DEFIREGULATION

What are the internal and external concerns of the UNI fee sharing proposal? Does the Uniswap proposal aim to challenge SEC regulations?

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What are the internal and external concerns of the UNI fee sharing proposal? Does the Uniswap proposal aim to challenge SEC regulations?

Uniswap governance will once again challenge to allocate revenue to UNI token holders on 2/23, aiming to discuss incentivizing token holders to participate in governance. The discussion period will last for at least seven days before entering the voting process. However, concerns and opposition remain regarding the distribution of revenue to UNI holders, as historical discussions on the matter have not been able to pass.

UNI surges over 60% overnight! What is the content of Uniswap's proposal to restart UNI staking revenue sharing?

UNI Profit Sharing Concerns: LP Interests at Stake

Uniswap, as the largest decentralized exchange protocol on Ethereum, has not charged any protocol fees for a long time, but there are still many UNI token holders who hope to share trading fees through governance to provide profit value for UNI. However, similar opinions and proposals have not been adopted.

Currently Only Interface Fee

It wasn't until October 2023 that Uniswap began charging interface fees for specific trading pairs based on the rationale of sustainability, but these fees do not go to UNI holders.

Uniswap to start charging "Interface Fees" tomorrow! Specific token trading pairs to be charged 0.15%, limited to front-end users

The fees collected by Uniswap Labs development team can be found here:

In the front-end interface provided by Uniswap Labs, the trading pairs of tokens ETH, USDC, WETH, USDT, DAI, WBTC, agEUR, GUSD, LUSD, EUROC, XSGD will be charged a 0.15% interface fee.

LP Interests are Paramount, Internal Concerns Divided

The Uniswap v2 liquidity pool fee is 0.3%, while Uniswap v3 offers optional fees of 1%, 0.3%, 0.05%, 0.01%; the beneficiaries are the liquidity providers LP who participate in providing liquidity.

For example, looking at the Uniswap v3 liquidity pool, the seven-day trading volume for the USDC/ETH pool is $1.5 billion, multiplied by the 0.05% LP fee, results in an income of $750,000, which is quite substantial.

In the past, the biggest backlash against UNI profit-sharing fees came from Uniswap's LPs who were unwilling to share with UNI holders who did not provide liquidity.

In this proposal, there are voices that believe the protocol fee is not a good approach. LPs have already temporarily incurred losses under certain risks, IL, and accepted low fee rewards. While incentivizing people to hold UNI may be right, Uniswap should find ways to earn "additional" value in transactions to reward UNI holders. For example, Uniswap can actively generate profits through a series of arbitrage trades.

There are also voices against taxing LPs to subsidize UNI holders, believing it is a harmful solution because governance activities driven by money are a disaster, as seen in other decentralized governance cases. They also believe that the emergence of Uniswap v4 makes the protocol more flexible, and even if UNI profit-sharing is implemented, it could easily work around this mechanism.

UNI Profit Sharing External Challenges: Securities-Related Regulatory Issues

Uniswap Labs is a standard U.S. company that has previously adjusted policies in compliance with U.S. regulations. Uniswap states that it collects user data to cooperate with regulators in preventing illegal activities.

UNI is the governance token issued by Uniswap, and if it can represent the profit distribution rights of Uniswap, it will inevitably raise discussions about unregistered securities.

Additional Information: Whether any financial product constitutes an investment contract is determined by the "Howey Test," a set of four evaluation criteria established by the SEC in 1946 during the lawsuit against Howey Company. It includes: 1. Investment of money, 2. Investment in a common enterprise, 3. Expectation of profits, 4. Solely from the efforts of the promoter or a third party.

The U.S. SEC, which broadly defines securities, may also consider it an unregistered security, bringing instability to Uniswap and a previously discussed topic.

However, some believe that in the past year, the SEC did not have a major victory in the case of Ripple involving unregistered securities; the lawsuit between the SEC and Grayscale regarding the transformation of GBTC also ended in defeat. If Uniswap successfully allows UNI to share profits, it could open another door for DeFi.