Investment Value Analysis of Uniswap

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

For non-native crypto tokens, I believe that if they cannot be converted into tokens with real equity value or become essential tokens with utility (such as commodities) in the future, their value will be very limited.

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

To analyze how much net profit Uniswap can generate each year in the future, we can refer to historical data. Unfortunately, in this regard, the entire crypto ecosystem provides very incomplete information, and few projects have published public and transparent financial information.

Uniswap is no exception.

I searched online for information released by Uniswap in this area, and the only relatively complete document I found was a "Token Flow Report 2020-2024" published by the Uniswap DAO organization.

I analyzed this report using DS and summarized the relevant data:

In 2020, there was only financial information for the fourth quarter, and that year's net profit was $170 million.

In 2021, the fourth quarter's financial information was not mentioned, and only data for the first three quarters was available, with that year's net profit being $3.48 billion.

In 2022, the net profit was $990 million.

In 2023, the net profit was $490 million.

In 2024, the net profit is projected to be $360 million.

This data generally aligns with the bull and bear cycles of the market.

In 2021, we all know that the crypto ecosystem experienced a major bull market in DeFi, so that year Uniswap recorded nearly $3.5 billion in net profit. Since then, Uniswap has not reached that peak again.

The years 2022, 2023, and 2024 have all been bear markets that we have personally experienced, with net profits declining year by year, reaching a low of $360 million.

Now that we have the net profit, I will use a "future PE ratio" to estimate Uniswap's intrinsic value.

"Future PE" is a concept I saw in a Q&A session with Duan Yongping. It differs from the usual PE in financial reports; it does not refer to historical values but rather estimated future values used to assess the intrinsic value of a stock.

When estimating a reasonable intrinsic value for a company, Duan Yongping typically sets this value at 12. So here, I will also use 12 for estimation.

In my estimation, I will take a conservative approach and use Uniswap's lowest annual net profit of $360 million. The intrinsic value of Uniswap calculated this way would be $4.32 billion.

On a more pessimistic note, let's assume that the current bear market in the crypto ecosystem will continue indefinitely and that Uniswap's market will gradually be eroded, leading to an average annual net profit of around $200 million. The intrinsic value estimated this way would be $2.4 billion.

On the other hand, if we are more optimistic and assume that the entire crypto ecosystem will return to a prosperous trajectory, I estimate that even if Uniswap's annual net profit does not reach the previous peak of $3.4 billion, achieving an average of $1 billion is quite possible. The intrinsic value estimated this way would be $12 billion.

Therefore, according to this method, Uniswap's intrinsic value is estimated to be between $2.4 billion and $4.3 billion on the pessimistic side, and around $12 billion on the optimistic side.

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

Since Uniswap is not publicly listed, we cannot measure its price using stocks, so we can only roughly gauge it using the price of the UNI token.

As of the time of writing, the price of UNI is $5.36, with a fully diluted market cap of $5.4 billion. So we will tentatively consider Uniswap's "market cap" to be $5.4 billion.

From these pieced-together data, the current "market cap" of UNI seems moderate, with no significant bubble, but also not much opportunity for bargains.

However, this "market cap" is not the real market cap, because the UNI token does not represent an asset with real equity, so its token value is actually far less than that of stocks with real equity value but the same price.

Therefore, from the perspective of token price, I believe the token price is overvalued.

If Uniswap were a publicly listed company, and its current stock market cap were $5.4 billion, I would likely buy some at that price.

But this is a token, and I would not buy it.