The Tally Newsletter, Issue 24
Welcome back for issue 24 of the Tally Newsletter, a publication focused on all things decentralized governance. We’ll keep you updated on key proposals, procedural changes, newly launched voting systems, shifting power dynamics, and anything else you need to know to be an informed citizen.
This week we dig into the Uniswap v3 launch announcement and implications, plus quick updates on the wider governance ecosystem.
We’d also like to share that Tally is hiring full stack engineers anywhere in the Americas time zone. If you’re interested in working with us to make on chain governance work, apply on our jobs page!
Uniswap Announces v3
TL;DR: Version 3 of the protocol will incentivize integrations and grant more power to UNI governance than ever before.
Uniswap’s v3 upgrade has been one of the most anticipated advances for the crypto space over the past year. But even with hype building from shortly after the launch of Uniswap v2 in May of last year, the impact of the protocol upgrade can’t be overstated.
V3 brings advances in a few key areas. First, it offers extreme capital efficiency and fine grained control for LPs. Where Uniswap v1 and v2 required users to provide liquidity over the entire range of possible prices, users in v3 will be able to provide funds over a chosen price range between two geometrically determined “tick” values. This effectively concentrates and leverages liquidity, allowing for greater trading volume with less slippage (on the other hand LPs experience amplified divergence loss from price changes).
Among other use cases, this allows for Uniswap to compete with Curve and other exchanges optimized for stablecoin swaps.
LPs will receive fee earnings in proportion to the liquidity they provide within a given range, which creates potential for a competitive dynamic where actively managed LPs can earn a greater share of swap fees. As a result, this may make it more difficult for passive LPs to use the platform, or for “long tail” low capitalization assets to build liquidity.
However, this should greatly increase Uniswap’s appeal to professional market makers. It also gives yield aggregators and vault strategists like Yearn a huge opening due to updated fee distribution mechanisms for Uniswap v3 pools.
Unlike in v1 and v2, where LP shares were represented by fungible erc20 tokens and all swap fees were automatically reinvested, v3 will create non-fungible LP positions that don’t reinvest funds. This is necessary to support the increased LP flexibility present in v3, but also creates immediate opportunities for yield aggregators and other integrations.
Protocols like Yearn can create managed LP strategies which reinvest fee earnings on behalf of users (in addition to any other active liquidity, borrowing, or hedging strategies). And with total LP assets requiring management potentially reaching into billions of dollars, this could provide substantial tailwinds for this market segment even if the final strategies can only command low fee margins.
V3 brings significant governance changes in addition to updates to the core exchange protocol. Unlike most other projects in the space, and potentially in response to the experience with Uniswap v2 being forked ad infinitum, v3 was released under an uncommon software license that only transitions to open source after 2 years. This will limit competitors’ ability to copy Uniswap’s feature set, although anonymous deployers could still theoretically make use of the code in an unapproved project.
The contracts were built to resist any attempts to circumvent the license through using contract logic in an external proxy. This was the strategy employed by Swerve to copy the Curve protocol even though the latter was not released under an open source license.
The ownership structure is also novel, with the license being under the direct control of Uniswap governance. This is handled by giving canonical control of the license to the uniswap.eth ENS domain, and represents an early test case of decentralized organizations owning IP and other intangible assets. Luckily for the wider ecosystem, governance can accelerate the open source transition but cannot delay or halt it.
In contrast to Uniswap v2’s simple, one size fits all fee framework, v3 gives LPs and governance a much larger parameter space. LPs will be able to choose from among 3 possible levels for swap fees (0.05% competes with stable swaps like Curve, 0.3% matches existing Uniswap implementation, and 1% favors high volatility pairs), while Uniswap governance will have the freedom to select within a range of possible protocol fee shares on a per pool basis. Uniswap governance could even effectively subsidize liquidity for partnered protocols by offering reduced fees rather than UNI token incentives.
With much greater control over protocol parameters and assets, we can expect Uniswap governance to begin heating up again with more proposal activity. Likely top priorities include considering the case for activating Uniswap v2’s 0.05% protocol swap fee, and developing processes to handle the ever greater number of governance concerns in v3.
In Brief:
Compound proposal 41 passes to create upgradable WBTC market:
Compound’s governor bravo upgrade has nearly enough support to be submitted as an autonomous proposal, delegate here:
Inverse proposal 13 considers incentivizing liquidity for INV backed loans with Ruler protocol:
Inverse proposal 12 passed, accepts ownership of Dola / Anchor lending protocol:
PoolTogether resubmits POOL prize vote as proposal 4 due to a defect that prevented execution of proposal 3.
Thanks for joining us for issue 24 of the Tally Newsletter! Be sure to check out the Tally governance app, join us on Discord, and subscribe to our protocol calendar for the latest updates!
Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com
Best,
Nate, Tally