[POLL] How Would We Structure a Fee Reward?

Hey folks!

According to my previous poll (which you should vote in), it seems like, despite the small sample size, that a reward for UNI holders/voters is on the way.

My question is, how would we structure it? I created a poll for simplicity’s sake with everything I could think of, but this is by no means an exhaustive list… And let’s keep it high-level for now! I thought it’d be interesting to gather sentiment and start a discussion about this.

How Should UNI Holders/Voters Be Rewarded?

  • Redirect a portion of LP fees in their respective tokens
  • Redirect a portion of LP fees to a UNI buy and burn
  • Redirect a portion of LP fees to a UNI buy and distribute it to holders
  • Redirect a portion of LP fees to ETH and distribute it to holders
  • Other (please discuss!)

0 voters

One more thing, I know we don’t have control over the fee switch or anything yet, so let’s not be too hasty. My goal here is to help develop a wise, long-term oriented decentralized financial community. In doing so, we’ve got the power to really change the world.

Looking forward to hearing from you all!
Zer0dot

P.S. I’m also not claiming that any of these options are wise, let alone feasible. Let’s discuss!

11 Likes

I believe the burn is the only way to efficiently achieve the goal of rewarding UNI holders evenly. This is especially true if the burn is done in such a way where the whole burn happens in a single tx (as opposed to burning small pieces with every transaction). I’d imagine this would be similar to how the MKR heal function works.

The “distribute to holders” options require interactions with each holder, which could become incredibly expensive and bad for the network.

13 Likes

Burning is the way.
First of all, fees shouldn’t be distributed in the respective tokens, it would be too much of an hustle for small UNI holder to manage them with the high ETH fees.
Between distributing the fees in ETH or UNI I believe UNI is the better option. This will help UNI price to be more stable since there will always be buy pressure coming from the fees collected.
Between distributing UNI and burning them the latter option is much better because it is really easy to implement and the final effect is the same. Distributing UNI equally to everyone is not so easy to implement…

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Newbie here;What does burn would entail in option 2?
here is my rough interpretation and please correct me

  1. A % of the total fees collected from all pairs in Uniswap will be allocated to a pool, where UNI holders will have to stake their UNI? and somewhere along that there is some UNI token burn?

:confused:

The point of burning is that there is no staking needed.
Basically fees are collected -> UNI tokens are bought with the fees -> the UNI tokens bought are burned, thus reducing the UNI circulating supply. This reward all UNI token holders in the same way. If 1% of the UNI circulating supply is burned, it is as if UNI is now 1% more valuable as it is 1% more scarce.

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A burn is a horrible idea.
UNI is a governance token, whoever holds the most tokens has the power. now for every token we burn, the big stacks become proportionally bigger. think of the team stack, all it takes is a 10% burn for them to be back in the majority seat. UNI was distributed so that we could go for decentralised governance. by burning UNI, all we are saying is “thanks I hate it” and handing it back to centralised entities. I am all for creating value for UNI holders but burning tokens is definitely not the way to go.

20 Likes

Against both burn and UNI purchase. They’re just a gimmicky ways to get the price up for early adopters so they can sell. Useful for bootstrapping projects, but uniswap is already past that. It should focus on increasing the actual value.

The other two choices do that. I personally prefer in the respective tokens, but I understand the arguments with gas and small holders. Can we not allow a choice?

(I really like the respective tokens because it means Team Uni ends up as a minor voting party in every other governance token)

1 Like

I think an argument can be made that burning is equitable and efficient with respect to rewards, but it would also result in more governance centralization than other options. I think a mechanism that evolves the allocation ratios in the way described in the original token announcement would be ideal (e.g cycling community tokens right back to the community).

Account airdrops are more decentralized, and while that worked for the introduction of the token, that would probably have an issue too since there’s a misaligned incentive now to, say, create as many Metamask accounts as you can and connect them all to Uniswap.

4 Likes

thanks for the explanation!

Is a creative simple way to raise token value. Though, I see a conflict with the “ideological” statements in the “Introduction to UNI” https://uniswap.org/blog/uni/; which states:

“perpetual inflation rate of 2% per year will start after 4 years, ensuring continued participation and contribution to Uniswap at the expense of passive UNI holders”.

Wouldn’t option 2)“buy and burn” benefit the passive holders?

The more I think about governance tokens the more I get confused; lol. I am comparing the proposals with traditional dividends in stocks (i.e. “LP” coming from company’s “profit”), however, there is endless issuing of shares. WTF, endless dilution.

Perhaps, a portion of the LP should be used to buy BTC\ETH, then UNI proportionally exchangeable for the stack of Uniswap’s BTC\ETH (UNIs burned after redeeming). This sort of makes sense in my head from “economics perspective” but not sure on technical\protocol\transanction-wise feasibility though.

2 Likes

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First of all, let me specify that I don’t think we should start burning token this year. UniSwap is pretty new as a platform and right now there is so many things already going on. I don’t think that burning token is needed for now. Is more something that we should do in the long term once the platform is already well established.

Burning token UNI is not going to centralize governance, please remmber that there is a 2% perpetual inflation rate. The two things will tend to compensate in the long run.

Yes, but UNI holders are the ones who govern the system. The point is, why should UNI holders be motivated to keep enhancing UniSwap? If they are rewarded by a token burn, that would be a good incentive.
Since there is a 2% perpetual inflation, if in 1 year less than 2% of the tokens is burned overall the UNI holders are losing value. If more than 2% is burned then they’re growing their value. But since the amount of tokens burned is proportional to how well is UniSwap doing, this is the incentive for UNI holders.

Exactly people that want burn so bad have big stacks and want to increase their voting power and returns. Us little guys get screwed. I think buying uni and distribute will give the little guys some more skin in the game .

Distributing UNI to everyone would have the same effect as burning token in making UNI more centralized… What are you proposing?

Why would you think that burning tokens or distributing them would have a different effect?
Let’s say in a year we have a 10% reward:

If we burn 10% of the token, now each holder (big or small) have 10% more voting power.

If we distribute 10% of the tokens, now each holder (big or small) have 10% more voting power.

It’s the exact same thing, both burning and distributing will reward holders in the long term. It doesn’t matter if you are a big or a small investor.

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Exactly 10% is 10% regardless or whatever the figure may be much better to burn the supply and make each token more valuable than continue to distribute but either way its the same thing

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I think the question at hand is pivotal and the community’s answer to it will define the future of Uniswap protocol.

I voted for ETH distribution and I think that buying and burning is a much worse option than it looks like at the first glance.

#1 Let’s talk about what ETH fee distribution brings to the table.

It ties the value of the token to the amount of fees the Uniswap DEX generates .

What it means in terms of price appreciation is that it establishes the lower boundary of UNI price .

It does not push the price up, but it protects the people who buy now and in the future from losing their money to at least some extent.

When it comes to mass adoption, this model of fee distribution is a familiar thing for the newcomers from the traditional markets and thus it helps them at being able to make educated investment decisions based on the metrics they are familiar with (P/E etc).

For the long term growth it is quite valuable to have a benchmark on what the actual value the protocol generates and captures is.

This option would dim the boom & bust cycles of the coin and bring it more store-of-value capacity . It would help to establish steady growth that is tied to the underlying value of the protocol.

#2 When it comes to burning the token in isolation , i.e. if we were to burn the UNI tokens from the governance treasury and just reduce the overall supply, that would have a somewhat negligible effect in my opinion:

  • The emission rate would still outweigh the burning rate, at least for the first years
  • It would be similar to us saying: “We don’t know how to develop ecosystem in any better way than just to reduce the supply.”

#3 If we talk about buying and burning the tokens, it is a completely different ball game.

In effect it introduces Ponzinomics concepts to the token functionality.

In short, ponzinomics induce sell-side liquidity crises. This means there’s not enough supply on the red side of the order book so every marginal dollar entering the system keeps pushing the price up and up
/Tony Sheng/

While introducing these concepts would mean price appreciation for the current token holders, it would accelerate the boom & bust cycles for the token.

In a rough approximation this would likely mean that earlier UNI buyers and holders would gain disproportionate amount of value at the expense of future UNI buyers and holders, who would get excited about the token, lose money on its bust cycle and typically come to a conclusion that this all is a scam.

The key word is disproportionate .

The earlier network participants do get a lot of value when the network grows. And if the network grows steadily towards a bigger multiplier, everyone is much better off than when one group takes advantage over the others.

In this case it would be earlier buyers taking advantage of later buyers, while the underlying value of the protocol would thin out in comparison to its price.

Let’s take a look at a well known example in crypto: Bitconnect. In this case there was 0 underlying value, so the boom part went high, but the bust part made it go to 0. Early buyers made money off of later buyers, later buyers lost money. It was a zero-sum game.

When it comes to Uniswap, there definitely is underlying value – and if things are done right, the network growth would benefit everyone, including new participants of the system .

When new participants of the system are not taken advantage of, it creates positive feedback loops that foster mass adoption.

And the sum of this game is enormously positive .

Now, bringing this game more towards zero-sum game would over the long run on average hurt all the participants of the network compared to an alternative scenario described above.

==

In my opinion, UNI distribution event is not an another airdrop of a candy wrapper coin, it is an initial value and responsibility distribution .

This fork in the road is pivotal for protocol development.

And one path brings Uniswap closer to Bitconnect, and another one brings it closer to Bitcoin and Ethereum .

6 Likes

Bitconnect was a Ponzi Uni isnt. The community choosing to burn tokens wouldnt classify it as a Ponzi either and labeling community members who vote against distribution as “contributing towards turning the project into a Ponzi” is a very dangerous narrative to take.

As mentioned before burning and distributing all in all have the exact same effect burning the tokens reduces the number of tokens in supply meaning each token is worth more, yes it means whales would get more money but so would the smaller hands with the exact same amount of tokens but less in supply. Also FYI these whales had to put money into the token to get those tokens so it’s not like they’re exactly being given a free handout.

On the other hand distributing tokens would be distributing tokens to the smaller hands but also to the whales aswell either way leaving the small hands in the same position they were in before.

All in all they’re much of a muchness and will end up with the same result as mentioned before.

I would agree that Ethereum fee distribution would be a valuable option if it was easy to implement. But I don’t think it really is, especially with the high cost of operations on Ethereum layer 1. But I don’t know, I may be wrong and ETH distribution may be easier to implement once we are on layer 2.

I don’t think that buying UNI in order to burn it would have such a drastic impact on the market, unless UNI was largely undervalued. Let’s look at the number:
We’re having around $300M volume each day. If 0,1% of it went in fee to burn UNI (and this would be a large amount) then we would burn $300k UNI each day. This may seem like a large number, but it really is not in comparison to the daily volume on UNI which is $1 bilion. And now we only have 10% of the total supply circulating, in future this ratio would be even larger.

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I’m quoting these two sections on purpose in this order, since I think Uniguy didn’t fully grasp what Mr_Po was saying. “if we burn half of the supply the other half has more value” its not that simple. you’re not burning the supply evenly, so hodlers are in a strong position while newcomers are forced to buy from an ever diminishing supply, leaving the door open for hodlers to dump their stacks at higher prices. that’s the ponzinomics that’s being talked about here. so yeah, UNI is not a ponzi but a buy and burn is ponzinomics.

apart from the fact that burning UNI is still a horrible idea for governance reasons. its kind of like getting the keys to a house and then throwing the key away to make your house more exclusive…

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It’s not when you look at the 32,455,541.697773 uni left in the original smart contract worth over $163.5M that are now locked away forever if no one claims them

just a math error here,
Daily volume is not the same thing. I can trade 1 token ten times and the volume would reflect ten trades. but if you burn that 1 token right after the first trade, those ten trades would not happen. day traders buy and sell the same stack of tokens multiple times a day, effectively doing my example on a large scale.

1 Like