Uniswap V1 has become an important piece of DeFi infrastructure. Indeed, for the DXdao’s own token DXD, only days after the launch of the bonded curve fundraise, the Uniswap V1 DXD pool address has the largest amount of DXD besides the DXdao . Uniswap V2 promises many improvements over V1, including ERC20 / ERC20 Pairs, improved functionality as a price oracle, and flash swaps (see https://uniswap.org/blog/uniswap-v2/). I and the devs I work with have the utmost respect for the Uniswap team and what they have accomplished. The V1 contracts are immutable, extract no fees to a third party, are arguably as decentralized as the Ethereum platform itself, and exemplifies what DeFi should be. Uniswap V2 is also immutable, but does introduce a .05% protocol fee.
Why the protocol fee?
In https://uniswap.org/blog/uniswap-v2/#path-to-sustainability Hayden Adams writes:
“To open a path to self-sustainability, the code for Uniswap V2 includes a small protocol charge mechanism. At launch, the protocol charge will default to 0, and the liquidity provider fee will be 0.30%. If the protocol charge is switched on, it will become 0.05% and the liquidity provider fee will be 0.25%.
This feature, including the exact percentage amounts, is hardcoded into the core contracts which remain decentralized and non-upgradable. It can be turned on, and directed by, a decentralized governance process deployed after the Uniswap V2 launch. There is no expectation that it will be turned on in the near future but it opens the possibility for future exploration.”
And then goes on to say:
“However, the best version of Uniswap will be one that autonomously incentivizes contributions to its own growth and development as well as to the broader ecosystem in which it exists—one that supports the contributions of the incredible community that has formed and continues to grow.
Uniswap is an ideal candidate for exploring decentralized on-chain cash flows. Without any additional growth, it will generate more than $5M in liquidity provider fees this year. If the protocol charge was on, ~$830,000 of this would instead go to a decentralized funding mechanism used to support contributions to Uniswap and its ecosystem.
This type of support boosts network effects from which Uniswap and its users benefit greatly. Incentivized contributions lead to increased protocol functionality and usage. Usage generates fees which attracts liquidity. Increased liquidity further entrenches Uniswap, attracting additional users, contributors, and integrations.”
There is a promise of future decentralized governance of the protocol fee funds. While Uniswap is a very popular project with many people involved in some form or another, it is unclear at this point how this decentralized governance process would work. Also, Uniswap is a VC backed company. They may be reputable VCs but they presumably have an expectation of making outsized returns for their venture fund investors. It is unclear what their expectation of profit out of this protocol fee may be.
The Role for the DXdao
The DXdao has an existing, though nascent, governance system and community. The DXdao could offer a decentralized governance mechanism for the protocol fee today. By forking Uniswap V2 and launching DXswap, we can make the decentralized finance ecosystem more robust.
Diverse Approaches. Decentralized governance and building community are hard things, and we are just beginning to experiment and blaze the trail forward. By offering an alternative to Uniswap, we are increasing the diversity and resilience of the ecosystem and its experiments and increasing the chances that the future will be decentralized.
Accountability. By competing with Uniswap V2, DXswap and the DXdao will hold Uniswap accountable in their plans to decentralize governance of their protocol fee.
Positioning. By exercising the ability to fork and adapt protocols, the DXdao community prepares itself to fork other protocols. And demonstrates to the DeFi community that projects will need to both remain competitive and become more decentralized in the face of potential competition.
Other Opportunities and Advantages
Governing Liquidity Fees. Another opportunity the DXdao has is to allow governance of the liquidity fee. This can even be done per trading pair. That way, for instance, the DXD pool could be set to a lower trading fee if desired. Or a pool fee could be set higher. The interface between the DXdao and setting the liquidity fees can be changed so that in the future new governance approaches can be introduced. For example, the decisions on setting the trading fee could be set by the liquidity providers. Token projects and their communities could also participate in this process, possibly proposing and incentivizing changes to their token pool’s liquidity fee.
Decentralized Browser Application. The front end launched by the DXdao will be hosted on IPFS and ENS, making the full stack decentralized and creating better resilience for the system.
Transparent and Autonomous Token Listing. With the DXdao’s upcoming token TCR integration, the DXswap front end will be able to reference this TCR for its list of supported tokens. The process for adding tokens to this list will be open and transparent.