Update:
The average trade size on WBTC is larger because it’s not a popular pair for trading, i.e. there’s not much demand among Uniswap users to trade WBTC/ETH. The data is from the Uniswap Community Dashboard:
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I completely agree with this sentiment. Save our bullets for v3.
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I have to say I’ve been a proponent of 50% subsidies all this time, but now I’m back to being undecided…
In any event, a BIG thank you to the community members here who actually provided precious data to make their point !
ATM, Gauntlet is nowhere to be seen. They were so quick to say that they were going to only work on “quantitative” stuff (yet they were the first to help Dharma…), but I contacted them on Twitter about their upcoming analysis, and no reply…
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There are too many tokens hovering around, this makes the whales to control the price movement,. Buy back few % of total circulation is important, with the fees generated.
I really think we should take the next month and continue to gather data, discuss alternatives, cost/benefit ratios, and overarching goals and objectives of the liquidity mining program so we can make a well informed decision.
For a platform that prides itself on serving the long tail of assets, I think it may be more beneficial to rethink the liquidity mining program going forward to lower the slippage on a larger basket of frequently traded pairs. Here is the current slippage on purchases of 1, 5, and 10 ETH for each trading pair.
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I do not think the UNI community needs another liquidity program as it hands out coins from the UNI treasury for no specific reason…there is plenty of liquidity already. Why do we need to “buy” it with 10M UNI? That´s a very expensive investment if you ask me. What does the UNI holder get from this? Nothing…
I will vote NO.
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Overall, I have found no convincing argument to restart the program for the top-4 pairs.
Initially, the proposal seemed like a good idea to me, as I thought it represented the middle ground between the interests of different parts of the Uniswap Community. I have reconsidered my stance since.
Now it seems to me that there’s not much to gain here for all the major groups: LPs, Users, UNI holders.
It also doesn’t look like a good investment in isolation. The targeted markets are the ones where Uniswap either already has dominance or has no chance for dominance.
The program is likely to be inefficient in its primary purposes.
The increase in the liquidity retention effect is expected to be considerably lower than after the previous two programs.
We also know that increased liquidity doesn’t increase the volume or the average trade size, so excessive liquidity is not needed.
As for the community-building perspective, for the most part, we just invite LPs who left to come back temporarily.
The improvements to the user experience will be quite negligible and not worth the cost. If my estimations are correct, more than 87% of the trades on top-4 pairs happen with a <0.01% slippage already. For reference, the UI doesn’t show if the slippage is 0.001% or 0.009%.
Current liquidity providers on the top-4 pairs don’t get much from this program either: their APYs are likely to stay the same. Except they’re rewarded in respective coins now, and with the program, they’ll receive UNI instead.
The primary beneficiaries of this program are large LPs who left Uniswap after the program finished.
UNI holders pay for this program, and it sounds like a bad investment.
Sushiswap is not a competitor to Uniswap on these pairs, and the numbers there are not sustainable and likely have signaling purposes.
I also find it a bit questionable to view the restart of the initial program as maintaining the status quo. If someone proposed to repeat the original airdrop with a smaller size, it certainly wouldn’t be viewed as such.
I will vote against the proposal.
I think the modified version leads to less decentralized distribution than the original, but I would vote against the original version too.
Even though I’m pro-distribution overall, and I think it’s ok if a distribution is somewhat inefficient, the inefficiency of this one is a bit too high for my taste.
We can do better, and nothing is pressing us to restart the liquidity incentives immediately.
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Exactly the same view with you. But we need to focus on the mostly consensus thought of incentives based on the previous way to make it real. Even it may not be the best.
So, the snapshot vote passed, is there other voting necessary?
When we can realistically expect the reward program to continue?
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The second (Consensus check stage) poll is here https://snapshot.page/#/uniswap/proposal/QmcZGhUoTEGGQWMrEXBcCwCenjSQRTJdhta4JYyVEWnN24
Snapshot is not the official vote platform, there will be a final vote.
Refer to timeline in original post.
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I recommend listening to the 2nd Uniswap community call to everyone who missed it. There’s some quality discussion there. After hearing additional arguments, I’d like to adjust my stance.
I acknowledge that there is a strategic value to incentivizing the WBTC pool in the near future.
Addressing my previous arguments:
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The market leadership argument is not entirely correct.
Uniswap is the leader in volume on WBTC/ETH pair, but it’s far away from leadership on BTC/ETH pair, of course - and this is a top-3 market in crypto space. -
In terms of slippage on large trades, WBTC is the only pool that it makes sense to incentivize comparatively:
0,01% slippage seems like a good target to strive for.
As WBTC traders utilize the liquidity more in terms of trade sizes, additional incentivization would bring the experience on par with top USD pairs.
- WBTC has the smallest number of makers and takers among the top-4 pairs.
This fact doesn’t imply the direction of incentivization, though.
Do we want to reward a pair with more makers and takers to decentralize the distribution? Or a pair with fewer makers and takers in hopes that the number grows?
- WBTC-ETH pair is indeed the most responsive to liquidity incentives, likely due to the lower volatility.
Even though the retention of liquidity after the program is only 31%, the growth in Liquidity/Volume ratio compared to the period before the program is still quite substantial:
Another notable pair in this table is DAI.
As we can see, DAI gained the most out of the UNI program in terms of Liquidity/Volume ratio growth.
How we interpret these results is up to us.
In my opinion, the key difference between Sushi and UNI programs is that the first one incentivized a lot of pools, and the latter only 4.
Being one of the top four pools brought a lot of legitimacy to DAI and WBTC, which had positive feedback loops regarding LPs’ comfort to park their money.
The least successful pair in terms of gaining retention effects from the program is USDC.
- The money that will go to the WBTC-ETH pool will likely stay there only temporarily for the program’s duration. And the large portion of the distribution will likely be received by large funds.
It then comes down to the decision we need to make - how strategically important it is for us to have big liquidity on the BTC pair.
If we find it crucial, we can opt to renew WBTC incentives repeatedly and keep that temporary liquidity.
==
The reasoning above would make me vote for the proposal that would incentivize only the WBTC pair.
There is no significant drawback on USD pairs in trading experience, they perform well without the program, and Uniswap doesn’t have a new niche to take with them. So I would vote against restarting LMP for them.
If I were to modify the initial proposal, I would take an even amount out of all USD pairs, not just DAI.
DAI pair in the initial program invited a bigger number of new LPs to Uniswap - and was a quite successful investment in general.
Overall it makes me neutral, so I will actively abstain from voting.
I believe both outcomes have their own merits and drawbacks, and I approve of both of them.
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Great work! I was thinking that it would be good to wait a month or two before considering to renew the liquidity mining program to see if the protocol is seeing the flywheel effect where transaction volume (and associated fees) begets more liquidity, and more volume, etc. Current 1 year fee apr on the pairs in the initial LMP are currently between 19 - 47%. I would imagine at these rates liquidity will flow in over time without additional incentives.
Disagree with continuing the distribution. Spending another 10 million UNI (=$40 million) from the treasury should be done with more supporting data, strategically, and with an eye towards long-term growth.
Consider how much money that is, and what it could potentially be used for to create sustainable NFX around Uniswap. The due diligence a regular company of Uniswap’s valuation would do before spending $40 million in stock options is on a complete different level from what is happening here. This should give people pause.
The first important issue is that liquidity mining does not create a sustainable NFX for protocols. This is shown by how liquidity immediately migrates away immediately when the incentives end. Playing an endless game of distributing tokens and fighting with competitors that way, is fundamentally a losing proposition.
Liquidity mining seems to have zero effect on creating a DEX people will want to use. If you take a look at Uniswap’s market share among DEXs, it has not taken a hit since the liquidity mining ended.
Second, it’s likely that the incentive should be distributed more uniformly across many pairs. We should try to pick out pools based on the demand, and have data that supports that in what pairs traders are experiencing slippage. This is roughly approximated by the following chart.
There’s no reason to anchor ourselves to these 4 pairs.
Overall, the Uniswap treasury should be spent with tremendous care. This is a multi-decade race, and we don’t want to use all our ammo in the 1st inning (to draw liquidity that immediately leaves without those incentives).
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Additionally, wanted to address the notion of “decentralization via distribution” @monet-supply.
I think this makes sense, but regardless of how much you agree with the desired goal, I think this would favor slowing down the distribution too.
Right now, it’s a small group of DeFi users, but it’s likely that in 1-2 years we will see massive inflows of more (to a degree) of mainstream users. We want to have tokens to distribute then, and that distribution will make the protocol far more decentralized than any distribution today (to a small user base).
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I guess I’m just really struggling with spending this amount of money to bring slippage down on four pairs for very large purchases that make up a small percentage of Uniswap’s transaction volume.
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Hi all,
Thanks @monet-supply for putting together the call, was valuable to hear what others in the community are thinking and good to have a place to discuss outside of forums/discord.
Just wanted to post this here: https://twitter.com/tokenterminal/status/1331552128813461507
Think it quickly sums up the situation and makes a concise data-driven argument for NOT continuing liquidity incentives.
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Thanks for everyone’s thoughtful responses and analysis! This is governance in action, and I’m super optimistic for Uniswap’s future based on this discussion 
With regards to continuing distribution, I believe Uniswap stands to benefit even if incentives are not fully optimized. Issuance gives potential Uniswap community members a chance to buy or earn (through being an LP) their share of governance at a reasonable cost - giving community members upside potential has proven important to other crypto project’s success.
I also think @mosayeri made a great point in yesterday’s community call that deep liquidity in some of these foundational pairs like ETH/BTC can help bring in new users from the CEX space and expand Uniswap’s total addressable market. Clip: https://www.youtube.com/watch?v=m2FC1GN-U_I&feature=youtu.be&t=1036
I’m a little concerned that volume may be a lagging indicator of DEX adoption, and allowing Uniswap’s share of TVL/Liquidity to decline could cause increasing impact on trade volume market share over time. The drop off in market share has not been as bad as feared so far, but I don’t take too much comfort from this with only a week of data.
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Thanks for hosting the Call once again, @monet-supply .
I appreciated hearing new participants in this second call and found the ambiance/atmosphere/tone was better, which is normal.
I am not yet decided on the vote. As many here (and in the call, @mikedemarais and @internal123456 ) have already pointed out, it’s a very big expense and the effects seem to be limited. At the same time, our competition has the advantage of moving faster and a little defense probably wouldn’t hurt. Ideally, I think something like 1/4th or at most 1/3th of the budget (vs the first LM era) would be enough, but that’s not what we’ll be voting on (we’ll be voting on distributing 50%).
In conclusion, it appears to me that we should start considering other ways of distributing UNI. As it was pointed out toward the end of the call, liquidity mining (LM) programs are often targeted by big funds. Thus we end up distributing a lot of UNI to the already rich. Liquidity mining also forgets the other part of the equation, and that is actual volume. I.e. liquidity mining incentivizes primarily TVL but not the other ingredient or metric of success that is volume.
Hence we could start thinking about ways to incentivize swapping by simply distributing UNI to those who drive the volume, aka Uniswap swappers ! I think that would be pretty crazy and be one way to distribute fairly. It would also be great publicity for our beloved platform, another publicity stunt if you will 
.
(P.S. Speaking of competition, and as a heads up to the community, Andre Cronje is about to release Deriswap. It remains to be seen if it’s going to be a direct competitor to Uniswap. What he did say in an interview yesterday is that Deriswap is essentially 150 lines of code on top of Uniswap. So, IMO, it could be a fork, or it could plug-in into Uniswap and use its liquidities, kind of like what AlphaHomora is doing. We will know very soon in any case.)
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Exchange rebates (aka liquidity mining) are a great mechanism to increase market depth, which reduces slippage and drives more volume to Uniswap instead of competitors. Instead of looking to have xx% slippage for yy% of users, an alternative approach would be to maintain Uniswap’s current market position. (Granted, this is a trailing indicator)
source
Observations from the 4 pools
- ETH-DAI: losing market share slowly to dYdX and 0x
- ETH-USDC: static
- ETH-USDT: static
- ETH-WBTC: rapidly losing market share to Sushiswap
My suggestion is to reinstate exchange rebates for the ETH-WBTC pool.
(This is under the assumption that the reason why volume is shifting away from Uniswap is due to decreased liquidity / increased slippage)
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