Uniswap’s decentralized exchange has emerged as one of the critical pieces in the decentralized finance sector, with the DEX benefiting from the first-mover advantage after it became the go-to exchange for new projects and traders in 2020. 

In late 2020, 400 UNI tokens were distributed to all wallet addresses that previously provided liquidity on the platform at at its peak thhe impromptu airdrop was worth north of $3,500.

By late October of 2020 the DeFi market has sold-off sharply and this pinned UNI price below the $4.00 mark for weeks but since the start of 2021, UNI token has gained 335% and reached a new all-time high at $15.35 on Jan. 27.

UNI/USDT 4-hour chart. Source: TradingView

At the moment, the driving forces behind the rise in the price of UNI are an increase in daily volume transacted on the platform, the rise in the platform’s total value locked, and the roll-out of governance features as the Uniswap v3 launch approaches.

Total value locked continues to rise

Monitoring the total value locked (TVL) of a DeFi protocol is one of the primary metrics used to determine its legitimacy and how involved the community.

A rising TVL indicates that users of the platform trust the platform enough to deposit their funds to earn rewards and it typically means that the liquidity pools are more competitive than other exchanges in the sector.

The Uniswap platform recently established a new all-time high TVL of $3.16 billion on Jan. 24, and this was boosted by an increase in the price of many of the top cryptocurrencies as well as popular DeFi tokens.

Total value locked in Uniswap. Source: Defi Pulse

Uniswap is now the top-ranked DEX in terms of TVL, and when it comes to lending the platform ranks fourth as Maker (MKR), AAVE and Compound (COMP) lead in this area.

Uniswap's trading volume competes with the top centralized exchanges

A second driver of UNI’s recent surge is the sharp rise in trading volume on the exchange.

Data from Uniswap shows the DEX’s daily volume is consistently above $400 million since the beginning of 2021 and the metric surged to a new high at $1.3 billion on Jan. 11. This level of volume now places Uniswap in competition with some of the top centralized exchanges in cryptocurrency.

Uniswap 24-hour volume. Source: Uniswap

Transactions on Uniswap also surpass those of its direct competitors and data from Dune Analytics shows that in early 2019 the main competitors were Kyber Network and IDEX.

Monthly DEX volume. Source: Dune Analytics

Since that time the number of DEXs has continued to expand but by March of 2020 Uniswap had established itself as the preferred choice for traders and it has remained the dominant DEX into 2021.

Excitement surrounding the v3 rollout bolsters UNI price

While many airdrop recipients were elated to sell their tokens shortly after receiving them, those who chose to hold on to them now have the ability to receive extra benefits with the addition of governance features.

The Uniswap Treasury currently has $500 million in it and recently Uniswap founder Hayden Adams asked the community “what are some of the most impactful ways governance can allocate this UNI?”

As the list of delegates for the Uniswap platform continues to grow, demand for UNI token is likely to increase as more UNI are locked on the platform for governance purposes.

Excitement around the upcoming Uniswap v3.0 continues to build and in addition to new governance features, solutions for the high gas fees and improvements to the impermanent loss structure are expected.

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