TL;DR I strongly disagree with this proposal.
The Uniswap infrastructure is a public good. Turning on the fee switch in this manner would lead to the deterioration of the Uniswap protocol’s public good nature (in a very tragedy of the commons-like manner) and would undoubtedly push the $UNI token closer to being a security.
I’ll try to be concise my response, but for those that want to better understand my competing (?) view, please read this post about how I think the proposal to turn on the fee switch should come from protocols themselves, not UNI token holders.
Why this is bad economics and poor long-term planning
Thinking about the fees switch in terms of revenues misses the point: the Uniswap smart contracts have no expenses, no payroll, and no COE/board/managing entity. The smart contracts will continue to operate long after all of us are dead. To echo what @Leighton has said:
[Uniswap] is an autonomous piece of software, it doesn’t have employees, it can’t go bankrupt, it doesn’t have revenue and expenses. Protocols are a revolutionary new entity type and we need to think of them as such.
The protocol does not exactly “need” revenues to operate. Token holders may want a slice of the pie, but any proposal that enact a return of the collected fees to $UNI token holders would unequivocally make the $UNI token a security – it is easies to make the argument that the $UNI token satisfies the Howey test prongs 3+4: (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit, or (4) to be derived from the efforts of others.
Espousing a securities role for the $UNI token, the largest DeFi protocol, would certainly create a precedent --and I’m OK if that’s the route the UniswapDAO wants to take-- but it would also create a huge target on the back of the UniswapDAO in the eyes of the sεc and other regulatory agencies.
Answer to Key questions
Thinking in terms of public goods management, the question UniswapDAO voters need to ask themselves is: how is that fee switch proposal contributing to the sustainable growth of the Uniswap protocol (and not of the $UNI token)?
I don’t really grasp how decreasing the revenues for liquidity providers on all* Uniswap v3 pool grows the protocol. LPs can, and definitely will, move to a different fork of Uni v3 if they’re unhappy.
My answers to @GFXlabs’ questions:
- Do you agree Uniswap does not need to offer substantial fee rebates to liquidity providers?
- Not at all. CEXs and DEXs are two completely different economies. Comparing maker-taker fees on CEXs to Uniswap is like comparing the cost of a stamp to the cost of sending an email (ie. look, it costs 0.5$ to send a letter, email should at least cost 0.1$!).
- Do you agree a one-fifth fee tier is the appropriate starting point for a protocol fee?
- I reject the premise that the UniswapDAO should be turning on the fee switch for all* Uniswap v3 pools.
- Do you agree a new system for fee management is a good approach to carrying out the necessary maintenance surrounding the fee switch?
- No. I don’t think we should be compromising on security by implementing a new on-chain system to execute DAO operations. Having to vote every day and potentially spend 30M gas for doing so should not be seen as an “inefficient process for the protocol to upkeep”. It’s a feature not a bug.
- Do you agree implementing the system on Polygon is a good first step?
- No. A good first step would be The Uniswap DAO turning on the fee switch for the ETH-UNI-30bps pool. In fact, all protocols should be requesting to turn on the fee switch on their own token pools. Let protocols XYZ figure out the tax+securities implications for their own token, and let the Uniswap DAO be the credibly neutral overseer of that process.
- What token do you think the DAO should trade fee income for to be held in the protocol treasury?
- I am against the view that the fee switch revenue should touch the treasury in any way. We must first figure out how to handle the tax/securities implications of capture protocol fees, and be ready to jump through Gary’s hoops if the UniswapDAO chooses to make the $UNI token closer to a security.
Conclusion
I firmly believe that the proposal to turn on the fee switch for all* Uniswap v3 pools as described by @GFXlabs should not be enacted.
The Uniswap protocol, as a public good, should prioritize sustainable growth and the overall health of the ecosystem. This involves ensuring liquidity providers are adequately incentivized and maintaining the neutral status of the Uniswap DAO. While revenue generation may seem attractive, it could potentially turn the $UNI token into a security and attract unwanted regulatory attention.
The decisions we make today are shaping the future of Uniswap. It is crucial that we think critically about the long-term implications of any vote, and ensure that they align with the core principles of Uniswap: decentralization, openness, and neutrality.