Uniswap Fee Switch Q/A - part: 1
- The protocol already has a large treasury; what is the point of generating income?
It’s a misconception that the protocol has a large treasury when ~100% of the treasury is UNI tokens. Each additional UNI spent from the treasury diminishes the value of the existing UNI due to increasing the circulating supply. Uncirculated UNI may as well not exist, and its use is akin to minting more UNI tokens; they are equivalent.
Rather than fund initiatives such as the Defi Education Fund, the Uniswap Foundation, the Protocol Guild, and others by increasing the circulating supply of UNI, the protocol could use the fee income to support these initiatives and new ones. Ultimately, it is entirely up to the DAO to allocate these resources. However, we can’t debate treasury allocation when the protocol doesn’t have income to allocate.
Relevant to this discussion, the DAO will likely see a request from the Uniswap Foundation for ~$40m in the not-distant future. While the Uniswap Foundation was initially funded with $20m, their full request was closer to $60m.
- Why won’t LPs leave?
LPs have free will. They can choose which protocol to deploy capital to, and at Uniswap, they can choose between 4 different fee tiers to participate in. If they think they can make more money elsewhere, they can go elsewhere. However, they must remember who is paying them. It isn’t the protocol paying them; it is the folks swapping through the protocol. More specifically, people on the Uniswap frontend swapping, which only drives volume to the underlying protocol. As of May 1st, 80% of the volume on Uniswap Ethereum was done directly with the protocol rather than using an aggregator.
Dune
LPs can leave, but the users will stick with Uniswap, and the remaining LPs will continue to earn significant fees. The below table shows the number of dollars earned by LPs over the last six months. Despite popular sentiment, LPs are making great money.
- What about the regulatory implications of this proposal?
GFX Labs is not equipped to address the regulatory implications of this proposal. While GFX Labs is based in the USA, the protocol is not based in any one country and has token holders and users globally. We encourage token holders with concerns to voice them and vote with their tokens for their desired outcome.