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We have a short post today about one topic because it wasn’t going to fit well within Monday’s post.
Table of Contents
Background and Gov. Proposal
Regulatory Implications
Market Impacts
Should Protocols Share Revenue
Conclusion
Internal References
1. Background and Gov. Proposal
For those of you who don’t know, UniSwap is a DEx built on Ethereum, it is the largest, most active and most popular DEx and was the first to establish itself during DeFi summer.
It has a governance token (UNI) that holders were rewarded with for providing liquidity during the first few years it was operating. Holders can use this token to vote on changes made to the protocol.
Despite being a decentralized product, several real-world companies are behind Uniswap, and the protocol generates ~$2.5 million in fees (gross profit) in any given week from usage.
Uniswap Labs and the non-profit Uniswap Foundation have anywhere from 60-200 employees at any given time along with a full-time lobbyist on Capitol Hill in DC. This is a large, coordinated, public entity based in New York City and not some coders in a garage cobbling together a blockchain project.
Currently, all of the gross profit of the protocol is collected by Uniswap Labs with no public profit share. Last Friday, a new governance proposal was put forward with a tentative date for an on-chain vote on March 8th of this year. The main takeaway of this proposal is that it will enable profit-sharing of 10-25% of the fees collected from transactions (0-100 basis points - which is anywhere from 0-1%) to be distributed to stakers and delegaters of the UNI token.
The only issue I see with the proposal is this:
UNI should seek to homogenize fee distribution by converting it all into ETH, or a stablecoin. It’s a mess to receive dust from a token you could care less about because it’s being traded. Otherwise, the proposal looks solid.
Some basic math, presuming that Uniswap’s 7-day average fees don’t change (they will likely go up during this bull market as you can see the last day of fees is nearly $3m, putting weekly fees almost 10x above the weekly average), we can assume it makes $10m a month in fee collection. We have 10-25% profit sharing, which means $1m-$2.5m a month in fees distributed to UNI stakers.
There are 1 billion UNI tokens, and its release schedule will be complete in September 2024 for the full 1 billion in circulation, at which point a 2% annual inflation will continue. Right now 20.02% of UNI in circulation is staked and delegated. The current UNI price is $10.76.
If you were to buy $1,000 worth of UNI (92.93 tokens) and stake them you would earn ~$0.50-$1.16 a month in revenues if everything stayed the same. This is ~$13 a year, or barely over 1% APY. At current revenues, this represents ~9.7% APY which is much better, and if the crypto market cap goes up, the APY continues to go up since the fees will increase in dollar value.
But this is still not much to get excited about at all. Obviously, for people who have been farming UNI and have tens of thousands or millions of UNI, this is a great deal and represents a significant revenue stream.
The income potential from UNI isn’t what’s important here, what is important are the potential regulatory impacts and what this means for the broader crypto markets as a whole.
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