Is Uniswap [UNI] really overvalued? These metrics can help us answer

• UNI token may be overvalued based on the fee-to-market cap ratio.
• Bot activity on the protocol along with order flow toxicity increased.

Based on token terminal data, it was observed that UNI, the native token of Uniswap, was trading at a 16.20x multiple to the annualized fees it generated.

Uniswap users were paying around $420 million in terms of trading fees annually, but the discrepancy between the fees generated and the overall market cap of UNI could signal that the token is overvalued.

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Low fees generated by Uniswap can have a significant impact on its growth as a platform. The fees are used to compensate liquidity providers for taking on the risk of providing liquidity to the exchange and for maintaining the stability of the market.

However, with low fees, liquidity providers may not be motivated to continue providing liquidity to the platform, leading to a decline in the overall liquidity available on Uniswap.

MVRV ratio grows

Another sign to understand if UNI was overvalued was to look at the increasing MVRV (market value to realized value) ratio. The growing MVRV ratio suggested that the majority of UNI holders would generate a profit if they decided to sell.

This could incentivize holders to sell their UNI holdings in the coming future, which could potentially lead to a decline in the value of the token.

Additionally, the velocity of the UNI token declined over the last few weeks, indicating that the frequency with which UNI was being traded went down.

Source: Santiment

Too many bots

To reduce the discrepancy between UNI’s market cap and the fees generated by it, Uniswap would need to make improvements to its protocol.

One area where Uniswap could improve is by reducing the growing number of bot transactions on the Uniswap DEX. At press time, the number of bot transactions on the Uniswap network made up 48.2% of the overall transaction volume. Well, these bots made up only 5.2% of the overall network.

This trend can impact reliability as the bot transactions can affect the accuracy of assets’ prices on the platform.

Source: Dune Analytics

Another area of concern for Uniswap was its Order Flow Toxicity- the practice of exploiting the platform’s order book to manipulate prices.

Read UNI’s Price Prediction 2023-2024

This could result in an unfair advantage for some traders and negatively impact the overall user experience on the DEX. To address this issue, Uniswap could implement measures to monitor and prevent order flow toxicity on its platform.

Source: Dune Analytics

However, the deployment of Uniswap on Osmosis, a blockchain platform that provides solutions for DeFi, could result in fruitful collaboration and improve the protocol’s state.

That being said, despite the signs of overvaluation, Uniswap still has the potential to improve and drive growth through partnerships and protocol upgrades.