Fee switch date approaching, time to act

And to clearify this here, the @Uniswap team wrote on Discord they can not pull the switch or support it on twitter - because of regulatorily issues - they wrote in the Discord the proposal has to come from the community without contribution from the Uniswap Labs Team. (But I guess they would support the vote as it sound)

Turning the switch on is actually a complicated process + it is irrational to turn on right now since the volumes will increase dramatically when V3 hits. The fee switch is a mechanism which should be turned on when Uniswap is in a mature position, we are just not there yet.

It seems like you did not read my post clearly lol.
I described the network-effect and how the fee-switch would start the network-effect and therefore also increases volume for Uniswap by far. (I clearly wrote to turn it on in V3)

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Yes, I wanted to expand on your argument :slight_smile:

What is a reasonable fee structure?

@HarvardLawBFI glad to hear you have a write up in the works! The medium post would be hugely beneficial for the exposure if nothing else. Really anything that gets this conversation going, and more mainstream is beneficial to the project at this point. That said, I’m sure the content will be stellar, and look forward to reading your analysis. Any updates on when you’re planning to publish?

Glad to see some discussion while I’ve been away! Fears of lp leaving are grossly overblown from the fee switch imo.

  1. The whale lp’s who account fir the vast majority of the tvl are also the ones airdropped obscene amounts of uni.
  2. Other dexes already have the switch flipped so it’s not like they will get more fees elsewhere or even on other chains. Pancake gets you .18%.
  3. No dex on eth comes close to the transaction volume of uniswap so if lps didn’t leave when they could farm sushi they aren’t leaving now.
  4. Uni incentives for the major pairs is always a trump card for pro fee switch people but it 99.9999% won’t be needed for the above reasons.
  5. Price of uni will go up my multiples due to the fee switch vastly growing the treasury and allowing for less uni per dollar incentive fir future use in either yield farming or grants.

We need to have @HarvardLawBFI make a proposal for fee switch on v2 to go live the second week of may ASAP and it will be a litmus test for future fee switch activation on v3.

Let’s do it.

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The increased efficiency of V3 will provide enough incentive to move liquidity. According to Hayden Adams (recent interviews).

Glad to see great discussions that have been taking place related to the fee switch! We’d love to get more insight from the community related to the following questions:

  1. Which liquidity pools in v2 should be turned on? The idea of turning on the switch for three different pools that reflect the three fee tiers that exist in v3 seems like it might provide valuable data points in the event we decide to turn on the fee switch in v3.

  2. In the event we do turn it on, should we turn it on completely (.05%, which is a 16% decrease in LP’s income) or should we do something smaller to hypotest the sensitivity LP’s have to a fee switch? For example, V3 allows the fee switch to be as small as .03% (a 10% decrease in income), and starting at 10% for v2 might provide insightful data for us to refer to later.

  3. What is the best mechanism to reward UNI holders after turning the switch on? Burning tokens, buybacks, or consolidating all switch fees and converting to ETH/DAI/etc? There may be different tax consequences to each approach, so that is very important to consider here.

Additionally, it’d be incredibly useful to hear from anyone who strongly believes we shouldn’t turn on the fee switch in V2.

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To specifically go after point 3. After what I learned from recent 88mph governance for their upcoming V3; I believe a buyback and distribute, to stakers in UNI, method would be best.

Pros:

  • Creates an interest bearing token that could still be tied to governance (xUNI).

  • Auto-Compounding rewards stakers who remain holders and not speculators.

Cons:

  • Everyone will want to be staked and could lead to the overall pool being diluted. Split in liquidity between UNI and xUNI.

  • People could have their UNI locked up in different DeFi protocols and have to eat the gas to migrate over to the staking pool.

While I do think earning DAI from the risk of a potential bear market has merit, having a native token not tied to other protocols also decreases risk in my opinion.

I know that I’m repeating myself here and I’m sorry, but maybe the suggestion about point 3. got swamped last time:

Basic Idea: Enable UNI-holders to gain slightly higher returns on their provided liquidity. This bonus could theoretically scale with the inidividual LP’s amount of UNI-tokens, though I’d highly recommend diminishing returns. With this approach LPs as well as UNI-holders would profit on the one hand while on the other hand UNI-hodlers would NOT be rewarded for idling around. The diminishing returns could be used to incentivise an increased degree of decentralisation / token-spread and thus keep some UNI-token in circulation. The said bonus-LP-gains would be funded 100% by the extra fees from enabling the fee-switch.

I’m no coder, but I guess it would be possible to realise this mechanism with some sort of staking of UNI-tokens. This way owners could put their UNI-token to use AND STILL be able to vote in governance (at least to my understanding). Something that - so far - did not work for UNI-token that are trapped in LPs. I see a problem with preventing UNI-whales to simply spread their UNI across several addresses and thus workaround the diminishing returns. But maybe there is a solution to this?

In summary I guess I overlooked several red-flags and drawbacks of that idea, but so far it seems to me to incentivice new and small UNI-holders as well as LP-whales (but NOT UNI-whales) and negates the problem of UNI-hodlers being rewarded for not doing or risking anything.

Both of these goals can be reached without the fee switch by just utilizing the treasury.

  1. Incentivizing LP migration can be achieved by a liquidity mining program
  2. “making a statement” about Uni token can be achieved by having governance rewards from the treasury.

If participation in Uniswap governance is rewarded through staking rewards to governance participants, more voting power becomes available in case there is an important decision to be made.

It doesn’t mean that these rewards have to come through fees, though.
They can come in the form of inflation (treasury rewards distribution) towards actors who presumably bring more value to the governance token.

I’m yet to find a good reason why making Uniswap V2 a worse product for LPs and traders is superior to distributing the treasury that is meant to be distributed.

If the treasury is not distributed at a decent enough pace, Uniswap governance becomes more centralized to investors and the team due to the vesting schedule.

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