Analysis of the investment value of Uniswap

In yesterday's article, I shared some thoughts on crypto assets.

For non-native crypto tokens, I think their value will be very limited if they can't be converted into tokens with real equity value or become tokens with useful functions (such as commodities) that are essential to the project in the future.

In today's article, I try to analyze the intrinsic value of Uniswap in the way of future free cash flow. Here, for the sake of calculation, I will use net profit instead of free cash flow for calculation.

To analyze how much net profit Uniswap will generate each year in the future, the reference is historical data. Unfortunately, in this regard, the information that the entire crypto ecosystem can provide is very incomplete, and few projects have released open and transparent financial information.

The same goes for Uniswap.

I searched the Internet for information released by Uniswap in this regard, and the only relatively complete thing I could find was a copy of the "Token Flow Report 2020-2024" released by the Uniswap DAO organization.

I analysed the report with DS and summarized the data:

There is only financial information for the fourth quarter of 2020, when the net profit for that year was $170 million.

In 2021, there was no mention of financial information for the fourth quarter, only data for the first three quarters, and the net profit for that year was $3.48 billion.

Net profit in 2022 was $990 million.

Net profit for 2023 is $490 million.

Net profit for 2024 is $360 million.

This data is basically consistent with the bull and bear cycle of the market.

In 2021, we all know that the crypto ecosystem ushered in a big bull market in DeFi, so Uniswap recorded a net profit of nearly $3.5 billion in that year. Since then, Uniswap has never reached that peak state.

We have personally experienced the three years of 2022, 2023, and 2024, all of which are bear markets, and the net profit in these three years has also declined year by year, reaching a minimum of $360 million.

Now that we have the net profit, I'm going to use a "future PE" to estimate the intrinsic value of Uniswap.

"Future PE" is a concept I saw in Duan Yongping's Q&A, which is different from the PE in the usual financial reports, it does not refer to the historical past value, but the estimated future value, which is used to estimate the intrinsic value of the stock.

When Duan Yongping estimates the reasonable intrinsic value of an enterprise, he usually sets this value to 12. So here, I'm also using 12 for the estimate.

When estimating, I used a more conservative approach, choosing Uniswap's lowest annual net profit of $360 million. The intrinsic value of Uniswap is estimated to be $4.32 billion.

To be more pessimistic, we assume that the current bear market in the crypto ecosystem will continue, and Uniswap's market will gradually be eaten away, and its net profit will fall to an average of about $200 million per year in the future. The intrinsic value of this estimate is $2.4 billion.

On the other hand, if we are optimistic and assume that the entire crypto ecosystem will be on the right track to prosper in the future, I estimate that Uniswap's annual net profit is very likely, if not to reach the peak of $3.4 billion, to reach an average of $1 billion. That would be estimated at $12 billion.

Therefore, the intrinsic value of Uniswap estimated by this method is between $2.4 billion and $4.3 billion, and more optimistic, around $12 billion.

Now that we have intrinsic value, the next step is to look at its market price (i.e., market capitalization).

Since Uniswap is not listed, we can't measure its price in terms of stocks, so we can only grudgingly measure it in terms of the price of UNI tokens.

At the time of writing, UNI's price is $5.36, with a fully floatable market capitalization of $5.4 billion. So let's take Uniswap's "market cap" at $5.4 billion.

Judging from these patchwork data alone, the current "market capitalization" of UNI is decent, there is no bubble, but there is not much to take advantage of.

However, the "market cap" here is not the true market capitalization, because the UNI token is not an asset with real equity, so the value of its token is actually far less than that of a stock with real equity value but the same price.

So from the point of view of the token price, I think the token price is overvalued.

If Uniswap were a publicly traded company with a market capitalization of $5.4 billion, I'd probably buy some at this price.

But this is a token and I won't buy it.