[Consensus Check] "Fee Switch" Pilot

[BP333]

@guil-lambert

Why choose 500 specifically? This effect is much less important for larger trades.

@guil-lambert

I tested a bunch of trade sizes. They all don’t go thru Uniswap v3. See below

Here is 2,000 DAI to ETH

Here is 5,000 DAI to ETH

Here is 10,000 DAI to ETH

Here is 100,000 DAI to ETH

We aren’t competitive for any of these trade size amount. 1,000,000 trade size will activate the Uniswap v3 pool but only for a portion of the trade and it’s not even being routed thru to DAI-ETH but to USDC-ETH.

@guil-lambert

The relationship between volume, TVL, and LP returns is not trivial. I would go as far as to say that TVL is a metric to be avoided altogether. Here’s why:

This is the liquidity distribution in the ETH-Dai-0.05% a few days ago. As you can see, there’s a huge chunk of liquidity between 1500-1900. So if the price is above 1900, all of that liquidity would be counted towards the TVL but none of it will be within a tradeable range.

But the worry is that the active liquidity will leave which will make Uniswap as an AMM less effective overall for the DAI-ETH trade. So yes, I agree that it IS the active liquidity that matters. But what makes you think that the liquidity that will leave will not be the active liquidity? It likely would be the active liquidity that leaves if the liquidity were to leave at all.

@guil-lambert

Why do you say that no testing is being conducted? Activating the fee switch is the test and will generate data that can be used to guide future decisions

The fee switch may be so detrimental that it needs to be turned off permanently (who knows?), but the only way to really know is by performing these targeted tests.

I’m saying that we need more specific parameters that we’re testing. Like to just say, “we’re testing by turning it on” is not a sufficient response. What are we testing for? How much money we make? How much liquidity is leaving? The rate at which liquidity is leaving? The impact on competitiveness on DEX aggregators? Is there anything else that I’m missing. But we need to be actively monitoring these things as they’re happening. We need the dune analytics dashboards tracking AS the fee switch is happening. The more we’re prepared and the more we know what we’re testing for, the more we can track and assess in real time. I’m worried that this testing will take place with none of the infrastructure ready to assess performance in real time.

Also will the fee switch automatically turn off after the testing period, or will it continue? I think there should be a definite stopping time, so we can adequately address all of these concerns.