Uniswap's NFT Platform Shows DeFi's Reluctant Acceptance of Centralization
If you want to be “the interface for all NFT liquidity," you have to make some sacrifices.
In November, the most popular decentralized exchange on the planet, Uniswap, launched a non-fungible token (NFT) trading platform. The new marketplace didn’t list NFTs directly but instead scraped the tokens from all over the market.
Then, Uniswap presented the NFTs on its site so the financial institutions and precocious children who dominate the platform could trade any picture, video or Mp3 file logged on the Ethereum blockchain in one handy place.
One thing stuck out almost immediately after launch. In its first month of trading Uniswap’s decentralized aggregator overwhelmingly redirected trades from two of the most popular NFT marketplaces: the very centralized OpenSea and the slightly more decentralized NFT trading platform LooksRare. Most of the trades then came from OpenSea, a platform so centralized that one rogue employee was charged with insider trading in June 2022.
It might seem strange for a decentralized exchange’s (DEX) first dip into NFTs to rely so heavily on centralized marketplaces, where employees and founders are free to run the platforms in the same way that feudal lords command small fiefdoms.
After all, Uniswap launched four and a half years ago with the purpose of cutting out the need for centralized cryptocurrency exchanges, like Binance or Coinbase. The DEX allowed traders to swap coins on-chain by having other Uniswap users fund large liquidity pools, then relying on algorithms to rebalance the prices of cryptocurrencies held within them. The platform has since processed over a trillion dollars worth of trades and is steadily eating away at the market dominance of centralized exchanges.
Despite the culture shock, Uniswap doesn’t consider its integration of centralized marketplaces into its new NFT marketplace a major roadblock to its mission of decentralized trading. “We're only acting as a wrapper around these marketplaces,” Scott Gray, Uniswap’s head of NFT product, told CoinDesk in an interview at launch.
Uniswap has also taken some pains to protect its users from the perils of centralized control. If a customer buys an NFT on Uniswap that comes from a centralized marketplace, Uniswap only hands the NFT to the customer after receiving it from the marketplace.
Indeed, far from compromising Uniswap’s ideal of decentralization, Gray said linking up centralized marketplaces solved a problem that has long plagued the NFT market: “the fragmentation of liquidity across marketplaces.” It’s not very “capital efficient,” he said, to split NFTs across different marketplaces. “If you're not seeing all listings, you're not getting the floor.”
By supporting listings from all marketplaces, “no matter their royalty stance or their fee structure,” Gray said the outcome is better for customers. He added the aim is for Uniswap to become a platform that puts “all the options in front of the consumer” so that “the consumer can easily decide which marketplaces they support.” That “allows for everyone to create their own preference schedule and have the community decide what they value,” he said.
It’s a lofty goal, and one that hadn’t initially paid off. Uniswap’s new NFT platform generated a cumulative trading volume of just $2.5 million about a month after launching, according to one Dune Analytics dashboard. Since then, that figure has only grown to $7.8 million – while other NFT marketplaces like Blur shot off like a rocket.
Uniswap’s NFT venture’s slow start may be down to timing. NFTs took off in 2020 after convincing traders of the necessity of property rights to virtual plots of land or one-of-a-kind renditions of an infinitely reproducible Internet meme.