Uniswap commission earnings
At the decentralized exchange (DEX) Uniswap, voting has ended on a proposal to change the distribution of commission revenue to the liquidity pool that handles a certain amount of trading volume and return it to the entire community.
Over 45% of the community voted to keep the current fee design, not enough votes in favor for the proposal to pass. In contrast, 42% voted to collect one-fifth of the fees generated by a particular liquidity pool from market makers and return it to the community.
The fee design will be reviewed and another vote will be held based on the new proposal.
Uniswap employs an automated trading system called Automated Market Maker (AMM). This is a system in which market makers provide assets to smart contracts called “liquidity pools” so that transactions in the market proceed smoothly, and the fees generated there are earned as revenue.
Until now, all commission revenue from token trading on Uniswap was paid to Liquidity Providers (LPs). Since the end of last year, however, there have been discussions about dividing this fee between liquidity providers, protocol treasury and token holders.
A formal proposal submitted in May focused on changing the fees for liquidity pools, where regular trades generate more than about ¥1.34 million ($10,000) in annual revenue. The proponent, GFX Labs, argued that the creators of the most profitable LPs on Uniswap are professional market makers and do not require a full refund.
Market makers are responsible for ensuring market liquidity and ensuring smooth transactions. Essentially, market makers make money by exploiting the spread (price difference) between buy and sell orders. We buy from those who want to buy at a higher price and sell to those who want to sell at a lower price, and the difference between the two is the profit.
As a result, market makers on traditional platforms such as Binance and Coinbase, which are major exchanges, pay a fee in exchange for providing liquidity to the market.
If this proposal is passed, it can be expected to replenish the financial resources of the protocol and return rewards to holders of the native token “UNI”. This was aimed at gaining the support of many voters.
connection:What is AMM (automated market maker) | Explanation of mechanism and risks
Stablecoin market trends
Some users have expressed support for the proposal, but on the other hand, there is a risk that LPs will shift to other services due to the possibility that LP revenues will decrease. was also seen.
In addition, commission reimbursement schemes may come with securities and tax issues. Uniswap Labs, which operates Uniswap, is based in the United States and is reportedly under investigation by the SEC (Securities and Exchange Commission). There are also voices pointing out the risks associated with the mechanism of returning commission income to UNI token holders, as it may be recognized as a security under US securities law.
In addition, Uniswap V3’s business license (permission for commercial use of the code) expires on April 1st of this year, and it has been pointed out that this will encourage the proliferation of copy products by competitors.
According to data platform CoinGecko, Uniswap is currently leading the decentralized exchange (DEX) market. In particular, Uniswap V3, which runs on the Ethereum blockchain, has processed approximately $670 million (approximately ¥94 billion) in transaction volume in the past 24 hours alone, holding a 31.8% share of the overall DEX market.
In addition, Uniswap’s trading volume, which operates on Arbitrum (ARB), Optimism (OP) and Polygon (MATIC), Layer 2 solutions that enhance Ethereum’s scalability, makes Uniswap nearly 50% of the total DEX market. It will be the scale that occupies
connection:Decentralized Exchange Uniswap Considers Introducing Fees to Certain Liquidity Pools