- Uniswap is seeing record volumes
- Some traders are using the protocol to buy questionable micro-cap tokens in hopes of massive returns
- In the last 24 hours, Uniswap has seen $274 million worth of volume
Major decentralized finance projects such as Compound, Aave and Maker are currently in the spotlight thanks to the DeFi frenzy that’s sweeping across the cryptocurrency community. While these projects have long-term ambitions, professional development teams and venture capital backing, the DeFi space also has a wilder side that has many parallels with the ICO boom of 2017, albeit on a smaller scale.
The basic idea of decentralized finance is that it leverages the unique properties of crypto assets and smart contract-powered blockchain protocols to provide open access to services like trading, lending and borrowing, to anyone with an internet connection and a cryptocurrency wallet.
Traders jump into questionable micro-cap tokens
Since there are no middlemen such as centralized cryptocurrency exchanges to serve as a filter and perform even the slightest quality control, DeFi protocols are providing the ideal environment for questionable cryptocurrency projects and traders who are chasing quick gains. Users are pouring their money into newly-launched micro-cap cryptocurrencies in the hopes of 10x or even 100x returns.
In most cases, traders are aware that they are participating in a glorified pump-and-dump scheme and are just hoping that they are early enough to ride the wave and cash out in profit before the inevitable collapse.
Sometimes, the creators of the token, as well as the traders who buy it, don’t even pretend like the asset has any underlying value or utility – Retard Token and ButtSex Token are obvious examples.
Decentralized exchanges have been around for years, so why are we only seeing this trend now? One reason could be that the DeFi boom has resulted in more users becoming comfortable with using decentralized apps and interacting with the Ethereum blockchain. In addition, the predominantly bullish sentiment in the cryptocurrency market at large has also increased traders’ appetite for risk.
The Uniswap effect
The most popular platform for trading these kinds of tokens is Uniswap. Uniswap is an Ethereum-based protocol that allows anyone with some ETH to spare to list their ERC-20 token and make it available for trading. Since Uniswap is completely permissionless, there is no mechanism to prevent someone from listing a token or removing a token from the protocol.
Most traders will interact with Uniswap through various graphical user interfaces (GUIs) such as app.uniswap.org. This interface now displays a warning reminding users that ERC-20 tokens can be created by anyone. The warning also notes the problem of copycat tokens, where users will create a token with the intent of deceiving traders into thinking they are buying another token.
Uniswap volumes have been going through the roof recently, and the protocol has already surpassed its record-high monthly volume posted in July, even though we’re not even in the second half of August yet. In the last 24 hours alone, Uniswap has seen $274 million worth of volume. $23.7 million of that volume came from YAM, an experimental elastic supply token that has taken the DeFi markets by storm and contributed to massive price increases displayed by MKR, LINK, COMP and other DeFi protocol tokens.