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
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 .