Analysis | Can Uniswap thrive without relying on liquidity mining? Losing profit-driven farmers, its annualized returns are competitive with SushiSwap.

Uniswap has ended the first round of UNI liquidity mining, and liquidity providers for the four pools will temporarily no longer receive UNI rewards. While there are plans in recent governance proposals for the next round of liquidity mining, the Uniswap community is largely against it, with nearly 90% of votes indicating a preference to either not launch it at all or to delay its introduction.

Does Uniswap really need liquidity mining? Observing the annualized returns available to liquidity providers on both Uniswap and SushiSwap, it seems that Uniswap, even without liquidity mining, is doing just fine.

Uniswap: Liquidity Decreases, Trading Volume Unchanged

Observations show that after Uniswap stopped liquidity mining, liquidity continued to decrease, but trading volume did not significantly decline. In contrast, competitor SushiSwap saw a substantial increase in liquidity, almost returning to the levels seen in September when it was draining Uniswap, although its trading volume remains below one-third of Uniswap's.

According to the DeFi locked assets ranking, SushiSwap is in sixth place, while Uniswap has dropped from the top spot to fourth:

Uniswap Community: No Liquidity Mining, No Worse Off

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

Firstly, compared to the historical data of the four reward pools, the total liquidity of the four pools has increased significantly under the influence of UNI rewards, exceeding the trading volume by a large margin. This has resulted in liquidity providers' (LP) earnings (UNI + 0.3% fee) being lower than before when they only earned fees.

Secondly, the issuance of mining rewards has diluted the UNI holders (non-LP). The only benefit of liquidity mining is that it increases the total locked value of Uniswap, but it does not increase trading volume, which is the data that truly represents Uniswap's economic value.

For liquidity providers, the expectation is that active trading will bring in substantial fee sharing, and the additional rewards from liquidity mining only supplement profits. According to Uniswap community member govro, we calculated the "trading volume/liquidity ratio" before and after Uniswap stopped liquidity mining. A higher ratio means that LPs can earn more trading fees overall.

The results show that after losing liquidity, Uniswap had minimal impact on trading volume, leading to a significant increase in the ratio. Without profit-seeking farmers coming to share the liquidity revenue, liquidity providers could actually earn more trading fees. In contrast, although Sushiswap saw a significant increase in liquidity, it did not significantly help the ratio, and even slightly reduced the earnings for liquidity providers.

Comparison of Earnings from Four Liquidity Pools

To further estimate and verify, the earnings of the four UNI mining liquidity pools WBTC-ETH, ETH-USDT, DAI-ETH, USDC-ETH were compared after the mining rewards were removed, and how they differ from SushiSwap's earnings.

Using $1,000 as the unit value, the earnings in the current data as of 11/19 13:00 are compared between Uniswap and Sushiswap: Uniswap only shares fees, while SushiSwap includes fees + SUSHI rewards.

From the table, it can be seen that as a liquidity provider in Uniswap without liquidity mining, participating in the ETH-USDT and USDC-ETH pools still yields higher profits than SushiSwap with liquidity mining. Therefore, it can be verified that under current conditions of liquidity, trading volume, and governance token prices, Uniswap still has certain advantages even without liquidity mining.

Additionally, it is important to note that the earnings from SushiSwap's SUSHI mining require a two-thirds lockup for half a year under the current system, subject to fluctuations in token prices; and the 0.3% pool trading fee income is split, with 0.25% going to liquidity providers and an additional 0.05% requiring SUSHI staking. Therefore, actual profits will vary depending on user behavior.