DeFi startup Uniswap Labs raises $165M at a $1.66B valuation

Uniswap Labs, the parent company behind the world's largest decentralized exchange, raised $165 million in Series B funding led by Polychain Capital.

Why it matters: This is a big bet by investors that the creators of decentralized apps can build a valuable business atop protocols that largely run on their own.

Details: The new financing values Uniswap Labs at $1.66 billion and includes participation from existing investors a16z crypto, Paradigm, SV Angel and Variant.

How it works: The Uniswap protocol is a smart contract that allows users to deposit tokens into liquidity pools with a defined buy and sell price for every token it lists (making it an automated market maker or AMM).

• Prices on Uniswap (and DEXes like it) are determined via software, mostly based on the ratios of tokens in their supply.
• Users make money on Uniswap by supplying capital to liquidity pools that are used to make these trades. The more capital in a given pool, the less any one trade can move out of line with the market

Going deeper: The latest version of the protocol, Uniswap v3, improves trading by allowing the people providing capital to define the price range within which their funds can trade.

• This gives traders better prices and gives the smartest investors more fee revenue.

Yes, but: Uniswap (the company) isn't known to actually make money off trades that happen through the protocol. Those fees go to liquidity providers instead.

• It's not known if Uniswap Labs has any revenue streams yet, beyond appreciation of the UNI token.

💭 Our thought bubble: Investors in Uniswap Labs' prior rounds must be very happy due to the performance of the UNI token, but a round like this suggests an entirely new direction for the company, as it tries to become one that actually generates revenue.