Try Quests to earn cryptoUNI is Uniswap's governance token. What determines the market price of this token? It seems rational to believe that the value of UNI should be correlated with the popularity of Uniswap.
The popularity of Uniswap can be measured based on protocol usage. Usage can be explored with on-chain data like swap volumes as well as transactions to provide liquidity to the Dex.
In this post I investigate the correlation between the price of UNI and measures of protocol usage on Uniswap. I use Ethereum data from January 1 to March 27 for the analysis.
The main variable of interest is the price of UNI. Its price decreased significantly so far this year.
A correlation can also be visualized on a scatter plot:
- On this chart the bars represent daily swap volumes (in USD) on Uniswap-Ethereum.
- The line tracks the daily average price of UNI.
In the next sections I calculate the correlation of the price of UNI with two other variables:
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Daily Swap Volumes, and
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Net Liquidity Actions.
When two variables are correlated, a clear pattern appears on a scatter plot. This plot does not show an obvious pattern.
The CORR function of SQL computes the correlation between two variables in a dataset:
So far this year, there was a weak correlation (r = 0.15) between the price of UNI and daily swap volumes on Uniswap-Ethereum.
For this second part, I want to see if the price of UNI is correlated with the number of liquidity providers on Uniswap.
Methodology:
I was not able to obtain a daily list of liquidity providers on Uniswap. Instead, I created a proxy called Net Liquidity Actions.
The daily net liquidity actions are equal to the number of times addresses increased liquidity on Uniswap, minus the number of times addresses decreased liquidity.
Net liquidity actions are a proxy measure of the number of liquidity providers on Uniswap. On a day when there are more transactions to increase liquidity compared to decreasing liquidity, it stands to reason that the number of liquidity providers increased.
Unlike SUSHI, UNI does not capture protocol fees. This may explain why its price is only weakly correlated with the level of activity on Uniswap.
- The bars on this chart show daily net liquidity actions. When the bars are negative, more transactions were to decrease liquidity on that day.
- The line tracks the daily average price of UNI.
Again, the scatter plot does not show any obvious pattern indicative of a correlation.
The CORR function results in no correlation between the price of UNI and net liquidity actions on Uniswap-Ethereum.
My theory going into to this analysis was that the level of usage of Uniswap would be correlated with the price of UNI. This was not the case so far this year.
Why would the price of UNI be so uncorrelated with activity on Uniswap? Perhaps it is because UNI does not capture any of the fees paid by swappers on Uniswap. UNI is just a governance token with no value accrual mechanism.
Sushiswap can act as a useful control to test a different tokenomic model. Sushiswap is effectively a clone of Uniswap. However, their tokens have different tokenomics. SUSHI captures a portion of the 0.03% trading fees charged by the Dex. As swap volumes increase, SUSHI tokens receive more fees.
So far this year, the price of SUSHI was moderately correlated (r = 0.55) with swap volumes on Sushiswap-Ethereum. The correlation was stronger than what was observed on Uniswap (r = 0.15). Since the two Dexes are very similar, this difference is most likely explained by the different tokenomics of the protocol tokens.
The price of UNI was queried from Flipside's ethereum.token_prices_hourly schema. It is important to filter for price > 1 because the dataset has some erroneous prices approaching 0$.
Swap volumes represent the daily amounts traded on Uniswap-Ethereum. These amounts are shown in USD.
Swap volumes are obtained on ethereum.dex_swaps where the platform is uniswap-v2 or uniswap-v3. To avoid double counting swap amounts, the direction must equal either out or in.
Liquidity actions are transactions to increase or decrease liquidity to a pool. Liquidity actions are found in the uniswapv3.lp_actions schema. The relevant actions are action = 'INCREASE_LIQUIDITY' and action = 'DECREASE_LIQUIDITY'. Daily Net liquidity actions are calculated by substracting the two.
There are two limitations to my use of net liquidity actions. The first is that it only counts liquidity actions on Uniswap V3. The second one is that it is not a direct measure of the daily number of liquidity providers on Uniswap. Nevertheless, I believe it to be a good proxy for the number of LPs on the protocol.
