"Fee Switch" Pilot Update & Vote

Hello Uniswap community. Let me start by saying I support this proposal as written. It represents a first step towards learning how to safely charge fees on Uniswap. There is still plenty more work to be done after using intelligence gained from the trial.

This is a pilot. The decision should come down to:

  • Whether it will further intelligence by learning something about the protocol?
  • Whether this something is worth knowing?
  • What are the costs associated with running the pilot?

The focus of this proposal is narrow.

The proposal is solely designed to test the impact of the “fee switch” on protocol usage.

Observing the reaction of liquidity capital (taking broader market conditions into account) will be useful in assessing how bearable fees are on Uniswap v3. I have little confidence that anyone knows how LP’s will react. Uniswap is a marketplace. There are extremely complex dynamics affecting behaviors.

If fees do turn significant capital away from these pools (or spread out over wider ticks, who knows) then it is worth learning that and improving in future tests. The only way to truly find out is in a live simulation. There is also a predefined end to the pilot. Importantly, the default is not to continue indefinitely.

As I see it the costs are the risk that one or both of the following happen:

  • Capital permanently leaves these pools. All else equal that widens Uniswap v3 spreads relative to alternatives.
  • Legal issues. I’ll leave that to someone who knows what they’re talking about.

The recent average TVL of these three pools together is approximately $70mm TVL combined relative to Uniswap v3 Ethereum’s $2.6bn. This represents 2.7% of TVL compared to an average standard deviation of the change in TVL of around 5%. The benefit of learning the effect on the Uniswap protocol in a controlled, time limited trial is worth risking a small percentage of this TVL.

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