The pilot program would divert 10% of trading fees from three liquidity pools into Uniswap’s treasury
Uniswap’s UNI token surged over 7% on Dec. 2 after a governance proposal was released that called for a vote on reserving a portion of trading fees.
UNI priceSource: The defiant terminal
If passed, it only applies to three pools on Uniswap V3 – an ETH-USDC pool charging 0.05% on trades, a DAI-ETH pool charging 0.3% and a USDC-ETH -Pool with a fee of 1%.
A tenth of the trading fees from each of these pools would go into Uniswap’s treasury – the post on Uniswap’s governance forum does not contain an explicit plan of what to do with the withheld fees.
Of course, that doesn’t stop people from buying UNI – DeFi enthusiasts have long speculated that holders of the UNI token will one day be entitled to a share of the fees charged for Uniswap trades – with the token- Pumping is clear that at least some investors believe the proposal is a step toward some rate of return for UNI owners.
Regulatory and Legal Considerations
Some observers noted that the proposal sidesteps the legal and regulatory concerns surrounding protocol revenue sharing with UNI holders.
In fact, the Uniswap Foundation released a brief report acknowledging that “the regulatory and private litigation climate for DeFi in the US has been incredibly fast-moving and challenging.”
Fees for Uniswap trades currently go to Liquidity Providers (LPs), which are users who deposit assets with automated market makers like Uniswap. Even if the proposal is accepted, LPs will retain 90% of the fees charged across the three target pools.
The proposed change is a “pilot program” according to the forum post and aims to assess the impact of removing one-tenth of fees on trade execution. The program would last 120 days.
Uniswap is the largest decentralized exchange in DeFi, processing over $500 million in volume on all but three days of the last month, according to The Defiant Terminal.
Uniswap Dex trading volumeSource: The defiant terminal
The question underlying the proposal is how LPs will react if a tenth of their fee income is taken away – there is a chance that they will move liquidity elsewhere in response to the change, increasing slippage and subsequently trade execution for the three would decrease target pools.
However, the exact impact of the fee structure changes is unknown, so the authors of the forum post, Leighton Cusack, co-founder of PoolTogether, a lossless savings protocol, and Guillaume Lambertan assistant professor of applied physics at Cornell University and DeFi founder, call the proposal “an experiment.”
“The metric to measure [the] The success of the experiment is as follows: if the trade execution for the pools is not reduced when the “fee switch” is on, the experiment is a success,” their post reads.
Whether the experiment goes ahead depends on UNI owners, who over the next 14 days will vote on a “governance proposal,” which is the third and final stage in the decentralized exchange’s governance process.
Uniswap had a busy week – the project also announced its NFT marketplace on November 30th.