Uniswap earns 23 million annually but loses 1 billion dollars: Dragonfly partner reveals the financial dilemma of DeFi protocols

Uniswap’s fee switch has been active for some time, but its financial situation has not been as optimistic as the market expected. According to the latest analysis by Dragonfly partner Omar Kanji, this leading DeFi protocol faces an awkward reality: while it earns $23 million annually from fees, it also spends more tokens on incentives, and is expected to record a loss of about $100 million this year.

The Huge Gap Between Valuation and Revenue

The true picture behind the data

Currently, Uniswap’s fully diluted valuation (FDV) is $5.4 billion, while annualized fee revenue is only $23 million. This means its valuation is 240 times the annual fee income. To put it plainly: it would take 240 years of fee revenue to support this valuation.

This multiple is indeed very high compared to other profitable companies. Traditional internet companies typically have P/E ratios between 15-30, whereas Uniswap’s “revenue multiple” has already reached 240.

Significant Pressure on Expenses

What’s even more concerning is the expense structure. Uniswap plans to allocate 20 million UNI tokens in grants by 2026. Based on current prices, this expenditure amounts to approximately $123 million.

This structure means that Uniswap’s fee income can only cover less than 20% of its expenses. The remaining 80% must come from other funding sources, or in other words, the protocol is “drawing down” its future value.

What Does This Reflect?

Challenges in DeFi Protocol Business Models

The dilemma faced by Uniswap is common among many DeFi protocols. These protocols incentivize liquidity and users by issuing tokens, but as the market matures, token prices may fall, while incentive expenses need to continue.

When fee income cannot cover token expenses, the protocol is effectively “burning money.” This model is especially fragile in a bear market—if the price of UNI continues to decline, the same amount of token expenditure will be worth less in USD, and fee income may also decrease simultaneously.

The Question of Valuation Reasonableness

The 240x valuation multiple proposed by Omar Kanji is also worth pondering. This multiple indicates that the market has very high expectations for Uniswap’s future growth. But if fee income grows slowly, these expectations may be hard to realize.

In comparison, if Uniswap’s annualized fee revenue needs to reach $200 million to reasonably support a $5.4 billion valuation, it would require nearly a 9-fold increase in fee income. This would demand a significant increase in trading volume or fee rates, both of which face challenges: trading volume depends on overall market activity, and raising fee rates could harm competitiveness.

How Can the Protocol Improve This Situation?

Possible Paths

Uniswap has several potential avenues for improvement:

1. Increase fee income: by boosting trading volume or adjusting fee structures
2. Reduce token expenditure: by decreasing incentive sizes or changing incentive mechanisms
3. Add other revenue streams: such as governance fees, lending interest, etc.
4. Increase UNI token value: through burning, buybacks, and other methods to enhance token scarcity

Currently, the protocol has activated the fee switch, indicating that management recognizes this issue. However, whether the $23 million annualized fee can sustain growth remains to be seen based on actual market performance.

Summary

Uniswap’s financial challenges are not isolated but reflect a common issue in DeFi protocols’ business models. Earning $23 million annually while losing $100 million highlights a huge gap between fee income and token expenditure.

The takeaway for investors is: don’t just look at the protocol’s market cap and trading volume; focus on its real economic model and cash flow. Even a leading DeFi project like Uniswap faces such pressures, indicating the entire industry needs to consider more sustainable business models. In the coming quarters, Uniswap’s fee growth data will be a key indicator to determine whether its valuation is truly justified.