The Uniswap community has voted against a proposal to introduce protocol fees for liquidity providers (LPs) on the decentralized exchange platform. The vote, which concluded on Thursday, saw over 45% of the community expressing their support for a “no fee” approach. Meanwhile, 42% voted in favor of charging LPs one-fifth of the fees generated by Uniswap version 3 (V3) pools. A smaller portion, 12% of the community, voted for one-tenth of the fees, while only a nominal 0.04% voted for one-fourth.
Liquidity providers play a crucial role as market makers on Uniswap, facilitating user trading and earning a portion of fees from each trade. Currently, LPs are not charged any fees by the platform for their services.
The proposal to charge fees was first introduced by GFX Labs, a developer firm, earlier this year. They argued that Uniswap was in a strong position to generate significant revenues through protocol fees. The firm emphasized that liquidity providers should be considered protocol users who do not require full rebates, as many of them are professional market makers rather than retail traders.
Community Divided: Supporters and Critics Debate the Proposed Fee Structure
However, the proposed fee structure has garnered both support and criticism from the Uniswap community. Supporters argue that introducing fees for LPs could incentivize more participation and provide a sustainable revenue stream for the protocol, which can be used for further development and community initiatives. They believe that LPs should contribute to the ecosystem’s growth and sustainability, given the benefits they receive from participating in Uniswap.
On the other hand, critics of the proposal expressed concerns about the potential impact on LP earnings and the risk of driving liquidity away from Uniswap. They argue that other decentralized exchanges (DEXs) might attract liquidity providers with more favorable fee structures or even fee-less models. Capital flight to other platforms could reduce the liquidity available on Uniswap, affecting its competitiveness and user experience.
The poll results, however, indicate that the community is not yet ready to embrace the idea of charging fees to LPs. While the majority of the “no” votes were against the proposed implementation rather than the concept of fees itself, it highlights the community’s concerns about the potential impact on LP earnings and the possibility of capital flight.
Implications for Future Governance on Uniswap
The outcome of this poll is likely to influence a formal poll expected later this year. The Uniswap community is known for its active participation in governance, and incorporating community sentiment into decision-making processes is crucial to maintain member satisfaction.
Uniswap Foundation Executive Director Devin Walsh clarified on Twitter that the recent poll was conducted to gather feedback and was not part of a formal governance process. She highlighted that if GFX Labs moves forward with a Temp Check, the snapshot vote will become part of the official Uniswap governance process.
In the past Snapshots have been used by the UF and others to gather feedback from the community. This is how it's being used here.
If @labsGFX moves forward to a Temp Check, that Snapshot vote will be part of the Uniswap gov process defined here.https://t.co/SuPlxIYsp3
— Devin Walsh (@devinawalsh) June 1, 2023
Nevertheless, the final decision will depend on the outcome of future governance votes and the ability to address the concerns and suggestions raised by the community.
