Uniswap mining new proposal difficult to pass, nearly 90% of the community voted against: Liquidity incentives are not a panacea

The Uniswap Genesis Mining ended at 08:00 on November 17 (Taiwan time). Although the community has proposed a second phase of liquidity mining, the proposal is still in its early stages. However, after a day, as much as 88.98% voted against the proposal. This indicates that the smoothest scenario originally planned for the resumption of mining on December 4 may face uncertainties.

88.98% Have Exceeded the Dissenting Threshold

It was reported on the day of the conclusion of Uniswap's genesis mining that, although a community governance meeting was held in advance, there was not much discussion on the direction after the mining ended. The new proposal suggests halving the mining rewards, reducing each pool from 5 million to 2.5 million UNI, releasing an average of 41,666 UNI per day, and maintaining the original four pools without adding new ones.

As of now, the proposal has received 88.98% dissenting votes, with 435,000 UNI surpassing the originally set voting threshold. This indicates a variable in the second round of the new version of liquidity mining scheduled from December 4 to February 1, and the launch date of the new proposal remains unknown.

Community: Liquidity Mining is not a Panacea

In the new proposal, through community feedback, perhaps the reasons for nearly 90% of members holding dissenting opinions can be understood. Dan Robinson, a researcher at the well-known venture capital firm Paradigm, stated:

I think we should take a few days to observe what changes occur after the end of liquidity mining, and it might be better to vote after a few days, right?

Community member govro pointed out that the UNI mining rewards have caused two negative impacts:

First, compared to the historical data of the four reward pools, with the support of UNI rewards, the total liquidity of the four pools has far exceeded the trading volume, resulting in lower earnings for liquidity providers (LP) (UNI + 0.3% fee) than before when relying solely on fees for earnings.

Second, the issuance of mining rewards has diluted the UNI holders (non-LP), and the only benefit of liquidity mining is that the total locked value of Uniswap has increased, but the trading volume has not increased as a result. The trading volume is the data that truly represents the actual economic value of Uniswap.

Community member dwrx believes:

What's the point of bribing LP for another two months? Some malicious acts, like Alameda Research, have been found to continuously short and sell UNI. The tens of billions of funds from these major holders keep flowing between Uniswap and SushiSwap, and another two months of mining would be futile. The liquidity issue cannot be solved forever by rewards, as this only gives major holders the opportunity to manipulate and short the market.

On the contrary, as often discussed in the community, I think the pools that need mining rewards are the UNI pools, such as UNI/USDC, UNI/ETH, etc. This will encourage LPs to hold UNI tokens and invest more UNI in the pools, also helping users to trade UNI with lower spreads.

Sharp Decline in Liquidity

After the mining rewards stopped, the situation of capital outflow gradually emerged. Uniswap's liquidity evaporated by nearly $1.3 billion, dropping from $3.36 billion on the 13th to $1.7 billion before the deadline; the trading volume also decreased from $270 million to $120 million.

With the back and forth, SushiSwap, which had once drained Uniswap and then had liquidity surge after attracting hot money, has increased liquidity by over 100%, approaching the peak when it migrated liquidity from Uniswap on September 9.

Overall, as most opinions from the community suggest, after the current miners leave for their interests, the community can better examine what the protocol's value truly is and plan the next steps carefully. This will also analyze Uniswap's revenue structure to understand whether LPs would earn more without UNI rewards from the data.