- The discussion revolves around the implementation of a fee on the Uniswap front end.
- The fee is currently only applied to the most popular pairs on Uniswap.
- There is speculation that the fee is limited to certain tokens to avoid potential legal issues.
- The conversation touches on the comparison between fees in DeFi and traditional finance.
- The history of token launches and the hype around them is discussed.
- The clash of incentives between token holders and VCs is highlighted.
- The Uniswap team and VCs have not turned on the fee switch, leading to questions about their motivations.
- The potential legal repercussions and impact on competition are mentioned.

- The speaker believes that decentralized governance with tokens has failed because it concentrates power and skews incentives.
- Uniswap's decision to implement a fee that goes to token holders instead of LPs is seen as a disappointment and a kick in the guts to UNI token holders.
- The speaker questions the sustainability of DeFi protocols that introduce fees after raising millions through token sales.
- The comparison is made between DeFi and TradFi, highlighting the prevalence of fees in DeFi and the potential for a race to the bottom in terms of fees.
- The speaker mentions using Cowswap instead of Uniswap's front end and discusses the usage of MetaMask swap feature despite its 0.8% fee.
- The speaker believes that retail investors in crypto are less fee-sensitive due to the expectation of high returns.

- Crypto is mostly driven by retail investors and unregulated funds
- Lack of regulation has led to instances where customer funds were not protected
- The institutionalization of crypto, such as the introduction of ETFs, may bring about change
- Many new investors are not aware of the fees associated with crypto transactions
- Self-custodial platforms like MetaMask and Uniswap are popular among retail investors
- Token fees in DeFi protocols often do not benefit token holders
- There is a need for more funding for public goods in the crypto space
- Burning ETH instead of donating it is necessary for the proper functioning of AIP1559
- Trusting a centralized entity to manage and distribute funds would be problematic
- The potential for capture and misuse of funds is high in a decentralized community.

- The speaker questions whether overfunding the Protocol Devs is a concern due to the large amount of money going to a small group of people.
- Burning the fees is seen as a neutral way of dealing with the issue and potentially bringing value back to all ETH holders.
- The speaker argues against giving the fees to a pot that can be captured or used for things people disagree with.
- Various initiatives, such as Gitcoin and Protocol Guild, exist for voluntary contributions to public goods, allowing for decentralization and distribution of funds.
- The speaker mentions the possibility of clients implementing a switch to allow users to donate a portion of their rewards to client teams.

- The concept of "fair" distribution is subjective and varies from person to person
- Instead of creating large pots of funds that can be easily captured, there should be many smaller pots of funds for different purposes
- Ethereum is not trying to be a traditional democracy, but rather a digital nation with its own rules and values
- Donating to public goods can be done through various platforms and initiatives like Gitcoin and the Protocol Guild
- The Ethereum Foundation has a significant amount of funds, but donations from the community are still encouraged
- The higher the price of ETH, the more money the Ethereum Foundation receives
- DeFi protocols and projects should commit to a constant stream of donations based on their revenue, not just their governance tokens
- The historical context of these discussions is important for newcomers to understand

- Discussion on implementing a fee on Uniswap
- Fee currently only applied to popular pairs
- Speculation that fee is limited to certain tokens for legal reasons
- Comparison of fees in DeFi and traditional finance
- Token launches and clash of incentives between holders and VCs discussed
- Questions about Uniswap team's motivations for not implementing fee
- Potential legal repercussions and impact on competition mentioned
- Decentralized governance with tokens seen as failure
- Disappointment in Uniswap's decision to give fees to token holders instead of LPs
- Sustainability concerns for DeFi protocols introducing fees after token sales
- Comparison of fees in DeFi and TradFi
- Mention of using Cowswap and MetaMask swap feature with fees
- Retail investors in crypto less fee-sensitive due to high return expectations
- Lack of regulation in crypto and need for institutionalization
- Lack of awareness of fees among new investors
- Popularity of self-custodial platforms like MetaMask and Uniswap
- Token fees in DeFi often do not benefit token holders
- Need for more funding for public goods in crypto space
- Burning ETH instead of donating it necessary for AIP1559
- Concerns about centralized management and capture of funds
- Arguments against large pots of funds and for smaller, purpose-specific funds
- Ethereum as a digital nation with its own rules and values
- Donations to public goods through platforms like Gitcoin and Protocol Guild
- Encouragement for community donations to Ethereum Foundation
- Importance of historical context for understanding discussions.

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Anthony Sassano and Eric Conner discuss all things Ethereum.

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DISCLAIMER: All information presented across all of The Daily Gwei's communication channels is strictly for educational purposes only and should not be taken as investment advice.

Hello everyone and welcome to another episode of the Deadlyway Drive-Thru.

I'm your host, Anthony Susano, and I'm here today

with Eric Conner to talk about all things Ethereum.

Just enjoying, I guess, flashbacks to 2019 this week on crypto Twitter with a bit of drama, a bit of the kind of rehash conversations popping up again.

You know, we have this kind of joke you and I that during the depths of the bear market is when the theory and people like to discuss and debate the most esoteric things that don't really matter.

And when there's like a few green candles and we go into like an early stage bull market, these discussions tend to cease.

And 1 of those, I guess this week was around the Uniswap front end implementing a fee.

So there is, I think 0.15% fee on trades of the most popular pairs on Uniswap, which I think accounts for 90% of the volume on the Uniswap front end there.

You know, it's funny, I was wondering why they only did like those kind of tokens.

I think it's because, 1, I guess like it covers most of the tokens, but 2, it's also like maybe a security is concerned for them, where if they're taking fees on like tokens that could be considered securities or being traded, they might get in trouble.

That was that was just something weird to me.

But I guess you had an interesting take about kind of fees within DeFi and crypto generally, where you kind of drew a comparison to tradfire where fees are basically a race to the bottom, right?

And in crypto, I think that people can get away with the higher fees right now just because crypto is so small and there's not that much competition for these things or good competition, and it hasn't kind of permeated out into the, I guess, TradFi world.

So yeah, I'd love to get your thoughts on kind of the Uniswap fee implementation on just the front end, it should be clear for people, and like where you think fees go generally in crypto.

Yeah, I mean, I think we could probably talk about this for a while.

And this is a really interesting 1, especially for me personally, going way back to when I got involved in Ethereum and thought about launching a DEX myself.

Our theory at the time was if you put any fee in, whether protocol fee, front end fee, or even token, we thought people would fork it out.

Now this was back in like 2013 before, you know, a lot was learned and there's like moats around branding and trust and things like that.

And people didn't really like perfectly envision how the DeFi landscape would take place.

I find it kind of interesting that we've gotten to this place where now we have like tokens and fees.

So I guess I'll step back a little bit in the UniSwap conversation, right?

And I think if we go back all the way to like early 2018, all these protocols are kind of being launched.

There's really no fees, there's no tokens.

It's kind of just this like smaller open source community that has this idea of DeFi, which is like, hey, can we do finance better?

And people were just kind of like vibing and writing code.

Like I'm like making it a little more simpler than it is, right?

I think a lot of people in the smaller Ethereum community at the time saw it.

And a lot of cool protocols were launched.

Obviously, Maker was kind of 1 of the first.

Augur, Gnosis, if you want to call them, DeFi around like prediction markets.

And then like Uniswap came around and Aave and you know, all these compounding, did I say compounding?

But anyways, like these, they came around, right?

And it was like, okay, this is cool, but how can we do finance like a little bit better?

And of course you had like the trustlessness and then you kind of had these automated market makers and automated lending and borrowing protocols.

And then all of a sudden, like the bull market took off and everyone got like a little bit greedy, myself included.

I'm not going to like act like I'm like out of this.

And token farming started happening, tokens started happening.

And to be fair, you and I have talked for years about, we think a lot of apps and protocols have just shoehorned tokens in, right?

And I've also been very critical of token governance on the Ethereum side.

But we kind of went through this boom where it's like, okay, well, there's tokens.

Clearly, this is just like stocks and these are great protocols and they should be worth like trillions of dollars someday.

And I think we should still as a community reassessing, are these tokens worth it?

A lot of this was, I'll just be blunt, A lot of token launches were for early investors in VC to exit their liquidity.

And yes, it did give the average Joe an option to buy a share in Uniswap.

I would say stocks are a little, well, if you have a dividend stock, that's very different.

And there are some tokens that are doing like dividend revenue sharing stuff.

Stocks, like at the company, like in the traditional finance world, companies get bought way more often.

And then that you do get cashed out on your stock at like the sellout price, right?

Which we will get there probably in DeFi and Ethereum in general, but we haven't really seen like a token buyback.

I think we've seen like 1 or 2, something like that.

So I don't want to quite go to the Uniswap front-end fee quite yet because Uniswap, if you go back and look at their blog post for their uni launch, and I think it was in 2018, I believe, Their big pitch to the token at that time, if you read the post, I'm not just making this up, they hint at this in protocol fee switch a lot, right?

And now Uniswap gives a fee to LPs, like liquidity providers, which I think is necessary because you're not going to provide liquidity on Uniswap without earning some kind of money.

And they were talking about this, well, we could also, our token holders could enable this fee switch, which would go into like a pot and then all the token holders would kind of have like a say at this pot.

And I remember at the time people were like, so into this because they were like, well, if you need, so I was doing like billions of dollars in volume and people were putting out threads, like calculating, like, you know, how much money could be made and their P2E ratio and all this stuff.

And there's been this whole kind of like debate and Uniswap governance, should they enable this?

Will the SEC come after them for enabling this?

Is it putting token holders or Uniswap at risk?

And let's just be honest, VCs and early Uniswap investors own the Uniswap vote.

This is a typical governance theater type situation.

And recently, as far as I think 5 months ago, maybe 6 months ago, the latest fee switch on a protocol level was shot down.

The token holder protocol itself takes 0% fee from each trade.

So I think I want to put that baseline there.

And like, is that, am I right to that point?

Like, is that how you felt about uni token governance to this point?

I mean, I think if we're talking about kind of the token and then the fee on the front end and how those kind of play with each other, it's a clashing of incentives, right?

As you kind of mentioned, you have these VCs, you have the team, but the VCs and the team also they have the equity in Uniswap Labs or whatever the actual business name is, right?

And this equity is not translated into the token, right?

The token holders do not get access to any of this.

They don't get access to any of the money made by Uniswap Labs from this fee and whatever other money they make, they only get access to the token.

And if you buy the token and it goes up and you sell, you make money, obviously.

But right now, as you said, and probably for a very long time, that fee switch is not turned on, which means that the UNI token as it exists today does not have any value accrual besides some governance value and the hope that the fee switch will eventually be turned on.

But because of that clash of incentives, there's no real reason or incentive for the Uniswap team or Uniswap Labs team and the VCs to vote in favor of this and open themselves up to possible legal repercussions when they can just make money off of the equity, right?

They can just make money off of the fees going to them instead of kind of introducing this kind of fee switch thing, which then the fees go to every uni token holder.

And yeah, maybe they're kind of like uni, the value of uni goes up because of that, but who knows like how much uni they have left.

Maybe they've sold a lot of it already, right?

Because some of these VCs are up a crap ton on their uni because they got in super early.

Like for example, Paradigm was the first investor in Uniswap.

They gave Uniswap, I think, a million dollars in 2019.

I think the valuation maybe was 10 million.

Now, uni is worth a lot more than that, right?

So Uni fully diluted value is what, like a few billion or something like that?

So, if you work out how much tokens they would have gotten, I don't know the terms of the deal, but I'm sure it was a pretty good return for them.

They just made a billion dollars from Uniswap or from the uni token.

And then, as I said, I'm not entirely certain what the deal structure is and they did invest in follow-on rounds, but they also have access to the equity.

So they also get a share of whatever the fee is making now on the front end.

So really from that perspective, the incentive isn't there for these VCs.

And team, I don't know, it's maybe different as well because like the team really, if you're talking about a team it's really just the higher ups that make these decisions.

It's not going to be the regular employees.

It's going to be Hayden and the other co-founders or the other kind of like higher ups that are there.

I'm not sure exactly who those are, but it's going to be them and the big VC holders, right?

And as you said, they shoot down every attempt that there is to make it to turn on the fee switch.

Now, whether they're doing this because of regulatory concerns, or they're doing this because they feel like it's going to make a Uniswap less competitive because now there's a fee that's not going to the LPs, but it's going to the token holders, which means people will be less inclined to LP with Uniswap and might go elsewhere.

I understand those concerns, but at the same time, the governance is a sham because of that.

And it really, I mean, that's not true of just Uniswap, by the way, that's true of pretty much all of these governance tokens.

There are very, very few people who hold the majority of them, even the older protocols, like Rune from Maker, for example, pretty much de facto owns the Maker Protocol because he has enough MKR tokens to do whatever he wants with it.

So I think that to this point, decentralized governance with tokens has completely failed in pretty much all the attempts that have been tried because it's not decentralized.

It concentrates power incredibly badly and it also skews the incentives as I was just discussing about how that now there's a token and there's equity, and there's no incentive for the token to accrue value if you can just kind of make it up in equity.

Because at the end of the day, you could work out how much you would get from your uni bags in terms of dividends if their fee switch was turned on as a VC and as the team.

And then you can work out how much you would get from this front-end fee.

And I'm sure this front-end fee probably drives more value.

And also, it only goes to equity holders.

It's not shared with all the other uni holders, so they get a bigger slice of the pie.

So I'm sure they did the math on this and thought that, well, this is the better way.

And also from a regulatory perspective, I'm sure it's the better way as well.

So yeah, I think that's the disappointment here, but I will be clear that I have absolutely no issue with Uniswap putting a fee on or Uniswap Labs putting a fee on their own front end because they run it, right?

They designed it, they pay all the infrastructure costs and everything it takes to run that.

But it is a kick in the guts to the UNI token holders.

Because again, it's just showing that there is 0 interest from the team and by extension, the VCs to turn this fee switch on for the UNI token holders.

And as you said, it was kind of described in that blog post.

It was kind of not directly promised, but it was kind of implied that this would happen.

And it's been, I think that blog post came out in 2020 because you needed their token as a result of SushiSwap doing the vampire attack and stuff.

So I think towards the mid to end of 2020, that's when it happened.

It's been over 3 years now, and we're still nowhere close to that fee switch being turned on.

I think that's the main source of frustration for a lot of people over this.

And I think, I mean, so I'll take the counter to you.

I do have an issue with it because of them doing a token and then doing this.

And also like there's this wording, right?

Where it's in the blog posts, we're doing this for a sustainable Uni swap.

And then Hayden tweets out a week ago, we're doing this for a sustainable Uni swap.

What happened to the millions of dollars you raised in the token?

I mean, there's 7 billion fully diluted today.

I mean, I think at the top of Uni, it had to be 50 billion probably at least, because it's at 4 bucks today.

I think it hit 50 or something like that, maybe 10X from what it is now.

And I don't know, I think I just have a bad taste in my mouth.

And maybe this is just kind of everyone thought that like Uniswap was like the golden child for a while.

It was like the first like, kind of like pure DeFi, smart contract.

It was like, oh, this is just like a smart contract and it runs and there's no token, there's no fees.

And like you said, Sushi comes along and they react to that.

The VCs get in their ears again to not turn on the fee switch.

I think the VC is getting their ears again to turn on the UI front end fee switch.

Now, I do sympathize a little bit with your point where the front end switch, yes, people can go around it, right?

So if they put it in the contracts, you can't really get around it.

So look at fork, uniswap and take it out.

So like from a, if I'm talking selfishly myself as a non-uni holder and as like a trader that knows how to get around the front end, I would prefer the front end switch because I can just get around it and know how to do that.

And I'm not paying on the protocol level.

As like a purist, like Ethereum DeFi fan, like, just everything feels a little gross to me.

And, you know, that's just my honest opinion.

And I don't know where this ends is 1 of my issues.

Like I'm sure over the next few months, a lot of other protocols are going to throw up front end fees.

And it's 1 thing to say like, yeah, people can get around it.

Cause like a lot of these people say, oh yeah, you can just get around it, right?

Well, like 95% of people don't know how to do that.

And I think I'm starting to wonder like, are we really better than CFI now when it comes to fees?

Like in like my E-Trade account, my Fidelity account, whatever, I can pretty much do any stock trade for between like 0 and $10.

And this percentage thing is starting to get to me.

So now, and DeFi, we're setting like percentage fees.

And say you do like a hundred thousand dollar trade, you're charged like a large percentage.

Whereas like on CFI now, that's like free pretty much, or like 10 bucks.

I'm not loving this trend of like percentage fees.

And I think this is of course like a still early discovery phase for DeFi, right?

And I, like you said, I tweeted out, I think eventually DeFi will be a race to the bottom because of the open source nature.

And because I think people think like DeFi is gonna change every day for the next 50 years.

And it's not Like the finance is kind of boring.

I think we're going to get like Lendi contracts and contracts everybody just is like, oh, this is great.

Like look at Uniswap V2, still getting used like crazy.

That thing's been out there for years, right?

And I mean, maybe now on the front end, but like you get what I mean.

Like, I don't think eventually we'll just have these contracts we trust and that there are fees in them.

There are fees in the front end, they'll be forked out, they'll be removed, they'll be worked around.

But I don't like this trend of right now where it's like, oh, hey, by the way, we dumped our token on retail.

This is like pretty much every DeFi protocol.

Hey, we made multi-millions on our token and dumped it on retail.

We still have like 60%, but governance isn't working.

So we're going to throw a fee in the front end too.

At the same time, I think in 10 years from now, it'll all be gone.

But there's this weird like bear market thing right now happening that I'm just not a fan of.

Yeah, I think when you look at TradFi and how they do it, it's more similar to Cowswap than it is to Uniswap because with Cowswap, they offer gasless trades, right?

Now, that doesn't mean you're not paying a gas fee.

What it means is that it's built into the order flow, right?

The market makers that are kind of matching you in the background are paying that.

They're baking it into what the trade is, right?

Now, I think this is the same for TradFi where they have things like payment for order flow, where they're just baking this all in.

And MEV is very prevalent within Tradfri as well.

It's just that we don't see it because it's all permissioned and closed source.

There's no kind of Etherscan for Tradfri that's going to show you what's happening there.

And I think that's probably the better comparison there.

And I agree with you over the long-term, it's probably just going to be a race to 0 fees, but it'll just be baked into that kind of order flow.

And I personally don't use Uniswap's front end and haven't in quite a while.

I tend to use Cowswap because of that, because of the fact that I know that it's not free gas, for example.

But in saying that, Calswap still gives me a better price than Uniswap does as an aggregator, as a way to aggregate liquidity from basically anywhere and have people fight in the background for that liquidity and also protect me from MEV or from most MEV, especially sandwich attacks, which are pretty brutal, right?

Taking to their logical conclusion there.

So I think that's probably what it's going to look like.

But as you said, most people will just use the things like the Uniswap front end because that is like the branding and marketing that has been built up over time.

When people are like, oh, I know the Uniswap front end, I know what this looks like, I'm going to go there and use it.

MetaMask swap charges 0.8% on a trade and they still do a ton of volume because you can actually see the fee revenue going to their address on Etherscan and they make a crap ton of money from this.

Now, okay, who is using MetaMask to swap with that fee?

1, it's airdrop farmers thinking that they're probably going to get some kind of MetaMask airdrop, right?

But they're not going to be doing like high volume kind of stuff because it's just going to eat into their money.

And then there's going to be the noobs who don't know any better at all.

They see swap, they're like, oh, I can buy this Degen token through MetaMask.

And I know MetaMask, it's my wallet and that's all well and good." And then they just use that and they don't even notice the 0.8% fee because for them, it's like a calculus of, oh, who cares if it's 0.8% fee, I'm going to make like a 10X on this.

That's the kind of calculus that people run in their heads.

And that's another part of this I don't think we've discussed yet is that when you think about the calculus that people do kind of like an unexpected value thing when it comes to trades, like in crypto, your expected value from buying a token is at minimum probably a 10X as a regular user, right?

I'm not talking about traders and things like that.

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The Daily Gwei Drive Thru #7 with Anthony Sassano and Eric Conner | DeFi, Public Goods, Burning ETH