A Wild Uniswap Appeared!

Level 3 - Virgin DeFi Analyst

The wild Uniswap made an acquisition!

Welcome Avatar! Last week, Uniswap acquired Genie, an aggregator that lets you buy and sell NFTs across marketplaces. Uniswap will integrate Genie into their web app and allow for NFT trading through Uniswap.

The acquisition was made by “Uniswap Labs”, the main entity that contributes to the Uniswap protocol (for all intents and purposes Uniswap Labs calls the shots).

Uniswap Labs: Software/Product development (centralized / VC-backed)

Uniswap Protocol: Decentralized exchange (governed by UNI token holders)

Note that if you used Genie, Uniswap will be airdropping USDC later this summer to anyone who used Genie more than once before April 15 or holds a GENIE:GEM NFT.

With Genie, Uniswap acquires the ability to enable NFT and a lot more employees. At the time of Uniswap v3’s launch, Uniswap Labs had only 12 people (crazy to think about given their scale and trading volume). They now have over 80.

Rationale

Why would a “DeFi” application buy an NFT company? Uniswap’s broader focus is to enable trading for all forms of tokenized ownership. Meaning, they likely want to be the leading application for exchanging all cryptoassets.

From a user experience standpoint, the acquisition makes a lot of sense to us. Users will be able to go on the Uniswap app and swap both their ERC-20 tokens as well as NFTs.

But why an aggregator? Why not buy, build or partner with an NFT marketplace?

By purchasing an aggregator, Uniswap doesn’t have to pick or build a winning marketplace. Uniswap doesn’t care if you use OpenSea, Looks Rare or some other marketplace in the future. Genie will support all major NFT marketplaces.

Genie’s a useful tool because you can batch NFTs in a single transaction. Genie has a cart and checkout experience similar to online stores. That means you can select a bunch of NFTs and then buy them all at once.

Gem, acquired by OpenSea in April, offers a similar experience. Gem became popular as a tool for professional NFT traders and whales to ‘sweep the floor’ by buying multiple NFTs in a collection quickly, without alerting other traders, and saving on gas (transaction) fees. Gem has ~93,000 users compared to ~43,000 Genie users (YTD).

We were quite surprised to see a prominent DeFi application like Uniswap that is already market dominant reach over to the NFT side of crypto and make an acquisition. However, in the context of becoming a one-stop shop for all cryptoasset transactions, this move makes a lot of sense. It’s comparable (though has some key differences) to Coinbase expanding to NFTs.

Uniswap is doubling down on its core competency (trading) and expanding to a different asset type. The strategic rationale is there.

This expansion is also a way to create revenue for the Uniswap Labs entity (which doesn’t receive income from the Uniswap DEX). Leveraging the popular Uniswap website to add new (paid) services mimicks the ‘web portal’ strategy of early dot com companies (e.g. Yahoo).

What does this mean for the UNI token?

Uniswap Labs owns and controls the website user interface for Uniswap (IP rights). The website generates 20% of Uniswap protocol volume, the other 80% comes from direct interaction with the smart contracts (via aggregators like Matcha/1inch and arbitrage bots).1

Uniswap averages around 450,000 unique *wallets* per month. We don’t have the exact breakdown but it seems reasonable to estimate at least 50,000-100,000 people visit the Uniswap website each month. Genie has only a few thousand weekly active users.2

A clear knee in the curve of Gem volume following its acquisition by OpenSea in April. Could Genie benefit to a similar extent from being featured on the Uniswap fronted? | Source Dune Analytics

Uniswap DEX doesn’t currently charge protocol fees, and if the fee switch is turned on revenue will flow to UNI governance holders.

It makes sense for Uniswap Labs to earn revenue by expanding into other business lines and leveraging ownership of the frontend. Uniswap could become the web3 portal for digital asset exchange. When Genie is integrated into the frontend, it will benefit from built in traffic from existing customers of the market leading DEX.

As a reminder, Uniswap Labs is a centralized VC-backed entity and separate from the DAO governed by UNI holders. We don’t expect any value accrual to UNI holders or an impact on the UNI price as a result of this deal. Significant fees generated from spreads on NFT sales could accrue to Uniswap Labs and its investors.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

1) According to founder Hayden Adams in a recent interview

2) Source: Dune Analytics