Uniswap is more of a stable and potentially overvalued investment, while Pancakeswap is a higher risk, higher reward investment.
Despite the current market volatility, one thing will never change: the trading activity on exchanges. Investors either buy low or panic sell during turbulent times, and they must trade. For privacy advocates and users who do not want to register on an exchange to trade some of the top cryptocurrencies, decentralized exchanges offer a solution. Traders on this platform can keep their funds in their own wallets and trade without KYC. Due to their powerful features and improvements over centralized exchanges, many believe they will play a key role in the future of the financial world.
The two largest decentralized exchanges, Uniswap and Pancakeswap, both have tokens that investors can purchase to own a part of the protocol. Let’s take a look at these two projects and determine which is most likely to be the future of the decentralized trading space.
Uniswap was released on Ether in 2018 and is widely considered to be one of the first decentralized exchanges based on a liquidity provider. Uniswap V1 was intended as a proof of concept, while Uniswap V2, launching in May 2020, brings greater security, more accurate pricing, and more optimized features. Later in 2020, the Uniswap team released the UNI token, which acts as the network’s governance token and gives holders the right to vote on protocol changes and upgrades. Investor interest in the token was immediate, and it quickly rose to the top 25 cryptocurrencies by market capitalization. Uniswap V3, released in May 2021, further improves efficiency and eventually plans to migrate to an extended ethereum solution, Optimistic Ethereum, which will make transaction fees virtually non-existent. This is critical to Uniswap’s survival, as current congestion in Ether means Uniswap fees can be as high as $100 per transaction.
Pancakeswap was released on the Coinan smart chain in September 2020. The team is anonymous, and there are rumors that Coinan played a role in its creation. They started as a branch of Uniswap, which means they copied the code and created their own tokens. While technically a copy-and-paste project, it quickly rose to fame and released unique features that Uniswap did not have. For example, liquidity providers on Pancakeswap not only get a share of the transaction fees, but are also rewarded with CAKE (the ecosystem’s management token).
Another unique feature of Pancakeswap is that users can pledge CAKE and receive other tokens in exchange for a huge APY of over 70%. they also offer prediction markets, lotteries and IFO services, a new crowdsourcing model where users pledge CAKE and BNB in order to receive tokens from the project. These token use cases and the faster and cheaper nature of the Coin Smartchain have led to Pancakeswap gaining a lot of traction since its launch.
The hype around Pancakeswap is so high that it has repeatedly outpaced Uniswap in trading volume, signaling to investors that Pancakeswap could be the top DEX of the future.
The market cap of the UNI token currently stands at $11 billion, with an all-time high of $22 billion. The CAKE token has a market cap of $2.5 billion, with an all-time high of $7 billion. If Pancakeswap is definitely better than Uniswap, then why is there such a big difference in valuation?
One of the most important metrics to consider when evaluating a DeFi protocol is its total value lock-in (TVL). This number indicates the amount of capital locked into the DeFi agreement. Uniswap has a TVL of $5.3 billion and a market capitalization to TVL ratio of 2.2, while Pancakeswap has a TVL of $6.6 billion and a market capitalization to TVL ratio of 0.38.
Since the tokens of the DeFi protocol are responsible for managing the funds locked in the platform, the project can be classified as reasonably valued if the ratio of TVL to market cap is 1, overvalued if the ratio is greater than 1, and undervalued if the ratio is less than 1.
Based on this metric alone, Uniswap appears to be overvalued while Pancakeswap is significantly undervalued, but that doesn’t tell the whole story. uni has a higher valuation because it is institutionally backed by companies like Coinbase Ventures and Pantera Capital. It has a bright future and the release of V3 could bring huge trading volume to the platform as users will eventually be able to trade at a low price. They also have the code license so that Pancakeswap cannot replicate its work again. In addition, UNI has a maximum supply cap, which means that inflation will not hurt the price of the token.
On the other hand, Pancakeswap has a high inflation rate and no maximum supply. Despite their plan to curb inflation and create scarcity of tokens by burning, fear of inflation and worthless tokens have scared away some investors.
That said, if Pancakeswap can maintain its current trading volume, it is bound to attract more attention from investors. It appears that CAKE has much more short-term potential than UNI and may be undervalued, while UNI has more long-term potential. While it is easy to fall into the tribalism of the cryptocurrency world and choose to back only one platform, the best investment decision may be to invest in a portion of each platform, cheering both as they revolutionize the financial industry.
Posted by:Helen，Reprinted with attribution to:https://coinyuppie.com/uniswap-vs-pancakeswap-which-defi-dex-is-the-better-investment/
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