AL #028: Uniswap's fee is good for you

Labs introduces a 0.15% swap fee in the front-end for 11 tokens.

Hayden announced yesterday that Labs will now charge 0.15% per swap on certain tokens.

This is the first demonstrated business model for Labs (as separate from the Foundation).

Here’s the tweet:

I'm excited about this for a number of reasons.

Incentives for UI progress

User experience is often lauded as a key improvement area for crypto.

But many front-ends are an afterthought, developed quickly.

They often fail to rise to the rigorous standards of the protocols they help to access.

This is true in terms of security, development standards and decentralization (how many teams actually deploy a primary or backup front-end with dAppling for instance?).

Adding a fee creates an incentive and reward for investing in UX.

Zachary Dash (@ZacharyDash) explains:

And Ben DiFrancesco (@BenDiFrancesco) added:

The counter-argument is that UI development should happen benevolently or through grants.

Which surprises me because we operate in the one industry people should understand the value of markets.

Indeed in DAO governance we seem to prefer central planning and grants as opposed to sustainable revenue generation in the ecosystem.

I think grants are excellent ways to incentivize behavior, manage externalities and tactically ramp teams up to sustainability.

I don't think they should be relied on as a source of sustainability itself.

Fees, however, enable self-reliance.

Conor Moore (@_ConorMoore) threw together some numbers and Labs stands to make a significant amount from this (with somewhat generous assumptions).

Why is this number so high?

Bettle (@1kbeetlejuice) from The Block shared this chart estimating that 35-40% of flow currently comes from the Uniswap front-end:

UNI holders concerned with UI centralization should be happy as fees should create more opportunity for other developers to capture market share.

Fees are cool again

The other consequence is that many more protocols and Dapps will be able to introduce fees going forward.

Why protocols?

Many argued that it would have been better for the UNI DAO to turn on the fee switch for the protocol and reward holders rather than for Labs to charge a fee in the UI.

So there is now both precedent and good argument for both protocol and dapp fees to be used as seen fit.

This is not entirely new – Opensea has been charging fees in a remarkably “web 2” fashion and Zora too, albeit with more philosophy behind it.

Metamask has been charging 0.875%.

Labs is a very influential and visible DeFi team to add to the mix and solidify this practice.

If you’ve never done a cursory GitHub search for the number of Business Licensed crypto repositories, you may be surprised.

After Uniswap V3 launched under an expiring Business License, there was loud & violent opposition.

However, many other teams quietly made the same decision.

I think the same will happen with fees.

A step forward in regulatory compliance

Having a business model that sustainably funds Labs is one thing.

Having a business model that cleanly disaffiliates labs from the DAO is another potentially more significant consequence.

Many have argued that the fee introduced by Labs on the “canonical” front-end is harmful to the UNI holders.

But taking self-serving actions is exactly what an independent contributor in the UNI ecosystem would do.

This is clear evidence that Labs and DAO are not one and the same.