Hey @guil-lambert,
Love your analysis as always! One of the things that I think we need to be aware of is not just the allocation of trade volume and the IV of strictly the Uni v3 pools, but the effect this would have in diverting the trade volume away from Uniswap as a whole to another AMM when using a DEX aggregator. Small divergences in liquidity could lead to leakage of trade volume that would have been allocated to Uniswap. I think it’s a mistake to assume that the fee switch would involve liquidity or volume moving to a different Uniswap v3 pool as they could just leave Uniswap entirely!
For example a 10 ETH trade for USDC on Paraswap does not even make it to a Uniswap v3 pool as the price impact would be lower going through Paraswap’s pools instead.
So, I can’t imagine that any further restrictions on liquidity such as a fee switch would help us in competing as a whole against other AMMs when it comes to DEX aggregators. Therefore, I think a technical analysis needs to include how a fee switch could affect our competitiveness on DEX aggregators as well.
But more importantly, before we even get there, I wish there was more clarity and information given on whether implementing a fee switch is really the best way to achieve the outcomes we’re trying to accomplish. I’m not so sure. What alternatives are there to implementing a fee switch in getting the revenue that we need to get? I worry that this sets a dangerous precedent and moral hazard issues when it comes to a treasury that is flush with trade fee revenues. Like it hasn’t been made entirely clear what specifically these funds would be used for. Like what kinds of public goods? Like the DeFi Education Fund? I sure hope not.
I’d rather we have the specific goal in mind first before getting the funds. Right now, it seems like we’re getting the funds first and then figuring out what to do with them. It creates a moral hazard in my opinion. Right now the UNI distribution is still very much concentrated in the hands of a very few influential parties. I would wait for a more decentralized distribution of UNI before implementing this kind of power.
Research without actually implementing the fee switch is certainly possible thru backtesting. Using the pretenses of “research,” to actually implement a fee switch into production for the first time is a very dangerous precedent.