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 
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What is a reasonable fee structure?
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@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, Iām sure the content will be stellar, and look forward to reading your analysis. Any updates on when youāre planning to publish?
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The increased efficiency of V3 will provide enough incentive to move liquidity. According to Hayden Adams (recent interviews).
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Glad to see great discussions that have been taking place related to the fee switch! Weād love to get more insight from the community related to the following questions:
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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.
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In the event we do turn it on, should we turn it on completely (.05%, which is a 16% decrease in LPās income) or should we do something smaller to hypotest the sensitivity LPās 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.
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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, itād be incredibly useful to hear from anyone who strongly believes we shouldnāt 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:
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Creates an interest bearing token that could still be tied to governance (xUNI).
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Auto-Compounding rewards stakers who remain holders and not speculators.
Cons:
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Everyone will want to be staked and could lead to the overall pool being diluted. Split in liquidity between UNI and xUNI.
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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.
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I know that Iām repeating myself here and Iām 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 LPās amount of UNI-tokens, though Iād 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.
Iām 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.
- Incentivizing LP migration can be achieved by a liquidity mining program
- āmaking a statementā 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 doesnāt 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.
Iām 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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Any update on when/if this will be published? With v3 a couple of weeks out, itās prime time to at least get discussion going on the fee switch activation for v2.
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thank you, for posting this.
I will support flipping the fee switch, as uniswap v3 now being the best capital efficient product in the market, with the best branding, no other dex can just āforkā another v3, uniswap is siting at a competitive position to gain fee without extra incentives for LPs. Its best for UNI holders including the team and investors to gain profit from their work and capital to give economic incentive for the team to build better product and investors to gain more long term trust in uniswap.
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Yes letās turn it on and fund some things. Optimism coming but why not v3 on Polygon, or zkSync too?
Plus, as Iāve written in another proposal, use fees to grow and encourage liquidity by reimbursement of pool creation. So much we can do, but first need to monetize.
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Its time to get seriousā¦
I want to talk about the unfairness of the governance and the sustainability of the UNI Treasury value if the fee switch does not get turned on.
- If we look at the submitted proposals, all of them besides one represented an attempt to dillute the value of UNI token holders and redistribute them to somebody else. Now, we have an attempt to siphon the funds for a DeFi lobby fund which represents yet another sell pressure proposal for the token.
Now, I dont know about you, but when I bought UNI token, I was buying it with the intent of deploying my capital effectively to propel the growth of Uniswap. I did not buy the token with the intent to become a piggybank for somebody else to siphon off all my value to 0. Proposing sell pressure proposals all the time is not sustainable for the growth of UniswapĀ“s treasury and presents a strong threat to the UNI token project as a whole. Afterall, who wants to hold a token which basically redistributes its value to other people?? Like the point of the token was it to be a governance token, but this is slowly becoming a charity type of a token where the only vote is to decide to whom we should give out money and how muchā¦
- During the community call on the 2nd of June, there were people arguing against the proposal to turn on the fee switch who are not even UNI holders. People were arguing that paying the UNI token holders does not provide value to the Uniswap project as a whole, but this is completely wrong.
Let me explain:
UNI has a treasury which holds a specific amount of UNI tokens. The value of this treasury is determined by the price of the UNI token. This means that if there are willing UNI token buyers, the value of the treasury grows. On the other hand, if there are willing sellers of the UNI token, the value of the treasury falls. Now, if we propose sell pressure proposals all the time with no buy pressure proposals, what is the incentive for anybody to be a willing UNI token buyer? Proposing dilution is clearly not a sustainable path for the token to be taking as it will diminish the buying power of the UNI treasury; therefore, there will be a limit on what it can fund.
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Now, I think it would be much more beneficial for the protocol if we TURN ON the fee switch and PAY the token holders. This way we create a buy pressure proposal for the token which actively creates value in the form of a higher UNI price = more valuable UNI in the treasury = more things which we can fund in order to foster growth for Uniswap.
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The main argument against the fee switch up until now was the fact the competitors would have an advantage by providing better LP fees and the fact Uniswap LPs would suffer. Now, I strongly think the situation has developed in such a way that these arguments do not hold true anymore. Uniswap V3 assured the dominance among DEXes with the timelocked code which cannot be copied over. This means that the competitors will not be able to simply adjust incentives to siphon off the liquidity of off Uniswap.
The second argument is also not valid because the LPs which suffer the loss of the income can simply offset it by buying UNI tokens and collect the fees to cover for the loss arising from the fee switch. Actually, this would be incredibly good for Uniswap as there would be a flood of willing buyers which would transfer their wealth into the treasury meaning UniswapĀ“s influence to propose sell proposals would increase tremendously in a sustainable fashion. Therefore, I see this as a net positive for the protocol
All in all, I do think the time to turn on the fee switch has come. With arbitrum & optimism deployment around the corner, Uniswap is in the best position to further its position as the market leader among the DEXes & enhance the value of its treasury by a good margin.
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From what I understand this argument relly on the fact that if the governance sells UNI the price must drop.
Proposing sell pressure proposals all the time is not sustainable for the growth of UniswapĀ“s treasury and presents a strong threat to the UNI token project as a whole. Afterall, who wants to hold a token which basically redistributes its value to other people??
Some context about my main point
But there are multiple ways to go about selling lots of UNI :
- Using a sell order (not a V3 based one as they are biddirectional until completion, a custom tiny fixed ratio swapping contract would be better I guess), this couldnāt make the price fall by itself, this could only let it not raise.
- Proposing a project that is worth more in the mind of investisors than the cost in UNI for the governance, if the governanceās project makes more people think āwait shit this is cool I need to be a part of thisā and then buy UNI, than the number of UNI it sells, ok the price fall (or not rise with a sell order), but it will also rise more due to the influx of new buyers.
My main point
So for me a project like an automated self rebalancing V3 position (like does charm.fi) where the profit are shared to UNI holders funded by selling UNI would rise the price more than it cost to do (because this is dope AF and this would sell the idea of high efficiency passive income on V3) and would force a bunch of people to buy UNI to take a part of the profits.
The governance compete with almost no one and can just say āwe are selling 25m UNI at 28$ā while people that will want to jump on board will have to compete with each others to get a part of the cake.
Donāt forget than governance could invest in other things too. I know some people were talking about investing in other new starting DeFi, then the governance would play an invesment funds like role.
0 sum games
The fee switch is a 0 sum action, before you have 600$ of fee going to LPs, now you have 500$ for LP and 100$ for UNI holders, a UNI buyback, ā¦
This achieve nothing, you just moved a bunch of numbers arround, itās only changing the wealth distribution but doesnāt create any new wealth.
However if the governance use that money to provide it uniswap, it provides less price impact, will attract more transaction fees (from dex agregator such as paraswap, 1inch, 0x, ā¦). And thus the situation of the uniswap ecosystem is better in this state as the sum of LPs, UNI holders and governance is higher.
There are ways to generate more money, why do you want to bother with something that bother LPs and just moves stuff arround ?
Other buy pressures
Basically as long as when the governance sells UNI it uses them to create more value than the value of the UNI it sold (which is kinda like the whole point of invesment) the price of UNI canāt drop just by a sell of UNI because their will be more buyers willing to buy thoses UNI.
If there arenāt thoses buyers that mean that the governance either messed up and is paying more money than something is worth or it isnāt following profit as a target (like funding charity), at this point there is no reason to talk about making money, itās just not a goal anymore.
Corporation (which you seems to target with dividend like rewards for UNI holders) invest all the time and they are mostly going fine. I donāt see why the governance couldnāt attempt this.
You donāt need to give money to UNI holders to create a buy pressure, you can sell them the idea of money but later.
A few sentences I feel commenting
Now, if we propose sell pressure proposals all the time with no buy pressure proposals, what is the incentive for anybody to be a willing UNI token buyer?
Because the uniswap governance would be capable to create more value with your money that you exchanged against UNI than you could doing yourself. Example with self rebalancing strategy, the bigger you are the more worthwhile this become (because gas fee become a smaller part of the total and you can rebalance more often)
The value of this treasury is determined by the price of the UNI token. This means that if there are willing UNI token buyers, the value of the treasury grows.
Distributing fees to LP is a bad way to go about it, if a higher UNI price is a target to you just do a UNI buy back with the fee switch money.
Because there are 3 options with a fee switch distribution :
- Markets are efficient and buyers perfectly match the value of the fee switch rewards, this is the same effect as a buyback but you wasted a lot and I mean a huge lot of gas doing a complex reward system.
- Markets are inneficient buyers under evaluate the opperation, the governance loose money, it could have won more using the fee switch dirrectly.
Buy backs are way clearer and achieve the same goal on the price.
It is almost impossible to under estimate the value of a buyback, because well it is there and it is happenning, this can still lead to speculative reactions but they are all good for the price, everyone would consider twice selling his coins when a buyback is announced, because you know there is a huge buy pressure on the price. (actually they could sell instant if the buyback is a fixed size and instant they could then try to be the first to arb it before others, but if it were to come from fee switch this would be a slow stream of buyback, not anything major to arb)
For me there is way less chance for the buyback to be undervalued and the governance is yielding less results out of it, plus this is giving more power to the governance.
Simple path from A to B
If the whole plan of a high UNI price is so the governance will be able to make money selling his own UNI in the future, why not keep the UNI in the governance and just use the fee switch to fund the thing the governance wants to fund in the first place ?
It seems to me you have a huge complicated step of fee switch into UNI holders, the creating a buy pressure on the UNI price, then selling UNI in tresury to get funds. That can just be simplified by activate fee switch, use fee switch money to fund governanceās expenses. This has way less unkown, is way simpler to do and require no middle man seeking to make money.
with the timelocked code
First forks are appearing, they arenāt serious yet (only about ~15k$ of TVL) but we donāt know how the situation will evolve, this is something really hard to enforce on the blockchain, the OFAC isnāt capable to stop IRA from using ETH as an invesment medium, I have very high doubt about wether or not they can even force shutdown a concurrent that would steal V3ās code.
The second argument is also not valid because the LPs which suffer the loss of the income can simply offset it by buying UNI tokens and collect the fees to cover for the loss arising from the fee switch.
Personaly, that not a problem for me, Iām ok with LPs having less money, actually Iām for a certain type of fee switch. My problem is that your option itās 0 summed.
A better fee switch alternative ?
I think we should enable fee switch, all money would then be placed into providing liquidity on uniswap.
This acknolege the other users of uniswap no one here seems to talk about, the swappers.
What swappers like : high output for their swaps. This mean low swap fees and low price impact, the first one I donāt think we need to change it, the 0.05% is already one of the cheapest way on the market. But the TVL we can just provide liquidity, own by a self rebalancing contract (for V2 pretty easy, litteraly receive LP tokens, and do nothing, there is no balancing and they compound by themself, V3 need a rebalancing stuff, there is also the question of does the V2 liquidity should be moved to V3 ? (I think yes, without a doubt personnaly))
This would draw more liquidity for everyone, as a transaction from an aggregator that would go on balancer would now go on uniswap instead, but this new transaction yielded by this better price impact would be shared accross all LPs.
This will compound (up to a certain market saturation, we donāt know how close is uniswap to it, maybe this can push so far that uniswap is capable to propose better prices than CEX, this might result in people who donāt care about decentralisation but just want to trade to use uniswap then) and have really good results in the future. Itās something we can setup now, not for us, but for the governance in 1 year, 2, or even more. As we all seems to agree on itās hard to get lots of money instantly, if the governance were to sell about 25m$ of UNI instantly, spliting accross multiple DeFi this would result in 11% of price impact. But if we setup a growing supply of money, in the future when needed this question will not be, just take it from the vault.
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Your points are not valid as the treasury value is derived from the UNI price tokenā¦Lower price = more UNI needs to be sold from the treasury to fund the governance. Higher price = less UNI has to be sold to achieve the same means. You cant simply infer that the value attached to the treasury comes from thin air. If people decide they do not want to subsidize a charity like token, then there is no governance to do.
I never said that flipping the fee switch in the form of a buyback would be bad. In fact, I do think its the best way to go about it and I am glad that you support flipping the fee switch on for the buyback.
So, lets do it! 
Your points are not valid as the treasury value is derived from the UNI price token
Itās not actually my point, just a tiny thing I think support it.
My actual point is that if whatever the governance does with the UNI generates more buy pressure from people that wanna be a part of it then the sell pressure of selling UNI, this will raise the price too and doesnāt require fee switch.
I never said that flipping the fee switch in the form of a buyback would be bad. In fact, I do think its the best way to go about it and I am glad that you support flipping the fee switch on for the buyback.
I donāt, I just find this way less bad than distributing fee switche to uni holders. (if you are for a buyback, pls ignore all the part where I try to explain why I think distributing fee switch is just a bad version of a buy back 
)
Iām for a slow compounding of the fee switch (activating fee switch and adding liquidity back into uniswap with it).
Yes, but the UNI sold would create benefit for Uniswap without actually giving anything back to the UNI token holders effectively turning them into holding a charity case token. I dont think people would be thrilled about doing that so.
Why would you buy UNI if you know that all the benefits will go to using Uniswap instead? IĀ“d rather than just consume the benefits, why would I pay for them by buying and holding UNI? It has to be a balanced trade off.
And you do support a buyback programme, you just dont know it yet Deep down, you support it all the way cause you know its the proper way to do things.
UNI sold would create benefit for Uniswap without actually giving anything back to the UNI token holders
Either Iām missing something obvious or what you say is completely wrong.
A UNI sold would get back DAI, ETH, ā¦ whatever the sold accepts. Then the UNI holders would use thoses tokens to invest in what they want and the investiment made (I give the example of self rebalancing liquidity on some important pools) would yield profits for the governance (that could be used to buy back uni, distribute, ā¦).
For me a strong alternative to fee switch is trading money now by selling some UNI, with a promise of money later for thoses who stay (which is how initial invesment works in corporations, emit share, get money, invest money, wait, make money, shares worth more).
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