Temperature Check - [Fee Switch V2 should be turned on]

THE FEE SWITCH

Reasons why to turn it on on V2

In the past, the argument for not turning it on was the V3, migration of liquidity from V2 to V3 which is now underway along with lower tx fees, and L2 solutions. Arbitrum/Optimism is already whitelisted so it’s coming as well. With these reasons out of the way, it is time to turn on the fee switch and start a UNI buyback programme. Feedback on this proposal has been gathered from multiple delegates who all expressed their interest in implementing it.

The UNI token served only as a psychological gauge when it came to the success of Uniswap and its time to tie it firmly with the protocol where it rightfully belongs. The UNI token holders proved to be an active governance force passing great proposals like the UNI Grant committee which funded many awesome projects and continue to do so.

So, what does Uniswap get from turning on the fee switch?

Uniswap actually benefits in a variety of ways if we turn the fee switch on for the buyback programme. First, the UNI treasury would swell up with additional UNI while it would make the UNI more valuable; therefore, the treasury could spend more on the proposals like grants creating more value for the protocol as such. The second benefit would be that the LPs who have not bought UNI yet would be kind of forced to in order to capture the outgoing fees. Two things will happen: this will make them involved in the UNI governance or make them buy it just for the outgoing fees. NOTE: This comment was made with the assumption the fee switch gets turned on on V3 eventually as well.

Why now?

It has been a while since V3 has launched. By turning on the fee switch on V2, we will encourage migration from V2 over to V3. The reason why to turn it on now is due to the upcoming release of Optimism to reduce the gas fees.

Common misconceptions:

UNI holders will just get a bag

In order to properly address this misconception, we have to talk about the purpose of the UNI token: the governance of the protocol along with the UNI treasury. Now, the latter point is tremendously important due to its unique function with the ownership of the token. Every time a speculator or a person buys the UNI token, they subsidize the UNI treasury by increasing its value as well. This value allows the governance to do more stuff which is beneficial for the protocol.

Now, the buyback would solve the free rider’s problem in a unique way since every time somebody buys UNI, they actually subsidize the UNI treasury by making it more valuable. This means that even the LPs and speculators who would buy UNI just for the money would be actually helping Uniswap grow via the treasury holdings.

It is obvious that if we do not turn on the fee switch, then the UNI token would not be connected to the success of the protocol in any way. Having such an outcome materialize, the value of the treasury could suffer as a result. You can do less good stuff with treasury that’s worth far less. Ironically, not turning on the fee switch will hurt the protocol in the long term because it could lead to the lower value of the UNI treasury meaning the governance will have less firepower at their disposal.

Turning the fee switch on and doing the buyback programme incentivizes governance which would benefit the protocol as a whole because the holders would get paid based on the volumes generated by Uniswap. Not turning it on could cause brain drain and impaired governance.

Also, this proposal is long overdue as the holders deserve better than to see sell proposal all the time…

It is time to give back to the holders.

Legal Issues :

UNI could face increasing risk by being classified as a security. Lawyers should chip in here, but we do not observe the risk of turning the fee switch on as substantial.

This proposal was discussed a while back during the Uniswap Community Call and the findings concluded:

Turn the buyback programme on V2 first. All pools, 100 % UNI buyback. Incentivize the migration to V3 , and see how the LPs respond. If it is a success, instate the same programme on V3.

Technical Implementation

I invite the community comment on the way they would like to execute the proposal from the technical side - do we target UNI/ETH pool on V3? Or how do we actually go on about it? Would love to hear your ideas!

Also, I had a conversation with a guy on the Uniswap´s discord channel who was not in favor of the proposal because he did not see anybody else benefit from it besides the holders.

I kindly explained to him that if the UNI´s price was still at 2 USD, the recent DeFi Educational Fund would take up double digits (!) of the total treasury. Then, the guy realized that the higher UNI price does not benefit only the holders, but the protocol as a whole because it allows us to do so much more with the funds.

Link to snapshot

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Seems like a no brainer to me.

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Turning the fee switch on is a good idea. To make the fee switch simple it would be good to just burn all the collected fee’s.

My reasoning is:

  1. It would be most fair and beneficial to the token holders of the various projects with pools on V2 (i.e. supply burn across the board/all projects get a benefit)

  2. The reduced fee’s collected for Liquidity Providers will incentivize migrating to V3.

Definitely a yes from me. Otherwise the UNI token is just a meaningless governance token (with almost zero control/governance rights). But hey, we can keep posting on these forums, yay. Yes, to economic rights that offset such losses.

Buy and keep is better alternative as this proposal aims to do three things:

  1. Provide income to the treasury to fund projects
  2. Incentivize liquidity migration from V2 to V3
  3. Reduce the circulating supply of the UNI token so the treasury value increases.

Snapshot has garnered a lot of support which is exciting to see! After a short hiatus, we will move on to the second vote as well.

hey guys! Any news on fee switch implementation ?

Hi Pedro!

We are currently in the state of gathering appropriate legal advice on whether there would be significant legal matters to be taken care of in case the proposal goes through.

If there are any lawyers here, we´d love to hear your opinion on the proposal!

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thanks ! I think that uniswap governance could push/modify this proposal to insert an option to finance the “very best” legal opinion

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UPDATE: After contacting several lawyers, no actionable conclusion has been reached so far. It seems that there might not even be a definitive answer as of this moment

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Hi I’m Steve, a representative from Blockchain @ Berkeley

So far, we are largely supportive of the fee switch. Would you be able to outline the concerns lawyers have shared thus far regarding security implications? Also a pointer to the Uniswap Community Call # (and possibly the timestamp) that discusses this topic would be super helpful. Thanks!

The proposal was discussed a while back (cca a month ago). I got snippets of the call which I can share, but @BOR4 might have further material.

The concerns outlined by the lawyers I spoke to were mostly around the fact that it raises tax implications and security related issues. The consensus on the tax issues was relatively unanimous, but nobody is really sure regarding the latter.

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If the fee is used to buy back UNI and burn, is the tax concern still valid given there is no profit distributed to UNI holders. Implementation wise, buyback and burn seems easy to implement than distributing to UNI holders.

Yes, it was discussed as an alternative, but the delegates preferred buyback and earn. The situation is not looking good right now, the lawyers truly do not know whether the implications would be too grave for the SEC, but with the latest probe it seems more likely.

An income generating UNI has potential regulatory issue under SEC scrutiny. Buyback from UNI-ETH pool and burn is a much simpler and cleaner way to do it IMHO.

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Both are relatively vague when it comes to the SEC. Buyback and burn can be compared to a stock buyback, buyback and earn can come closer to investment/dividends. Its a tough spot for UNI right now.

They are horny for heads to roll so doing this might be literally poking the hornet´s nest. It all seems to depend on how Gensler wakes up that given day. If he feels like its gonna be a shitty day for us, it most likely will.

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I guess for buyback and burn, as long as someone don’t sell their UNI, there is not passive income and therefore no additional tax implications. It is like how the ETH gas fee is partially burned now.

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Buyback and burn comes close to a regular stock buyback. There are discussions of taxing stock buybacks right now. Its too vague, but it might do more harm than good right now for the token. We will have to wait at least for regulatory clarity.

Lawyers I have been in touch with simply do not have the answers. If you managed to speak to some, please, share their views if you find them helpful.

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Not sure why we need to wait for US lawyers’ confirmation on this. This is a new area and no one will give you a definite answer. It is a decentralized protocol and it can be used across the world by anyone. Stock buyback is currently not taxed as an income and we should not just speculate it “might” be taxed in the future. ETH is burning ETH in gas fee and other protocols like Maker is doing buy back and burn. We don’t have lawyers approvals on liquidity mining right? But we will still do it. As long as there is no law prohibits it, it is allowed.

Cause Gensler might declare UNI a security because of it and we are all done for? You gotta think it through a little bit. The risk is UNI might end up like XRP. Now, XRP didnt do all too well after it got declared a security, did it? He is already on the verge right now. Weight the risks against the rewards.

The fee switch is presumably there to earn fees for the treasury and UNI holders. If UNI gets declared a security, the UNI holders wont benefit…

I understand the whole world is not US. Unfortunately, the EU & US regulation shape prices.

For some reason, Uniswap landed on their radar. I know a lot of other protocols have it enabled, but right now…like I´ve said its like poking the hornet´s nest. Idk…maybe Gensler got a bag of Sushi.