Introduce stablecoin liquidity pools with 0.01% fees to UniSwap v3 on Polygon POS

[Hamzahkhan]

Reasoning:

Introducing 0.01% trading fees for stablecoin pair liquidity pools onto the UniSwap v3 Polygon network can be a great step to expand the use of 0.01% fees onto the second largest chain running on UniSwap v3 and bring more liquidity into the UniSwap v3 ecosystem. Currently UniSwap v3 Polygon has a TVL of $57.87 M, only behind the Ethereum liquidity pools. More importantly, based on research compiled from earlier in the month, the top ten pools on UniSwap v3 Polygon were ~6x more capital efficient based on 7 day volume / TVL compared to pools on UniSwap v3 Ethereum, Arbitrum, and Optimism. The Polygon market has seen over $2B of cumulative trading volume in less than 2 months.

Why 0.01% fees for stablecoin pair liquidity pools is a strategic move?

Currently there is a competition for stablecoin liquidity between UniSwap v3 and Curve. All of Curve’s pools have a trading fee set at 0.04%, including the Curve Polygon pools. UniSwap v3 Ethereum pools for stablecoins have trading fees at 0.05% and for select pools they have 0.01% fees. The introduction of 0.01% fees for stablecoin liquidity pools on UniSwap v3 caused a large amount of volume from the 0.05% pools to move into the 0.01% pools, which have also seen higher trading volumes as a result. Curve had an advantage when they had the lowest fees at 0.04%, however the tides may be changing as the 0.01% fee pools have seen great success on Ethereum. Following this success, it is important to expand the use of 0.01% fees for stablecoin pairs onto UniSwap v3 Polygon to create an advantage over the Curve Polygon fees, and hopefully bring that liquidity over to UniSwap.

Why Polygon?

Liquidity providers may be worried that lowering fees from 0.05% to 0.01% would decrease their fee earnings, but the results have been the complete opposite. Take for example, the DAI-USDC pools on UniSwap v3 Ethereum. The 0.01% fee pool has ~$50 M more in TVL compared to the 0.05% pool at $134.25 M vs $85.18 M, and the 0.01% pool has had 7.7x more trading volume in the past 7 days at $635 M compared to $77.15 M. Lower trading fees tend to make up for the lower fees by the large increase in trading volume that occurs as a result of the cheaper fees, which can be seen in the graphs below.

Impressive capital efficiency means that the introduction of 0.01% fees on stable coin pools for the Polygon network can create higher amounts of trading fees for liquidity providers while also providing lower fees for those who wish to buy from the pools. This proposal can create a win-win for both parties. Considering the DAI-USDC 0.05% pool on Polygon is over 3x more capital efficient than the same pool on Ethereum, it would be expected that the 0.01% pool would also see better use of capital compared to the Ethereum pool.

Polygon also has a massive user base with over 100+ million unique user addresses. This massive user base, with the incredibly cheap gas fees on Polygon can be a massive advantage for UniSwap if they introduce 0.01% fee pools for stable coin pairs on the Polygon network.

[Log]

There should be a 0.01% fee tier on polygon

Most of the stablecoin market is taken by polygon balancer, who’s fees are already at 0.01%.

The 0.01% fee tier also allows for even tighter ranges that would allow Uniswap to compete with balancer.

This proposal definitely should receive more attention

[rfritsch]

I agree with adding the 0.01% fee tier on Polygon and would also suggest adding it on Arbitrum and Optimism (and any chain v3 is deployed on in the future) as well. The fee options should be the same across all chains. The arguments from the discussion to introduce it on mainnet also apply in general.

[mgomes]

Currently balancer does most of the stablecoin volume in polygon and they have a 0.01% fee. I agree that the 0.01% fee tier pools together with the 1 tick spacing (for lower slippage too) should be added to polygon, especially because they were a success in ethereum.

Unless volume for stablecoin swaps in uniswap 5xs after the introduction of 0.01% fees, then it will be worse for LP profits, but thats fine because I believe that uniswap should ultimately try to provide better rates for swappers.

However, I’m not sure how the 0.01% fee pools will be introduced, especially because governance is not enabled on polygon. Apparently there needs to be a governance bridge in order for these changes to be made: Multichain Uniswap

[haydenadams]

@mgomes

However, I’m not sure how the 0.01% fee pools will be introduced, especially because governance is not enabled on polygon. Apparently there needs to be a governance bridge in order for these changes to be made

Polygon (as well as Optimism and Arbitrum) already has a governance bridge

It’s an area that needs more developer documentation, but it is entirely possible to create a cross-chain proposal to do this.

[mgomes]

I couldnt find anything about it in the documentation but Im happy to hear that the bridge already exists. Im all for helping with anything related to this proposal then!

[Milezd]

i agree with adding he 0.01% fee

[kerem]

Introducing 0.01% fee stablecoin liquidity pools to Uniswap v3 on Polygon is impractical due to anticipated extremely low total value locked (TVL). On Arbitrum v3, which is comparable to Polygon in that they are popular L2’s, the ETH/USDT and ETH/USDC 0.01% pools have TVLs of only $1.3 million and $500,000 respectively, which are negligible compared to their 0.05% pool counterparts. This low liquidity results in higher slippage for traders, making these pools inefficient—a fact evidenced by their minimal trading volumes. Given that Polygon’s TVL is a quarter of Arbitrum’s, introducing such pools on Polygon would exacerbate these issues further, leading to even lower TVL, higher slippage, and minimal trading volume. I don’t think there is a need to introduce stablecoin liquidity pools with 0.01% fees to Uniswap v3 on Polygon.