"Fee Switch" Design Space & Next Steps

Proposal Discussion
22

Super interesting discussing so far! Two things, I’d like to add:

  1. We’ve recently done some research related to the fee switch question. More precisely, we modelled how high the take rate (or “protocol fee”) should optimally be. For more details, see this post: Research on the Fee Switch
    That being said, for the beginning, the lowest possible value, i.e. 1/10 = 10%, as suggested by the proposal, is probably a good choice.

  2. One crucial question that could be answered by experimenting with the fee switch, is measuring how strong Uniswap’s moat is over other DEXs. (In a fully rational market, the DEX with the lowest protocol fee should attract most liquidity and volume. But in reality, Uniswap, as the clear market leader, likely has an competitive advantage over other DEXs, and can afford a higher protocol fee. The question is, by how much?)
    However, one Uniswap v3 pool of course has no moat over another. So this effect could not be measured, if the fee switch is only flipped for one fee tier for a certain pair.
    Instead, flipping the switch for all fee tiers for a certain pair could be considered (maybe for a “less important” token pair?).

Finally, a more philosophical thought :slight_smile:

In the long run, it might be inevitable that a part of trading fees goes to UNI token holders - simply due to the fact that exactly these token holders can decide on the matter.
The longer token holder receive no rewards, and the lower the expectation of this happening in the future becomes, the more the value of UNI tokens declines. Until at some point, it becomes cheap enough for someone to buy a sufficient amount of UNI tokens to vote to distribute fees to token holders (including themselves).

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