Thursday, September 29

Data suggests that Uniswap is overvalued by 36% and SushiSwap operates at a discount


Just by looking at the reported market capitalization of Binance Coin (BNB), one could conclude that the token is the dominant asset compared to other exchange tokens.

Although there is no direct relationship between Binance’s trading volume (or income) and the economics of the token, traders seem to use it as a proxy. The controversial burn mechanism has been losing impact since April 2019, when the exchange changed the BNB whitepaper.

Initially, the whitepaper proposed a plan in which BNB tokens equal to 20% of the exchange’s profits would be purchased under a “buy-back plan,” but the new version scrapped that plan.

Market capitalization and volume of exchange tokens. Source: Messari Screener and CoinGecko

However, excluding the 60 million BNB that have never been in circulation dramatically changes the outcome because these excess tokens are bound to burn out over time.

The remaining exchange tokens are inflationary, which means that the issuance rate is very high. For example, Uniswap (UNI) has 611 million tokens in circulation, but that number is expected to reach 1.14 billion in 10 years.

BNB price (top) and Binance daily trading volume (bottom). Source: TradingView and Nomics

How BNB differs from the other exchange tokens

BNB has a real use case aside from trading fee refunds, and it is the primary asset pair on the Binance Smart chain. BNB captures a portion of the total $ 17 billion value locked into BSC’s smart contracts, and has decent market share and representation on decentralized exchanges. As a result, the network creates a perpetual demand for BNB.

Based on these simple figures, should analysts discount the value of BNB by 50% compared to other exchange tokens? As mentioned above, the market seems to be pricing BNB based on the volume of the Binance exchange and therefore it makes sense to use it as a valuation proxy.

Uniswap has been averaging a daily volume of $ 1.63 billion, although it exclusively offers spot markets. Therefore, the figure is comparable to Binance’s average of $ 24.3 billion, without factoring the derivatives markets.

Using Uniswap’s 93.3% lower volume, the gross estimate accumulates a market capitalization of $ 10.3 billion based on 50% of the $ 76.7 billion reported by BNB. Therefore, the prediction is 36% lower than the actual UNI data.

PancakeSwap, the leading DEX of Binance Smart Chain, has been handling a daily volume of $ 750 million. Using the same 50% of BNB’s market capitalization methodology, CAKE’s estimated valuation should be $ 4.73 billion, which is surprisingly in line with the current figure.

FTX and SUSHI are trading at a discount

Moving to a centralized exchange, FTX has amassed $ 1.7 billion in daily volume, including derivatives markets. Consequently, the indicator can be compared to Binance’s $ 54 billion average. Despite its 96.8% lower volume, FTX’s estimated gross valuation is $ 4.83 billion, 11% below the actual figure.

Using Huobi’s adjusted volume of $ 5.4 billion and Binance’s total average daily volume of $ 54 billion, including its derivative products, results in an estimated valuation of $ 15.34 billion. When considering Huobi Token’s unprecedented inflationary model, it makes sense to apply a large discount for the reported market capitalization.

Lastly, Sushiswap adds a daily transaction volume of $ 305 million. Taking into account Binance’s spot data of $ 24.3 billion, the same estimate yields a valuation of $ 1.92 billion roughly 33% above the actual figure.

It should be noted that this estimate does not imply an investment recommendation. This primitive and unrefined methodology simply aims to show that traders are effectively using exchange volume as a proxy for native token valuation.

While this may have worked in the past, current regulation, KYC, and the removal of leverage trading options on centralized exchanges could affect the effectiveness of this analysis method in the future.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.