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


Just 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.

While there is no direct relationship between Binance’s exchange volume (or revenue) and the token economy, traders appear to be using it as a proxy. The controversial burn mechanism has been losing its effect since April 2019 when the exchange changed the BNB white paper.

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Originally, the whitepaper proposed a plan where BNB tokens, equivalent to 20% of the exchange profit, would be bought as part of a “buyback plan,” but the new version abandoned that plan.

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

However, the exclusion of the 60 million BNB that have never been in circulation changes the outcome drastically as these excess tokens are meant to be burned 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 (above) and daily volume of the Binance exchange (below). Source: TradingView and Nomics

How BNB differs from the other exchange tokens

BNB has an actual use case aside from trading fee rebates and is the primary asset pair in the Binance smart chain. BNB captures a portion of the total value of $ 17 billion contained in the smart BSC contracts and has a fair market share and representation on decentralized exchanges. As a result, the network creates an eternal demand for BNB.

Based on these simple numbers, should analysts reduce the value of the BNB by 50% compared to other exchange tokens? As mentioned earlier, the market seems to value BNB based on the volume of the Binance exchange and so it makes sense to use this as a yardstick for valuation.

Uniswap has an average daily volume of $ 1.63 billion, even though it only offers spot markets. Hence, the number is on par with Binance’s $ 24.3 billion average without taking derivatives markets into account.

Using Uniswap’s 93.3% lower volume, the gross estimate gives a market cap of $ 10.3 billion, based on 50% of the $ 76.7 billion reported by BNB. Thus the forecast is 36% below the actual data from UNI.

PancakeSwap, the leading DEX on the Binance Smart Chain, has processed a daily volume of $ 750 million. Using the same 50% of BNB’s market cap method, CAKE’s estimated valuation should be $ 4.73 billion, which is surprisingly in line with the current number.

FTX and SUSHI trade at a discount

FTX is moving to a centralized exchange and has amassed $ 1.7 billion in daily volume, including derivatives markets. As a result, the indicator can be compared to Binance’s average of $ 54 billion. Despite its 96.8% smaller volume, FTX’s gross estimate is $ 4.83 billion – 11% below the real figure.

Using Huobi’s adjusted volume of $ 5.4 billion and Binance’s total average daily volume of $ 54 billion, including its derivatives products, gives an estimated valuation of $ 15.34 billion. Given Huobi Token’s unprecedented inflation model, it makes sense to take a large discount on reported market capitalization.

Finally, Sushiswap aggregates a daily transaction volume of $ 305 million. Looking at Binance’s $ 24.3 billion spot data, the same estimate gives a valuation of $ 1.92 billion, which is about 33% higher than the real figure.

It is worth noting that this estimate does not imply an investment recommendation. This crude and primitive methodology is merely aimed at showing 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 method of analysis in the future.

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