Thanks @eek637 for bringing up this proposal!
Stanford Blockchain Club is excited to be supporting this proposal, one which we believe will cement Uniswap’s position as a leading exemplar for mature decentralized governance by using protocol fees to incentivize healthy delegation and governance. While this proposal excellent overall, there are a few areas and implications that this proposal brings, that we’d like to work with you and fellow delegates to further refine, possibly in future proposals.
A) Principal-Agent Problem between LPs and UNI holders and delegates
Uniswap’s long-term success relies on having deep, liquid markets for a large varieties. Liquidity Providers (LPs) thus are vital to Uniswap’s success as a protocol. One question that emerges is a principal-agent problem of how to align these LPs with UNI holders and delegates. Others have already mentioned how protocol fees eat into the already thin margins for LPs, which may disincentivize them from providing more liquidity.
We believe the overall solution lies in coordinating incentives between UNI holders/delegates and LPs, possibly through looking at the following directions:
- In the short run, using UNI as a means to reward LP positions, as suggested and passed in Proposal 59 (”Uniswap Revitalization and Growth Proposal”), which Stanford Blockchain is proud to support
- In the medium run, instead of rewarding UNI delegators on a purely pro rata basis, take into account if delegators hold LP positions. For example, set aside a certain X% of the delegator rewards to be distributed as “bonuses” based upon the size of delegators’ LP positions. This would require an additional variable X to be added to the fee distribution logic. The idea is to use this as a means to fairly compensate the loss of revenue for LPs from the fee switch.
- In the long run, consider bicameralism (possibly just as veto rights) as a potential way to allow LPs to retain a “say” in the protocol and keep voting delegates in check.
B) Defining Successful Votes
“Specifically, we believe UNI token holders will be incentivized to choose delegates whose votes and engagement with the protocol will lead to the Protocol’s growth and success.”
One question with this is how “successful votes” can be accurately discerned and measured, especially since it is hard to quantitative attribute value creation to a specific proposal. There are several proxy metrics available, such as UNI token price, participation rates, activity on forums etc. but these all contain major flaws.
Nonetheless, we believe that being able to gauge the quality of contribution for each voting delegate is important for delegators, reducing informational asymmetry and allowing for the success of the whole ecosystem. Having such a metric could also allow future targeted incentives to reward high-quality delegates. We would love to work with UF and other fellow delegates to discuss how this can be successfully implemented.
C) Measuring Governance Decentralization Over Time
We believe that going forward, it would be useful to keep track of Uniswap governance’s overall decentralization over time, establishing a bellweather as to if the protocol’s governance is heading in a healthy direction. One potential idea to this effect would be to implement entropy-based metrics, such as adapting Austgen et al.’s (2023) Voting Block Entropy mechanism to measure decentralization of the DAO over time and assess future directions. However, given that this is another open design space, this is something that we would need to work with UF and other fellow delegates to identify how this can be effective, and how it can be used as a tool to provide information to voting delegates.
Overall, we’re really excited to be supporting this proposal, and can’t wait to see where we go from here 