Uniswap passed the "fee switch" proposal, what impact will it bring?

Author: derek walkush

Source: derek walkush's twitter

The Uniswap community passed the "fee switch" proposal, what impact will it bring?

Uniswap is the almost undisputed DEX overlord in the Ethereum ecosystem. They account for most of the transaction volume and users, and the number of tokens listed is 5-10 times that of their competitors.

They are also rapidly expanding to the new L2 and EVM L1, and growing rapidly. For example, Uniswap once captured 30% of the market share on Polygon in one week, and now controls most of the transaction volume on the Polygon chain:

However, since its inception, all transaction fees on Uniswap have gone to liquidity providers (LPs). UNI tokens can only be used for governance, but the smart contract contains a "fee switch" that token holders can toggle to accrue a portion of the revenue. In this way, the token acts like a call option.

A number of governance proposals have attempted to flip this fee switch and study it, but have failed, including one proposed earlier this year.

It must be mentioned that Uniswap has more trading volume/TVL than other DEXs. This means that the "organic, sustainable" APY is higher than any other DEX.

So flipping the fee switch might cause some LPs to shut down the platform, but even the highest fee (25%) still makes organic APY more attractive than other DEXs.

Due to its brand, liquidity depth, and number of listed tokens, Uniswap has more users and sees more trading volume from aggregators.

My friend and I modeled the potential impact of the fee switch and shared some of our findings on the Uniswap community forum.

• These findings are for experimental purposes;

• This experiment should test data points in non-core pools that map to other Uniswap pairs; WBTC/USDC, DAI/ETH, USDC/ETH, etc. alternatives

• The first fee switch worth testing could be to produce non-UNI assets for the treasury; these funds should be used to incentivize ecosystem growth for Uni's other stakeholders

The optimal pool should meet the following conditions:

• Relatively high volume/TVL(APY), making providing liquidity still profitable

• Liquidity is relatively deep without depleting vital liquidity

• Ideally, assets of relatively similar value to avoid potential investment increases

Below is some of our analysis. DAI/ETH (0.3%) and USDC/ETH (1%) are our recommended test pools.

Finally, as one of the market leaders in DeFi and all cryptocurrencies, Uniswap’s opening of the fee switch may be one of the biggest events in its history.