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Uniswap Considers Stablecoin Fee Tier: Uniswap v3’s factory contract currently allows for the creation of new pools with fees of either 5, 30, and 100 basis points. This week, Uniswap delegate Getty Hill proposed adding a 1 basis point fee tier via Uniswap governance vote in order to “help Uniswap compete in stablecoin <> stablecoin pairs, where the majority of the market share is taken by Curve and DODO” which have lower fees, 3–4 bps and 1 bp, respectively. The Snapshot Consensus Check vote is live until Oct 30.

Uniswap Votes on Ultra Low Fee Tier: The proposed 0.01% fee tier for Uniswap v3 pools would be the lowest swap rate available in defi, potentially pulling liquidity and volume from competitors and eroding DEX earnings.

For much of Defi’s history, the default swapping rate on decentralized exchanges was 0.3% of each trade, as set by the category leader Uniswap. This allowed liquidity providers to earn a high rate of return and offset losses caused by price divergence.

In addition to innovating on concentrating liquidity within certain ranges, Curve Finance also introduced a much lower trading fee of 0.04%, which helped improve liquidity for stablecoins and other stable value assets. When Uniswap launched version 3 earlier this year, which allowed for concentrating liquidity to rival Curve’s capital efficiency, they also offered a 0.05% fee tier to be able to compete on stablecoin swaps.

But surprisingly, Uniswap has seen the low fee tier option take prominence not just in stablecoin trading, but also for other large cap assets in unstable pairs. The image below shows the current highest volume pairs on Uniswap; notice how 4 of the 5 are unstable pairings using the 0.05% fee tier.

Uniswap Info

This feeds into a recent proposal from the Uniswap forums that could have a huge impact on the DEX market.

Community member and delegate Getty Hill proposed adding the option for users to create pools with a 0.01% trading fee, the lowest in the industry currently. This would allow Uniswap to outcompete Curve’s 0.04% fee, likely taking nearly all volume from the current leader in stablecoin trading until they respond with lower fees of their own. As a side effect, Curve protocol revenue derived from their 50% share of trading fees would be eroded and total value deposited could also decrease from falling CRV token rewards.

While this would position Uniswap well against competitors, it may also cause an own goal from a value accrual perspective. The Uniswap DAO has the ability to claim up to 25% of trading fees, but it’s unclear if trading volumes can increase enough to counter the impact of lower fees on protocol revenue. The new fee tier option could also accelerate the shift towards lower fee tiers for non-stable trading pairs, with large cap tokens potentially moving to 0.01% fees and smaller assets moving from 0.3% or 1% down to 0.05% fees. This will drive serious margin compression for protocols and impact liquidity provider returns, but will give DEX traders an improved experience with lower cost and potentially help cement Uniswap as the premier exchange protocol for users.

In the background, the proposal may also be driven by new competitive factors in the DEX space from non-traditional actors: MakerDAO and OlympusDAO. As we discussed in our last newsletter, MakerDAO is considering reducing fees for stablecoin trading through the peg stability module to 0%, with an initial poll passing recently. Olympus is also looking into offering stablecoin swaps with their treasury assets at a 1:1 ratio, and these two new entrants could undercut DEX market share unless fees drop substantially.

Voting for the Uniswap proposal is live on Snapshot through October 30, and will then move to an on chain vote. So far it has seen unanimous support from voters, showing that Uniswap DAO members continue to focus on product over revenue.

Recent governance topics and news

Beginner’s Guide to Uniswap Voting Unicode Hackathon started today October 29th and will run through November 10th Support for the Bed Index, a part of the Bankless DAO, was presented Airbayer Miller from the DeFi Education fund discussed a rejected proposal to move education funds from a multi sig wallet to a custodial wallet for security purposes Ethelo was presented by Ben to showcase an existing sophisticated tool that enhances governance decision making in variety of different Cointelegraph article covering Valour Uniswap ETP Cointelegraph article covering Arbitrum, Optimism, and Uniswap: https://app.boardroom.info/uniswap/overview

Active proposals

Closed proposals

New and ongoing discussions

To read more about the different proposals and take part in the decision, check out the governance forum.

Reminder to apply for a Uniswap Grant if you have a project or idea you’d like to present to the Uniswap team: Uniswap Grants Notion Page & Apply for a grant here.