Erik Weijers, 4 months ago

UNI holders likely to vote in favor of fee switch

An overwhelming majority of UNI holders are voting in favor of the pilot to introduce a fee switch. This means that in the future, Uniswap's liquidity providers may receive a fraction less of the transaction fees paid by traders. The money this would free up could be used for the development of Uniswap.

The pilot is a test in that the fees set aside are set aside in a fund. Also, the fee switch will only apply to a fraction of a small part of the liquidity pools (including USDC-ETH). The pilot will last for 120 days.

Although the vote, which closes on August 9, appears to be extremely in favor of the fee switch (3 million for and only 54 against?!), the fact that UNI's holders are voting in favor is not in itself a surprise. It is in their interest that Uniswap has a well-stocked treasury. The vote shows that the governance aspect of protocols like Uniswap can work well. UNI is a governance token, which means that ownership gives voting power.

Fees at dexes

Uniswap is the largest decentralized exchange (dex). Anyone can provide liquidity there in so-called liquidity pools. In exchange for depositing your USDC, ETH, etc. in such a pool, you as liquidity provider (LP) of Uniswap get paid 0.3% of each transaction. These are hefty amounts. Consider that the daily trading volume of Uniswap is in the order of half a billion. 0.3% of that is $1.5 million in daily transaction fees for LPs.

At all dexes, a similar percentage goes to LPs: in that respect, Uniswap is not unique. But while at most competitors, such as Sushiswap and Pancakeswap, a portion goes to the protocol, so far all of Uniswap's transaction fees go to LPs. At other protocols, a portion goes to the treasury of the protocol in question.

Enabling further development

There is considerable debate among UNI holders about the implications of the fee switch. Although the majority is in favor, voters understand that Uniswap is giving up an important unique selling point. Will Uniswap remain as popular with liquidity providers if they are paid a little less? Can Uniswap maintain its (huge) lead over other dexes? On the other hand, the benefit of a fee switch is clear: it fills the treasury well and allows for continued development and new services. This is also how the fee switch should be viewed. Although the fee is not paid to UNI holders in the form of dividends, it makes Uniswap as a 'company' more capital efficient.

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