Activate Uniswap Protocol Governance (06/03/2024)
Voted: Yes, upgrade the factory owner
Reasoning: Uniswap governance requires improvements to incentivise active participation and voting. While various proposals have been implemented (e.g governance calls, treasury delegations), participation is still very low (Figure 1).
UNI token holders lack incentives to vote and delegate their tokens. Small actors feel their delegations are insignificant and must be financially incentivised to delegate. Lack of incentives could explain low participation, highlighted by voting turnout comparisons with protocols such as DYDX which directly incentivize delegation through rewards.
Below are estimations of how the fee switch proposal may translate into APY to Uniswap holders. Using a conservative estimate of a 10% fee implementation, we believe the incentives would translate to 40-50% amount of UNI being staked to capture this value. This would drastically improve the participation in Uniswap governance.
Additionally, Gauntlets report has highlighted the inelasticity of core volume to a protocol fee switch activation (2% decrease with 10% protocol fee), instilling confidence that this decision has little risks for protocol volume and TVL. We believe this is an effective approach and with the future of Uniswap being governed by its DAO, it makes sense for voters to be the beneficiaries of a portion of the protocol fees.
Uniswap V3 Fees: Factory Owner Amendment
Vote: Reject amendment
Reasoning: We believe an immutable system should be a priority to ensure the safety and to align with the core values of Uniswap. Under the current proposal, governance has the ability to determine fee amount (1/10, 1/8, etc) and decide fee amounts for pools, which we feel is enough flexibility.
Mobilizing the Uniswap Treasury
Temperature Check: Launch Working Group
On-Chain Vote : For
Reasoning: Following the fee switch proposal which redirects fees to delegated UNI holders, the Uniswap Treasury lacks a value accrual mechanism. Additionally, Uniswaps´ large treasury ($5.5b) is completely in native $UNI tokens, raising concerns about the stability of the DAO.
The need for the DAOs stability has been highlighted by recent price action. The treasury allocation of $UNI leads to significant volatility (3.13% daily SD). In the last year the treasury saw a maximum drawdown of -52% with a maximum high of 65%. We believe this is far to volatile for a treasury with the goal of ensuring a healthy runway and sustaining operations… Below are comparisons of the current treasury 1 year returns vs a simulated diversified treasury of 50% UNI, 25% USDC, and 25% ETH.
The absence of stables and majors in the portfolio means Uniswap is funded via native tokens. Uniswap is constantly required to auction and fund expenses with $UNI, even during periods of market instability. In the worst case this could mean needing to auction off UNI at heavily discounted prices in the case of a black swan. Diversifying the treasury means Uniswap can strategically sell UNI during favourable market conditions to build a buffer.
Additionally, compared to other similar protocols, Uniswap is the least diversified and has the least runway. Lido has 34.7% of their treasury in stETH, MKR has 20% in stable coins, and Aave holds 33% in tokens such as rETH an gHO. As mentioned in the original proposal, these can be used as case studies and reference points for successful utilization of Uniswaps Assets.
Therefore, we agree with the view that the current Uniswap treasury should be discounted heavily and treated as the crypto equivalent of unissued shares. We believe the working group can start an initiative to create a resilient treasury to maximize long term shareholder value and ensures sustainability even during volatile market periods. We look forward to seeing this progress.
[Temp Check] Onboard Uniswap to Sei
Vote: Incentivise $500k
Reasoning: We support the proposal to launch Uniswap V3 on Sei v2 Mainnet.
We believe the Sei v2 upgrade allowing EVM compatibility will be a catalyst for large TVL inflows to the chain, for which Uniswap should be aggressively positioned.
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The Sei ecosystem has seen significant growth, in 2024 the TVL on chain has increased from 9.8m Sei to 58m Sei.
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Currently Astroport is the only DEX with significant liquidity on Sei. Due to low APRs and high volatility, most of the LPs provide liquidity for stable pairs rather than exposing themselves to the impermanent loss of volatile pairs. This provides an opportunity for Uniswaps’ volatile pools.
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Based on the Incentives provided by Sei, the Uniswap pools will generate attractive APR even without including fee rewards. For example, the proposed incentive APR for the SEI/USDC pair would outperform the current combined APR (Incentive + Fees) of 8-12% for the current highest TVL SEI-USDC pool. We would expect migration of liquidity from low APR to high APR pools.
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A swap from SEI to USDC with a notional value of $10,000 incurs slippage of 83bps. This leads to the majority of swaps on Sei being low value, and prevents trading with larger size. Uniswaps V3 and Sei incentives will draw liquidity for these pairs, and allow for more efficient trading.
Source: Flipside Crypto -
Uniswap has seen significant adoption and marketshare on chains where it was a first mover e.g Arbitrum, compared to when it launched on chains with already established DEXes e.g Avalanche. For this reason we suggest being aggressive.
Additionally, we recommend allocating $500k UNI as ecosystem incentives:
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This will ensure LP Incentives are high enough even if pools attract large TVL. We expect lots of protocols will compete for market share with incentives - this extra amount helps Uniswap to remain competitive.
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We believe this partnership is beneficial for both parties, therefore it makes sense for Uniswap to match a portion of Seis’ contributions.