UNIfication Proposal

Over 5 years after the UNI drop (and thank you, btw), the biggest legacy of Uniswap in DeFi, I feel, is the Uniswap v2 contract. For one simple reason. If you see just about any other smart contract on any EVM compatible chain, you have to think: “Well, where’s the gotcha.” Now, that chain might have gotchas! But that contract is going to do what it says on the tin. That’s beautiful, and what we, five years later, are missing now.

  1. Governance is suggestions: 5 years of DeFi and I am convinced more than ever that decentralization is an ideal that is strived for at best, and given lip service at worst. Governance votes are never guarantees, always just suggestions. The examples of DeFi protocol insiders, the five or less actual “devs” who actually “do the thing,” making “emergency measures” despite token votes are numerous. At the end of the day, there’s always some human typing “git commit” and they may or may not do it based on the votes.

  2. Back ends aren’t transparent and fixed: Then there are the “immutable” contracts themselves. Either they are completely obscured as to their source code, and full of admin keys and “upgradability,” or they have it simply a few layers deep, in another contract that is referenced or in some off-chain computational resource. Only a Uniswap v2 contract will do what it says on the tin. Every time. I mean, there may be more examples, but none off the top of my head, certainly not with the historical impact. And still current relevance! Someone spins up a new EVM compatible chain and someone two seconds later is going to come up with a Uniswap v2 clone with Uniswap v2 contracts that work exactly like they did, years ago. (But again, the chain itself could have admin keys, upgradability, 20 validators that are really just one dude, etc., etc.)

  3. Front ends aren’t transparent and fixed: Of course, there are also frontends. Uniswap was also fairly historic (in a less positive way) for being the first high profile case of a “DeFi” protocol censoring their frontend for fear of regulatory attack. Those who knew, of course, could find a way to the Uniswap v2 contracts without using the Uniswap front end. And that’s beautiful. Because, at the time, there was basically no regulation—good or bad—there was only fear of de facto registration through legislation (hence the front-end censorship), but nothing actually written into law as far as I can recall. Which is okay, I think, if—if I can use the old maxim—Code is law. In /that world/ with no regulation, Code is Law works for me. I don’t know about this world. Personally, I was much less scared of smart contracts five years ago than just about everything that is going on now.

(My personal view, if I may slightly digress, just so there’s no misunderstanding as to motives: Crypto should not be connected in any way to banks in any way where ultimately the general public should have to bail out the degens. FDIC-insured banks with “fractional reserves” should not be impacted if some crypto 1000x leveraged prediction market rug pulls or death spirals. That means, in my ideal world, yes, code is law, the MEV extractor or the MEV extractor’s extractor (per a recent case) is on equal terms—all the way up until the proverbial fist hits the proverbial nose, which to me is the onramps and offramps. Do what you want with your bits of 0s and 1s but when you try to convert them to dollars and cents… Well, where the buck starts, is where the buck stops. Just a bit of disclosure on my personal views. I also don’t like one-dollar-equals-one-vote and the outsized power of A16Z, etc., but that’s another matter for another day.)

So, I don’t think we’ll ever get away from a human has to type in “git commit” sometimes. Robots aren’t running the cooling towers in data centers. Humans will be a part. But we /can/ make it about as “immutable” and decentralized as possible when proposals are enacted, and I think this suggestion needs to incorporate this if we want to believe Uniswap is striving not lip-servicing.

  1. Governance implementation is as human-less as possible: Basically, you have the high-level proposal, but you also have a very, very detail implementation plan connected to it. One that is clearly audited HEAVILY. But basically the plan is a really detailed computer program that is waiting to read the Ethereum blockchain (presumably) for the result of this vote as basically a parameter that will run the entire program. It details exactly what will happen to the contracts, the infrastructure, the websites, the front, the back, you name it and it happens all programmatically (ideally). If there’s ANY part with a human in it, make them have skin in the game, like Hayden Adams has to himself push some button, fine, but if he doesn’t push the button per the vote, then he has a legally-binding contract where he donates half his wealth to open-source development (or something).

  2. Back-ends are transparent and fixed. Basically every trick they have now, remove it. No admin keys. No upgradability. As little as possible off-chain. Truly decentralized infrastructure would be great… Dunno if it exists. I mean, it does in name, the number of DePIN projects out there is insane. But how many are truly decentralized? But at the very, least there’s probably a way to use disinterested third-parties, maybe a lot of different DePINs and possibly classical infrastructure providers along with some kind of kill switch if it gets messed with and a High Availability solution to go to the others if it happens. In other words, Disaster Recovery assuming that a human wanting to go against the vote is /a disaster/. Not saying it will be easy, but I am pretty sure a solution can be made that is so whack-a-mole it won’t go down, won’t get changed.

  3. Front-ends that are transparent and fixed. Permaweb is probably the easiest way to solve most of that. But just like back-ends, you got the High Availability, whack-a-mole solutions, that include P2P, Tor, you name it. I don’t doubt if there’s the money for it, there’s a solution for it. Point is, even if some powerful country says that memecoin is against our national interest, not much anyone can do about it coming (front end) or going (back end).

Of course, the biggest downside risk is you could spend a bunch of money on something, and after all those audits, it still ships with a bug that bricks it instantly. (Okay, that and a government decides everyone human who made a vote and/or enabled the enaction of that vote should be put in jail. That would be pretty bad.) BUT, at least everyone would know the result would be TRUE (as true as can be) Decentralized Finance.

[EDIT: 10 seconds later, formatting.]

What made you decide to burn the UNI token instead of releasing fees to people who have voted/participants in UNI governance as previously discussed?

Thanks for creating this proposal. Given the importance and irreversibility of this proposal, Franklin DAO would like clarifications on several points.

  1. With the decrease of LP fees in v2 from LP fees 0.3% to 0.25% and Protocol fee changes, would the estimated returns of the Protocol Fee Discount Auction (PFDA) mechanism be sufficient to offset the difference in LP income and maintain Uniswap’s competitiveness in retaining LP’s?

  2. Building off the constructive suggestion of @SeedGov, what are the alternatives to the burn mechanism that have been considered, and what are tradeoffs considered?

  3. How is the size of the growth budget determined, and can the planned allocation of the budget be further elaborated?

We are excited for the development of this overdue transition. Given the importance, we want to ensure the best possible implementation for this new chapter.

1 Like

Not necessarily true. If the UNI appreciates that labs entity can get appraisal on that value. The other side is while technically Labs might needs to sell UNI at some point to fund certain operations as long as it sells a smaller percentage of it’s holding than token reduction then it’s stake in the protocol remains the same.

For example, in a given year labs sells 2% of it’s holdings and fees burn 2% of the supply, then it’s percentage stake in the protocol effectively remains the same. This would be creating a synthetic dividend

Thank you to the Uniswap team for empowering the UNI token — this is a major and meaningful change. By aligning the team’s incentives with the UNI token’s value, and continuously iterating on products while capturing more on-chain trading volume, Uniswap is building a strong moat around its ecosystem. Looking forward to the official vote going live!

I will support this proposal.

Let me first share my personal opinion on fee switches. The ideal solution would be for the protocol to remain a public good, a fee-less DeFi base layer. I’m finally able to say this clearly, without risking that I appear to be siding with the “bad guys” and being against any decisions. (Also to be clear, as delegate I’m representing UNI holder interests, not my personal opinion - at least not just it.) That ideal solution is of course now not possible, due to many reasons. It probably stopped being a good option the moment the UNI token was created.

Having said that, this proposal is great. A couple of highlights:

  • A 20M UNI budget for protocol development and growth. This is obviously a significant amount but directly depends on the UNI price, so indirectly on the protocol’s performance. And if we want to spend treasury funds on development and growth at all, Uniswap Labs is by far the most deserving candidate!

  • Protocol Fee Discount Auction. I’ve been arguing many times that any fee switch needs to consider LPs and compensate them somehow. This is it. At worst, it’s a nice gesture that should be appreciated. At best, the Labs researchers have found a solution to the LP retention problem. It remains to be seen how efficient this mechanism is, as the theory only shows a ~5% reduction in arbitrage loss. However, if it works sufficiently well, it will be another example in which Uniswap produces a “good enough” solution that actually works within the realistic implementation constraints.

Looking forward to better understanding the upcoming relations between equity and token holders , as well as the role of community hook builders in a world where the Labs drive protocol development & growth.

We appreciate the comprehensive and ambitious vision laid out in this proposal, which seeks to realign Uniswap’s economic model and governance structure for long-term sustainability. We are in support of the proposal and looking forward to the execution of the proposed initiatives in it.

We’d like to raise a couple of issues to be addressed before its execution:

The proposed reduction of V2 LP fees from 0.3% to 0.25% introduces a real risk of liquidity migration to other DEXs offering more attractive terms. As @SEEDGov points out, lower liquidity could lead to higher impermanent loss and reduced trading activity, which would directly impact protocol revenue and the effectiveness of the UNI burn mechanism. While we acknowledge the development of the Protocol Fee Discount Auction system and its potential but its work is still in progress and only a promising theory as of now, shouldn’t we consider temporary incentives for the LPs to stick to utilizing their assets into the Uniswap pools?

Another area that deserves discussions is the decision to allocate the entirety of protocol fees to token burns. While this creates a strong deflationary narrative, it may limit the DAO’s ability to fund future development, grants, or DAO operations. As a DAO, potentially in the near future, we should implement another Releaser in addition to Firepit to allocate a potion of the fee that accumulates in TokenJar to the DAO treasury for the DAO operations and other initiatives.

The last one is more of a question; we welcome the change where most of the members in the Foundation move to Labs and eventually will be dissolved because it simplifies the structure, and clarifies where the responsibilities and capacities exist. Is this decision made because the DAO finally adopts DUNI, and/or other regulation landscape has changed?

Your proposal is sound except that it reduces incentive, increases risk for LPs. LP fees are already too low.
Studies show half of LPs lose money….heavily leaning towards retail investors. v4 is nice but makes things more complex for retail investors. Is this how it’s going to stay? Pros make money and other LPs support the ecosystem by taking losses?