Temperature Check - Ultrasound UNI [Fee switch organization funding]

Temperature Check
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Hello UNIswapers!

TLDR:

How can the fee switch change the value proposition of $UNI?

The rationale of owning ETH as an investment is that Ethereum is a clear market leader in the cryptocurrency space. The Ethereum network proves its value in strong development activity, smart contract functionality, and tangible fee generation (e.g., PoW mining, and fee burning). However, over the history of Ethereum (~9 years), none of the platform accrued compoundable value to ETH token holders. In the summer of 2022, the Ethereum network is switching to a Proof-of-Stake consensus, securing its own network while rewarding stakers in the process. Why can’t Uniswap do something as great? The fee switch mechanism developed within Uniswap’s V2 & V3 contracts presents the opportunity to add compoundable value to UNI holders similar to how Ethereum plans to accrue compoundable value for staked ETH holders.

Let’s finally get something done.

From endless twitter posts, discord rants, posts scattered throughout the governance forums, and month’s long silence on the topic of the fee switch. Over the last 2 years, the Uniswap governance has been in indecision to “toggle” the fee switch mechanism - stalled by inaction to help benefit $UNI holders who believe in the value of the Uniswap protocol. Through this proposal, we plan to create a responsible entity on changing the paradigm of $UNI being represented as purely a redundant “governance-based” token. By diverting a portion of swap fees from liquidity providers to $UNI holders, we shift the paradigm of holding a token to one where voting actually matters since $UNI can be used as a staking token for revenue generation and voters in tandem.

Background on action.

In a non-exhaustive list of actions, we propose to allocate the “Ultrasound UNI Fund” with 0.3 – 1 M $UNI with the directive to transform $UNI and establish:

I. Value to UNI holders and prospective UNI investors: Ensuring the prosperity of $UNI holders by establishing the fraction of swap fees to be diverted from Uniswap’s V3 contract from the Ethereum, Polygon, Arbitrum, and Optimism network to staked $UNI holders. This includes determining if the 5-basis point fee switch on Uniswap V2 should be enabled.

II. Dominance over competing DeX AMMs: Growing Uniswap’s market share and being the best place to trade across many pairs is important. The fund aims to finance research on the optimal application of the fee switch mechanism by collaborating with knowledgeable professionals to carefully balance the impact to Liquidity Providers on a DeX competitiveness-based perspective.

III. Conservativeness to Uniswap LPs: Activating the fee switch on certain pools may disincentivize LPs from trading on Uniswap. The fund aims to establish an organization to communicate with Uniswap LPs on either activating the fee switch on a per-pool basis; or activating the fee switch on a protocol wide basis.

IV. Defense against legal pressures: The fee switch may expose angles of undefined regulatory risk. The fund aims to consult with knowledgeable legal professionals on threats that may expose the Uniswap protocol to overarching agencies.

V. Actioning the Uniswap community: Incentivizing, proposing, creating, and following through the necessary governance processes to toggle the fee switch requires governance approval. The fund aims to commission research to investigate the scale of economic impact to $UNI holders and to maximize the potential earnings through the fee switch mechanism.

Concluding Thoughts.

We believe that activating the fee switch mechanism will add indisputable value to $UNI token holders and bring in a new perspective to future UNI investors. The change presents few, but meritable risk-factors to justify the creation of a fee-switch fund to manage the execution of this proposal. The suggested fund proposal size of 0.3 – 1 M $UNI is purely speculation based on the expenses required to perform initial research, manage future governance changes, execute essential governance proposals, onboard DeX on-chain analysts, consultation fees, and collaborate with the community at large. A breakdown and distribution of the fees to fund the fee switch toggle are to be detailed in a consensus check.

The snapshot voting poll will be live for 8 days, from Sunday, February 13 to Monday, February 21 (1:00PM). If the poll passes, a breakdown and distribution of the fees to fund the fee switch toggle are to be detailed in the consensus check phase.

A link to the snapshot proposal: Snapshot

4 Likes
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I like the idea, but isn’t this something better to get a grant from Uniswap Grant?

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Hi Jonsnow,

We originally intended that our proposal be passed through the Uniswap Grants Program (UGP). However, as we progressed with investigating the high-level complexities of enabling the fee switch, we came to the conclusion that UGP would not be the ideal place to start.

In the effort of transparency, we wanted to start off with the community to judge on the formation of a fund on spearheading action toward enabling the fee switch. We also wanted to encourage public discourse on optimally applying the fee switch, and gather valuable insights on potential issues that may arise externally from interacting with Uniswap protocol’s smart contracts. Finally, the UGP also has a loose association with Uniswap Labs, and as such, we believe that a governance submission is the only path forward.

Please note the following text:
“UNI holders are responsible for ensuring that governance decisions are made in compliance with applicable laws and regulations. To help facilitate this, the fee switch has been initialized to a contract UNI holders can use to vote on tokens for which they will collect fees. The community is encouraged to consult knowledgeable legal and regulatory professionals before implementing any specific proposal.” ref

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Another missing part is the governance of using this funding. Like who will manage this funding, who are the multisigs, who are the potential parties that will get involved in this projects etc. the issue is important but thess governance and planing are also important.

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I think it is important to see the cost breakdown of the 3.6 million - 12 million USD (at current prices) to flip the fee switch. It seems quite high for an already coded into the protocol fee switch.

Do you have a team in mind for Ultrasound UNI? Will Ultrasound be developing its own UI/UX around the fee switch’s (v2 & v3)?

I think it is imperative to get the ball running on an initiative like this, but need more information to evaluate if this is the right approach.

2 Likes
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Hi Apple,

Thank you for flagging down the proposed cost of 0.3 – 1M UNI anticipated for funding the activation of the fee switch. By allocating the proposed funds, we want to achieve a level of rigor in covering all fronts of making the fee switch enablement a success to UNI holders. We appreciate any scrutinization toward the purposeful application of funds. If we reach a consensus check, further details on the proposed distribution will be made based on eliminating risk factors that enabling the fee switch may introduce. As a long-time Uniswap governance member and investor, I share the same frustration in recent developments regarding the controversy surrounding the unannounced sale of ~ $10M worth of UNI. We want to ensure that these funds are vested and used appropriately, or returned to the treasury in good faith. We also anticipate that with the objective of maximizing staked UNI APY that the public good of this proposal is a negligible cost to UNI holders.

Regarding your question on the topic of team composition, we plan to onboard members as see fit and based on elements that require addressing before pushing a proposal on toggling the fee switch. We expect that USL is capable of creating the necessary contracts and UX/UI extensions to the app.uniswap.org website, however, the creation of a separate UI/UX entity can be funded through this proposal if required.

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Do you have enough UNI to start an on chain vote? If not, this is kinda pointless. UPDATE: We do! Lets do this.

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If the fee is turned on, what’s the advantage of uniswap compared with so many AMMs out there? I can expect the TVL to drop if this happens, which will cause uni price to also dump.

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As a UNI holder, I believe our most important goal is to improve the quality of the Uniswap DEX, which ultimately would result in it being used by more people. I believe that goal is more important than making the UNI token an income generating token to simply increase our profits. Turning the fee switch would make uniswap less competitive because of reduced LP profits (less TVL and more slippage). The question is, can the fees generated by the fee switch be directed towards the improvement of the Uniswap DEX in a way that would compensate for reduced LP profits? Simply directing the fee to UNI holders would initially make UNI more valuable, but with the drop in trading volume in Uniswap, the UNI value might drop too. Forcing LPs to buy UNI to get trading fees that they are not getting anymore doesn’t seem logical to me because they could simply hold the assets and then buy UNI instead of LPing, especially if their fee income no longer covers impermanent loss. Your proposal already assumes that turning the fee switch is good for the protocol, but I think its more responsible to use part of that 0.3-1 million UNI to first conduct research to see if thats even the case.

I’m really interested in finding out whether turning the fee switch will be good for the protocol and I understand that currently the UNI token doesn’t have many uses. Maybe trying to find new uses cases for it would be an alternative to turning the fee switch. If your research shows evidence that turning the fee switch will be good for the protocol then I would support it.

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If we dont turn on fee switch, we would never know if turning on fee switch will drive LP away. This is not a one way street. Fee switch is on pool by pool basis, so if we see the LTV meaningfully dropped for a certain pool, we can always turn off the fee switch for that pool or add liquidity mining reward.

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I think the best way to boost the utility of uni token is to create new markets, like NFT. For FT market, uniswap is already in its best shape.

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That’s not gonna happen

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i support fee switch activation

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Hi mgomes,

This is the comment we’ve been looking for. We want to approach the fee switch in a progressive and extremely conservative manner. It would be reckless to blindly apply the fee switch throughout the V3 protocol without an economically justified basis of the fraction of swap fees collected from LPs. It isn’t entirely clear whether applying the fee switch is inherently “good” for the protocol, and for that reason, the organization plans to fund such analysis to demonstrate the optimal fraction of swap fees collected as one part of a multi-action initiative. As you may already note, the fee switch can be applied on a per pool basis on V3, also, the fraction of swap fees collected can be adjusted based on a range set within Uniswap’s V3 limit to ensure LPs are negligibly affected. Overall, we want to ensure a healthy balance between swap fees collected to avoid driving away liquidity on Uniswap.

2 Likes
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could we move for a temperature check ?

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Hi pedrosoft,

The snapshot voting poll will be live for 8 days, from Sunday, February 13 to Monday, February 21 (1:00PM).

A link to the snapshot proposal: Snapshot

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thanks :slight_smile: :slight_smile: waiting for it

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Seems like a good approach then, I agree that a lot of research should go into this topic.

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Fair point, I wasn’t sure if the fee could be turned off once turned on.

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Having learned that Dan does have the necessary UNI behind the proposal to put it onchain, I do think its a wothwhile endeavour to pursue.

The success of the Uniswap Protocol has been and still is exponential, but the UNI token holders got nothing in return…The only thing that governance has delivered to the token holders is a soft rug in a form of the DeFi Fund and continuous UGP funding. I do not mean to bash these entities. I am simply stating a fact that the UNI token holders have been generous with their wealth and patience.

Its beyond time to stop the ridicule the token has been getting on Twitter by many influencers and let everybody know the UNI token holders are serious.

1 Like