"Fee Switch" Design Space & Next Steps

Proposal Discussion
8

One idea I’d like to propose is to potentially use the fee switch to incentivize LPs to lock their liquidity on Uniswap. Incentivizing LPs to lock their liquidity within specific ranges for certain periods of time would make Uniswap TWAP oracles provably harder to manipulate (ref: https://blog.euler.finance/eulers-oracle-risk-grading-system-93f47d68205c). Safer oracles would make it easier for lending protocols to adopt Uniswap TWAP oracles instead of relying on more centralized solutions like Chainlink.

I think it could be an interesting way to experiment with the fee switch for the following reasons:

  • Safer oracles would benefit the whole DeFi space;
  • Over time this initiative could lead to Uniswap TWAP oracles becoming the gold standard in DeFi;
  • All of the fees would still go to LPs, therefore potentially limiting the loss of pre-existing LPs as the fee switch is enabled;
  • The fees would compensate longer focussed LPs over Just In Time liquidity providers;
  • This initiative would be quite easy to roll back if it fails vs paying $UNI holders a dividend.

Just my two cents. Curious to see if there is any interest in this!

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