Uniswap (UNI 9.98%), the No. 17 cryptocurrency in the world by market capitalization, is up more than 6% over the past week. Much of that boost appears to be coming from reports that Uniswap Labs, the creator of the Uniswap protocol, is getting closer to landing a monster $100 million funding round that would value the company at $1 billion. With this additional funding from Polychain Capital and a Singapore-based sovereign wealth fund, Uniswap Labs would be in a good position to build out the product offerings of Uniswap and further cement its role as the biggest decentralized exchange (DEX) in the world.

There is a potential problem here, though. Decentralized exchanges, just like centralized exchanges such as Coinbase (COIN 8.59%), rely on trading volume for success. So the middle of a crypto winter seems like a curious time to be investing in an exchange, either decentralized or centralized. The decision to buy Uniswap now clearly depends on where you see crypto trading volume headed over the next 12 months.

From DEX to super DEX

By nearly any metric, Uniswap is the dominant decentralized exchange for trading crypto. Depending on the source, Uniswap controls anywhere from 60% to 75% of all DEX trading volume. That's a huge market share percentage. If you look at average daily trading volume, Uniswap far outpaces any of its rivals. For example, the average daily trading volume on Uniswap is over $1 billion. The next-closest DEX competitor, PancakeSwap (CAKE 1.76%), logs about $200 million in average daily trading volume. 

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But how does it grow from here? One strategy is to enable trading of non-fungible tokens (NFTs) on Uniswap. Back in June, Uniswap acquired NFT marketplace aggregator Genie as part of this strategy. And at the recent Messari Mainnet 2022 conference in New York, Uniswap Labs Chief Operating Officer Mary-Catherine Lader suggested that the ultimate strategy was to "bring your digital asset experience into one place." In other words, Uniswap has ambitions to become the primary marketplace for trading any digital asset in the world. 

Time to take on Coinbase?

This strategy should sound familiar. It's similar to the strategy that Coinbase appears to be following right now. In search of new trading volume, Coinbase launched its much-hyped NFT marketplace earlier this year. If people aren't willing to trade cryptos, the thinking goes, maybe they will be willing to trade NFTs? And if they aren't willing to trade NFTs, then you need to find other digital assets for them to trade.

In many ways, you can think of Uniswap and Coinbase as similar investment plays. Uniswap is the biggest decentralized exchange, and Coinbase is the biggest U.S.-based centralized exchange. Although Coinbase is still three times bigger than Uniswap in terms of daily trading volume, there are days when it looks like Uniswap is getting closer and closer to catching up. Many in the crypto community are now actively urging Uniswap to take on both Coinbase and industry behemoth Binance (BNB 0.33%).

The $100 million war chest

That's why you can think of the potential upcoming $100 million VC funding round for Uniswap Labs as a sort of "war chest" for taking on bigger centralized exchanges and expanding into new trading markets. The big project for now, it seems, is building out Uniswap's role in the NFT marketplace. If Uniswap can show early success with NFT trading volume, then that could open the door for trading other digital assets.

The big picture here, of course, is the return of decentralized finance (DeFi) as an investment thesis. Back in 2020, DeFi was all the rage because investors saw a real opportunity to disrupt the world of centralized finance via smart contracts and decentralized applications. That promise of future growth is part of the reason the price of Uniswap skyrocketed to incredible highs. Now trading at just $6.67, Uniswap seems to be significantly undervalued. Down more than 85% from an all-time-high of $44.97, Uniswap has plenty of room to appreciate in price as long as it finds new ways to expand trading volume.