A reader left a comment after a September 22 article on PONS — investment versus speculation, and a look back at UNI:

“Since UNI’s true value is supposedly far above its price, from an investment standpoint why not just dollar-cost-average into UNI?”

In that piece I did not claim UNI’s true value is far above its price. I only said that, compared with UNI’s price and fundamentals back in 2021, today its price is far below then while its fundamentals are far better.

As for whether UNI’s true value today is actually above its price — frankly, I don’t know.

I do recall writing about UNI’s intrinsic-value valuation fairly early on. The core method was discounting all of a project’s future net free cash flows back to their present value.

Back then, however, UNI’s fee switch had not yet been turned on, so its cash flows could not positively feed back into the token price. That is why I said UNI was a governance token with an empty shell but no real substance, and I wouldn’t touch it.

Things are different now. The fee switch is on, and the protocol has begun buying back and burning tokens with real money. Its profits are finally able to feed back into the price, so re-assessing UNI’s intrinsic value is worth the effort.

I will still use the discounted present value of future net free cash flows.

But in the current situation we cannot get UNI’s net free cash flow — only its gross revenue. So for now we substitute gross revenue for net free cash flow.

Discounting free cash flows to present value also requires a risk-free rate. Here we take the U.S. Treasury risk-free rate, using an average of 5%.

Per the latest data [1], Uniswap’s revenue over the trailing 30 days is $16 million. Annualized, that is $190 million.

Assume this is Uniswap’s permanent annual revenue forever; discounting it at 5% yields a present value of $4 billion.

At the time of writing, UNI’s fully diluted market cap is $8 billion, the total value of actually circulating tokens is $5.6 billion, and the token price is $9.18.

So from this rough calculation alone, UNI’s current price — whether measured against $8 billion or $5.6 billion — is far above its intrinsic value of $4 billion.

Note, however, that we made several assumptions above:

  1. We used gross revenue in place of net free cash flow. If we used actual net free cash flow, UNI’s real value would be even lower, which only further highlights how relatively high UNI’s price is.
  2. More importantly, we assumed Uniswap’s annual revenue will stay at $190 million forever. Whether that holds depends on many factors: does Uniswap’s business model have a moat? How will its revenue behave across future bull and bear markets?

…

Even if I granted that UNI’s intrinsic value is the $4 billion calculated above, I would not buy at this price. I would buy at roughly a 50% discount — around a total circulating valuation of $2 billion, i.e. a token price of about $2.3.

And even if I were prepared to buy at $2.3, I would still compare it against Bitcoin and Ethereum, weighing whether its return and risk — relative to Bitcoin and Ethereum — are worth taking on that risk.

Making that comparison, I would say that from a risk perspective UNI’s risk is still far too high compared with Bitcoin and Ethereum.

Bitcoin’s dominant position goes without saying; Ethereum’s monopoly in smart contracts is equally unchallenged. But could Uniswap’s business model and ecosystem be challenged by newcomers or by incumbents?

I am not very confident.

So all in all, on balance — whether from the angle of price or of risk — at least in the current situation, I would not buy UNI.

References