Uniswap’s $591mln burn sparks a deflation loop – UNI at $7.2 ONLY IF…

Deflationary measures have become increasingly popular across major crypto projects, especially token buybacks and token burns.

These mechanisms have played a significant role in market stability, helping avoid major price crashes and absorb selling pressure. Amid this growing trend, Uniswap joined the wave, with the community approving token burns.

Uniswap treasury burns $591 million of UNI

The Uniswap community approved the UNIfication proposal with 99.9% support, marking a significant shift in the protocol’s economics.

More than 125 million UNI tokens were cast in favor of the proposal compared to 742 tokens against it. After Uniswap’s [UNI] fee-burning proposal was approved, the Uniswap treasury burned 100 million UNI, worth approximately $591 million.

Under the approved deflationary measure, the future protocol fees collected by Uniswap will be used to burn the tokens. 

At the same time, it set fees to zero on its web app, wallet, and extension. The move activated revenue from V2 and select V3 pools, as well as Unichain sequencer proceeds.

All the revenue from these sources will be directed to ongoing UNI burns.

Following the token burns, the amount of UNI held by Uniswap Treasury dropped from $2.1 billion to $1.6 billion. 

This step effectively creates a deflationary loop as the coin supply decreases while the protocol usage increases. In turn, prices make sustained upward gains if demand from the open market follows suit.

How did the market react?

After token burns, UNI recorded a positive response, with demand following across the market. In fact, Uniswap jumped to a local high of $6.4 before retracing.

At press time, UNI traded at $6.3, up 5.2% on daily charts. Over the same window, its volume hiked 52% to $297 million, while the market cap touched a monthly high of $4.6 billion.

The altcoins’ volume and market cap surged in tandem, reflecting increased on-chain activity and steady capital inflows.

Additionally, the market recovered from a recent distribution phase, as evidenced by Accumulation and Distribution Volume.

The accumulation side volume surged to 744.6k, and flipped the smoothed average of 500k, signaling increased buy-side activity.

Although the accumulation volume remains below 1.2 million peaks,  buyers stepped into the market and displaced sellers. As such, the Buyers v Sellers index showed this shift in market dynamics, as UNI recorded a positive Netflow of 0.116.

Can the momentum hold?

As UNI faced reduced scarcity, the altcoin’s upward momentum strengthened, backed by organic demand. The altcoin flipped the 50 and 20 Moving Averages, indicating strong short-term upward momentum.

At the same time, its Stochastic Momentum Index made a bullish crossover and surged to 37, breaking out of oversold territory. These market conditions position UNI on a positive trajectory, setting it up for further gains.

Therefore, if buyers continue to accumulate, supporting the Uniswap token burn initiative, UNI could clear $6.4 resistance, reclaim $6.6, and target $7.2.

However, if the market impact is short-term and demand declines, UNI could retrace to $5.7.

Final Thoughts

• Uniswap treasury burned 100 million UNI, worth approximately $591 million.
• UNI surged 5% to a local high of $6.4, as the market recovered from the distribution phase.