Uniswap’s community recently faced a significant decision – whether or not to pass a fee switch proposal. The vote closed with a little over 45% in favor of no fee, and 42% were in favor of a fee. The fee would have been equivalent to 1/5 of the pool fees across the v3 pools. Over 40 million UNI tokens participated in the vote.
Community members were given the option to charge liquidity providers a fee equivalent to 1/5, 1/6, or 1/10 of pool fees across all Uniswap V3 pools or to not switch fees at all. Had the proposal passed, an initial test would first have been conducted on Uniswap V3’s Polygon deployment, and if successful, the community would have been given the chance to determine whether or not the fee switch should be implemented on other v3 pools.
The latest proposal was submitted by GFX Labs, a delegate and service provider for Uniswap. They argued that Uniswap is in a strong position to turn on protocol fees and prove that the protocol can generate significant revenues. As a decentralized exchange, market participants are used to paying fees to utilize exchanges.
However, there has been ongoing concern around the possible tax and legal implications if a fee switch is implemented. An earlier fee switch proposal by Leighton Cusack, the founder of Pool Together, and Guillaume Lambert, founder of Panoptic, drew similar concerns. Devin Walsh, the executive director of Uniswap Foundation, said that they do not feel comfortable recommending the creation of a traditional legal entity structure if the proposal were to be approved right now.
Porter Smith from the a16z crypto team, which owns a substantial amount of UNI tokens, echoed this point, stating that if any action relating to the fee switch could result in a tax obligation, there needs to be an ability to pay such obligation. In the absence of a legal entity, it is essential to reduce tax risk by using a programmatic flow of funds directly to token holders who are performing work on behalf of the DAO.
Despite the concerns, Smith does note that a16z is actively looking at ways to create this programmatic flow of funds and will be providing an update with solutions in the next month or so.
The Uniswap community’s inability to pass the fee switch proposal highlights an ongoing conflict between the need for revenue generation and the concerns surrounding tax and legal implications. While the proposal did not pass, it did spark essential conversations around how to address these issues moving forward. Crypto enthusiasts will no doubt be eagerly awaiting updates on potential solutions from the likes of a16z in the coming months.
Source: Blockworks
