[Temperature Check] Should Uniswap Distribute UNI to Liquidity Providers?

Authors: @monet-supply @coopahtroopa

Background:

Uniswap’s genesis liquidity incentive program ends on Nov 17. The existing program distributed 20 million UNI to LPs over 2 months, split evenly between the WBTC/ETH, USDC/ETH, USDT/ETH, and DAI/ETH pools. This works out to 2.5 million UNI per pool, per month.

Benefits of UNI distribution to LPs:

  • Ongoing incentives allows UNI to be distributed to those providing value in the form of liquidity
  • The incentivized pools are likely to remain the most liquid DEX pair on Ethereum, providing a venue to trade against ETH at virtually any size with zero slippage.
  • Reduced incentives prevents UNI from being distributed ‘too fast’, marked by all tokens being distributed before the Foundation’s four year vesting has passed.

Drawbacks of UNI distribution to LPs:

  • Ongoing incentives result in UNI largely being ‘farmed and dumped’ to earn yield. See ETH USD Yield Farm, Pickle, Harvest and Alpha.
  • Reduced incentives means UNI is distributed slower.
  • Incentivizing the same pools can be seen as choosing ‘winners’ by selecting WBTC as THE Bitcoin on Ethereum and favoring certain stablecoins over others.

Proposed new distribution:

Distribute UNI for an additional 2 months from the time this proposal is adopted and executed by governance. Distribute to the same 4 pools, but at half the rate of the genesis distribution. This works out to 1.25 million UNI per month to each of the 4 covered pools (WBTC/ETH, USDC/ETH, USDT/ETH, DAI/ETH), for a total of 5M UNI per month, or 10M UNI total over the next 2 months.

Please see the liquidity incentive governance plan document for full details and timelines.

Temperature check question:

Should Uniswap distribute UNI to liquidity providers per the specifications outlined above?

Snapshot poll

Next steps:

The snapshot poll will be live for 3 days, from 20:00 UTC on 16 Nov to 20:00 UTC on 19 Nov. If the poll passes with a minimum of 25,000 UNI in support, this proposal will move forward to the consensus check phase. Details about the Uniswap governance process can be found here.

15 Likes

The voting period for the temperature check Snapshot poll has now ended.

The vote has passed, with 97.18% (16.8 million UNI) in favor and 2.81% (488,000 UNI) opposed. A total of 92 addresses participated, with 68 voting in favor, 21 voting against, and 3 choosing the “abstain” option.

Full vote details can be accessed/downloaded from Snapshot.

The chart below shows address voting behavior based on their share of the poll’s total votes.

3 Likes

Thanks for taking charge and getting this pushed through.

I much prefer this progress to stagnation. Fwiw in the future, I would like to see some distribution like 2.5M wbtc/eth, 1.25M dai/eth, 1.25M usdc/eth. I prefer the conceptual reward balance between stablecoins and wbtc. As opposed to now where stablecoin liquidity gets 3x the incentive of wbtc. But that is a discussion for Jan 2021.

To align incentives and dampen the farm-and-dump behavior: more reward (say 100M UNIs) over longer period (say 2 years), possibly time-weighting the rewards exponentially (the later an LP withdraws the more yield).

1 Like

For me UNI, should inspire from SUSHI, SUSHI holders stake their token and earn fees on sushiswp.

I would like to farm UNI and lock them to earn fees on all pools (similar as Curve as well)