Sincere apologies for being out of touch for so long. I’ve been very busy with my day jobs over the past couple months and haven’t been able to give UNI governance the attention it deserves.
I wanted to update everyone on the status of this proposal.
TL;DR: I no longer believe it is in Uniswap’s best interest to extend liquidity incentives, and will not be pushing this proposal forward to an on chain vote. Quick explanation of my reasoning:
Liquidity incentives are not necessary right now
When @coopahtroopa and I initially drafted this proposal, the liquidity incentives were ending imminently and it was not clear if Uniswap would be able to maintain its market share and dominance without continued token distribution.
In my opinion, the relative performance of Uniswap vs competitors in the following few months has soundly addressed this concern. Uniswap continues to lead other DEXes in both TVL and trading volume, and in particular dominates trading in newly launched and long tail assets (basically anything that is not being actively incentivized by competitors).
The scope and targeting of the proposed liquidity incentives no longer make sense
Back in November, UNI was languishing below $4. Since then it has increased in value more than 5x, so the amounts listed in this proposal are likely no longer appropriate, even if UNI governance decided they would still like to move forward with liquidity incentives.
Furthermore, the relative allocations proposed for WBTC, USDT, USDC, and DAI were based on a point-in-time analysis of the “stickiness” of LPs and trading volume. Given how liquidity has changed since then, the allocations no longer make sense.
Liquidity incentives probably won’t drive long term value
In hindsight I view the September-November 2020 liquidity incentive program as a success - it helped Uniswap retain the top spot among DEX protocols and expanded ownership to the wider community. But in cases where we’re not facing an existential threat, liquidity mining seems less valuable.
Liquidity has no loyalty, and competitors such as Sushiswap are paying far more in incentives than they take in protocol fees. Over the long term, these incentives are clearly unsustainable and liquidity will likely migrate back to Uniswap once they are discontinued (assuming that Uniswap keeps the fee switch turned off).
So what now?
I believe we should refocus Uniswap governance and community efforts in areas that are likely to drive long term value and enduring network effects. Off the top of my head this could include community efforts on:
- Improving Uniswap routing
- Certain protocols such as Mirror, Frax, and Badger are heavily integrated with Uniswap, but benefit less than they should because key tokens are not included as “bridge” assets for routing purposes
- If we add support for trades through UST, FRAX, and WBTC, we could potentially deepen these protocols’ relationship with Uniswap
- SOCKS migration proposal
- Uni governance owns the original SOCKS/ETH liquidity pool tokens from Uniswap v1
- Migration to v2 would require upgrades to the unisocks.exchange front end as well as work on organizing the actual migration of assets from pool to pool
- This type of initiative won’t have a huge impact on Uniswap financial performance, but could help onboard new devs into the UNI ecosystem (always a good thing)
- Integrating LP tokens in other defi protocols
- This is particularly close to my heart, I’ve been hard at work reviewing UNI LPs to onboard as collateral to MakerDAO.
- Defi integrations could offer a more durable, long term advantage vs direct liquidity incentives (for example, UNI LPs can earn additional yield by borrowing against their assets from Maker and depositing to eg. Compound or Aave to capture the spread in interest rates.
- Exploring opportunities for “payment for order flow” to drive integration with wallets and dashboards - distribution will be incredibly important for the next wave of DEX competition
- Check out Banteg’s post hinting at PFOF incentives/revenue sharing for inspiration:
If you have an idea for a Uniswap related project, feel free to get in touch with me and I’m happy to discuss and see if/where I can support
I’d also like to call out the Uniswap Grants program, which has a budget of $750k per quarter to fund important Uniswap related projects and initiatives. Applications for Q1 grants close soon, so if you’d like to apply for funding be sure to get your grant request in before Feb 28! Full details can be found here.