increased, ”he added.
Mr Dorman went on to say that UniSwap’s customer base is stickier than that of its competitors. This means that the protocol will perform well as long as it is putting capital into productive use.
“LM incentives can be powerful, but without a target and analysis, it’s just inflation,” he added.