Uniswap: LP fee proposal divides the community

On May 25, the decentralized exchange Uniswap opened a vote on the proposal to charge fees to liquidity providers (LPs) from now on. Although the proposal was rejected, the UNI holder community remains divided on the issue.

No protocol fees for liquidity providers…

This is the outcome of the Uniswap community’s vote on charging fees to LPs. The results of the vote which closed Thursday at 1:05 p.m. are as follows: over 45% of the community supports the “no charge” approach while 42% of UNI licensees are in favor of charging LPs one-fifth of the costs generated by the pools. About 12% voted for charging a tenth of the fee and 0.04% for a quarter.

Liquidity providers essentially play a vital role on the decentralized exchange. They facilitate transactions for community members and collect a portion of the fees for each transaction. Currently, they are not billed by Uniswap for their services.

The proposal was introduced earlier this year by GFX Labs, which is a development company. To support its idea, the development company argues that Uniswap was in a strong position to generate significant revenue from fees charged to LPs.

“Uniswap is in a strong position to activate protocol fees and prove that the protocol can generate significant revenue. We need to reaffirm that liquidity providers are protocol users and do not need full refunds », supported GFX Labs.

Rejection of the proposal: tax concerns raised

The “free of charge” camp won the majority vote. However, the votes were tight. The favorable members could have prevailed if all had agreed on the royalty percentage of the liquidity providers.

Critics of the proposal essentially cite two reasons: tax complications and the risk of driving LPs away from the exchange. Indeed, this camp argues that other decentralized exchanges could attract liquidity providers with fairly low fees or even no-fee offerings. However, the departure of LPs to other crypto platforms could therefore reduce the liquidity available on Uniswap, affecting its competitiveness and the fluidity of transactions.

As for supporters of introducing fees, they say the move could incentivize greater participation for LPs and provide the exchange with a sustainable revenue stream.

This situation highlights the importance of consensus within the crypto community. The stakes are not only financial, but also likely to shape the future evolution of decentralized exchanges. It will be interesting to watch how Uniswap and its community navigate these murky waters to reconcile competing interests and continue to push decentralized finance forward.

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