Applying Efficient Market Hypothesis in Crypto Market through Ending of Uniswap Mining Rewards| BlockArk View

Efficient Market Hypothesis

Colleges students major in Finance will learn about the Efficient Market Hypothesis Theory soon after professional courses. The theory believes that in a transparent and fully competitive market, all valuable information has been reflected in the price, including expectations of future value.

Impact of Uniswap suspension

At 8 am(UTC+8) on Nov 17, 2020, Uniswap’s first phase of liquidity mining rewards ended. UNI’s daily output was reduced from 747,944 to 473,972, a 30% reduction. The daily release amount is only the part of the team and early investors left.

Uniswap liquidity pool and transaction volume changes
Changes in the liquidity of ETH trading pairs

Reasonable Valuation and Value Expectations

For the first time, liquidity mining has made digital currency holders realize that assets have an opportunity cost. In the POW era, this consciousness has not yet risen. Investors with huge capital generally put their assets in their wallets without any gains. This mentality has changed after two phenomenal industry events : IEO in 2019 and DeFi liquidity mining in 2020. After gradually transitioning to the POS era, investors began to expect the annualized return of holding assets.

The daily trading volume of ETH trading pairs

New price model

Unlike most mining projects, where prices are determined by supply and demand in the secondary market, some DeFi projects innovatively use a new price model. For example, the insurance project NXM, its token price is determined by the amount of funds participating in the insurance fund pool, which means that wNXM traded in the secondary market often only provides an interface for external speculation, and arbitrageurs will balance the two sides through arbitrage. If the insurance demand is strong (such as the recent lightning loan supply incidents, the insurance sector prices soaring), it will indirectly drive the increase of the insurance fund pool from the outside, and further, promote the development of the project.

About BlockArk

BlockArk is an investment banking and marketing advisory firm focused on Blockchain. Team has the background from Tencent, Accenture and PwC.

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