Uniswap’s native governance token UNI had its bullish rally recently disrupted by the bearish momentum experienced in the market in the last two weeks but it looks like the cryptocurrency has regained its upward climb.

UNI peaked at $45 before its bullish run was cut short, as the crypto market experienced a massive price correction in May. As a result, UNI’s price tanked to a low of $13 on May 23 before bouncing back above the $25 Fibonacci level and even tested resistance at $29. The cryptocurrency is currently trading just below $27 at the time of this press.

The price has tested resistance at the $29 level for the second time with a slight pull-back each time. The current 1-day candlestick is in the red after experiencing resistance, and the action is backed by the overbought indication by the Stochastic RSI. However, the latest bullish pullback is a strong indicator that given the right conditions, the price will potentially approach its historic highs once more. Perhaps that will be the case if the overall market regains its bullish trajectory.

A look at why UNI might be in for some huge gains in the future

The performance of UNI will likely experience strong growth if the number of transactions on the Uniswap DEX increases over time. However, understanding how decentralized exchanges work is the key to finding out where UNI is headed.

Traditional crypto exchanges operate like an institution where users can deposit funds in hot wallets, trade their cryptocurrencies from those wallets and those exchanges facilitate those trades. They also deal with the listing of other cryptocurrencies. However, such exchanges operate as centralized institutions, thus they present an opportunity for governments to impose regulations.

Decentralized exchanges like Uniswap do not operate as an intermediary instruction but as a decentralized market that facilitates peer-to-peer exchange of cryptocurrencies. They do not need a physical location and thus there is no avenue for government regulation. Because of this, DEXes will likely become more popular as governments infringe on the freedoms that cryptocurrency traders have enjoyed for so long.

For example, President Joe Biden’s administration recently proposed that all crypto transactions worth more than $10,000 should be reported to the IRS. Most of the people trading on regular exchanges, especially the whales, regularly move huge amounts of cryptocurrencies. They would be at a huge disadvantage if the proposed bill is passed into law. Such a move would encourage more crypto traders to conduct transactions through decentralized exchanges.

The influx of institutional players in the cryptocurrency market will likely encourage more regulation in the cryptocurrency market. Consequently, those who wish to avoid being inconvenienced by the regulations will likely shift to decentralized exchanges like Uniswap. As a result, more transactions will lead to more demand for UNI, thus allowing to tap into more value and growth in the future.

DeFi is another major growth driver for the UNI token but it ties in with the demand for decentralized exchanges which rely on smart contracts to execute trades. The token draws upon its utility to leverage growth. All might sound attractive and safe in the DeFi world but flash loan attacks have become a major problem that may severely affect the smart contracts that facilitate trades on DEXes. Such attacks may negatively impact the value of liquidity tokens such as UNI.

Investors who want to participate in liquidity staking should consider such factors before pursuing this investment path. On the flip side, one could take advantage by purchasing extra liquidity tokens when they become discounted by a flash loan attack, if and when they occur.