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Will UNI’s 70% Rally Last? Risks of Uniswap’s Fee Proposal

Will UNI’s 70% Rally Last? Risks of Uniswap’s Fee Proposal

Leading decentralized exchange (DEX) Uniswap’s UNI token received a massive boost in late February 2024 following a proposal to share platform fees with token holders who delegate and stake their tokens.

Following the announcement, UNI jumped over 70% to a near two-year high of $12.79 on February 24 on expectations of higher demand and lower UNI circulating supply from increased staking on the platform.

Will the latest news affect the long-term Uniswap (UNI) price prediction?

In this article, we analyze Uniswap’s fee-sharing proposal and highlight risks that could cut short the token’s rally.

Uniswap’s Fee Switch Upgrade to Reward UNI Holders

On February 23, 2024, the Uniswap Foundation proposed a network upgrade to implement a fee mechanism that rewards UNI token holders that have delegated and staked their tokens.

The Uniswap Foundation said that the proposed fee mechanism upgrade seeks to invigorate Uniswap’s governance system by incentivizing token delegation and staking.

“Less than 10% of circulating UNI is used to vote on a given proposal. Further, a large portion of existing delegation is ‘stale.’ As of February 1, 2024, 14 of the top 30 delegates by voting power had not voted over the last 10 proposals, and only 7 of these delegates have ever created a proposal,” said Uniswap Foundation.

How Will Uniswap’s Fee Switch Upgrade Work?

At the time of writing, Uniswap collects 0.3% fees on v2 and 0.05% to 1% fees on v3 for swapping tokens, which are paid to liquidity providers (LP).

If the new fee mechanism is approved, UNI stakers and delegators will receive a part of the LP fees.

The fee mechanism proposal is also known as the “fee switch” upgrade because the collection of protocol fees is actually built into the Uniswap protocol. However, the protocol fee collection was never turned on and was initially set to zero.

Here are key details of the proposed Uniswap fee switch upgrade:

  • The protocol fees that will be distributed will be expressed as a fraction of LP fees.
  • The protocol fees will be adjustable by governance and can be 0, 1/4, 1/5, 1/6, 1/7, 1/8, 1/9, or 1/10 of the LP fees.
  • Protocol fees can be set on a pool-by-pool basis.
  • Fees are accrued in both tokens that comprise the pool.

Two new smart contracts will be introduced with the new fee mechanism proposal:

1. V3FactoryOwner.sol

This contract will bring a programmatic, permissionless collection of protocol fees. It will also allow the conversion of those fees into a common ERC20 for distribution to stakers.

2. UniStaker.sol

This contract will manage delegation and fee distribution.

Risks to UNI Token Price From New Fee Mechanism Proposal

News of Uniswap’s proposed fee mechanism that rewards UNI stakers and delegators was cheered by the crypto market participants who pushed the UNI token price to its highest since April 2022.

In this section, we highlight events that could cut short Unswap’s explosive rally.

Protocol Fee-Sharing Approval Awaits

UNI token holders have to bear in mind that the proposed fee-sharing mechanism has not been approved as of February 27, 2024.

The Uniswap community will begin voting on the proposal on March 1, 2024. All Uniswap proposals are subject to a 7-day voting period during which UNI token holders can vote for, against, or abstain from voting.

Although it is widely expected that the proposal will get approved (as it benefits UNI holders who are voting), there are certain members of the Uniswap community for whom the new fee mechanism is unfavorable — Uniswap liquidity providers.

Anndy Lian, an intergovernmental blockchain expert, told Techopedia:

“If the proposal is approved, it would activate the protocol fee switch and distribute a portion of the fees collected by Uniswap to the token holders. This would increase the demand and value of UNI and incentivize more participation and delegation in the governance process.

“However, if the proposal is rejected, it could lead to a sell-off and a drop in the UNI price.”

Uniswap Trading Volume, TVL, and Liquidity Expected to Fall on Protocol Fee Sharing

According to a report by crypto analytics firm Gauntlet, the distribution of protocol fees to UNI stakers and delegators can reduce the profitability of LPs on Uniswap.

The reduced LP yield is expected to cause some of them to withdraw liquidity from Uniswap. The less liquidity in Uniswap’s trading pools might result in higher slippages for traders. The higher slippages might cause poor user experience and force traders to choose rival DEXs, which might ultimately result in decreased trade volume on Uniswap.

It should also be noted that lower trade volume might result in lower protocol fees distributed as the platform collects fees when token swaps occur.

Gauntlet warned that setting extremely high protocol fees would result in the DEX being “unable to retain any LPs.”

The research firm also added that core trading volumes from retail and institutional traders will be less affected than MEV volume, which accounts for 40% to 80% of volume on Uniswap and other DEXs, as MEV trades are more sensitive to market liquidity.

Gauntlet noted:

“At the extreme, a 100% protocol fee should result in a 100% loss of all volume, since such a DEX would be unable to retain any LPs. However, even for an extremely aggressive 80% protocol fee, the simulated DEX still retains substantial core volume. This once again highlights that liquidity is rarely a limiting factor for most of Uniswap’s core users.

“We note that for a viable 10-25% protocol fee, the revenue curves are fairly linear and far from the theoretical maximum. We conclude that a protocol fee in this range would be effective at generating revenue and is unlikely to suffer from diminishing returns due to core volume loss.”

Uniswap (UNI) Price Analysis: Is the Rally Short-Lived?

The rally in UNI token price has cooled since the crypto jumped as much as over 70% on February 23, 2024, following the fee switch upgrade proposal announcement. Token holders took the chance to book profit after UNI hit near two-year highs of $12.79.

Blockchain analytics firm Lookonchain reported that a “Uniswap Team/Investor/Advisor wallet” sold 90,000 UNI tokens from $1.03 million in USDC.

 

Tony Severino, a CMT candidate, technical analyst, and the author of the CoinChartist VIP newsletter, was bullish on the UNI token as he shared his technical analysis on the crypto:

“UNI’s over 50% single-week surge might only be the beginning of a sustained trend change. The clean breakout above the weekly and monthly upper Bollinger Band is a technical buy signal following a nearly two-year accumulation range.”

Elsewhere, CoinCodex data showed UNI token trading at an overbought zone as its 14-day relative strength index stood at 75 points on February 27, 2024. The token traded at $10.05 at the time of writing, above its 200-day simple moving average of $5.68.

The Bottom Line

Uniswap’s fee switch proposal is expected to have lasting consequences if approved.

Although the crypto market is currently focused on the direct benefits that UNI holders hope to enjoy, the resulting effects on Uniswap governance from an approved fee switch upgrade cannot be understated.

The upgrade is expected to incentivize “active, engaged, and thoughtful delegation,” which will ultimately make Uniswap more decentralized, resilient, and community-driven.

 

 

Source: https://www.techopedia.com/uniswap-uni-price-analysis

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

I use strategies such as diversification to manage risks: Blockchain expert Anndy Lian

I use strategies such as diversification to manage risks: Blockchain expert Anndy Lian

Amidst the challenges of a tough funding climate, e27 is launching an exciting new article series called Angel’s Advocate to provide fresh perspectives on angel funding. In this exclusive series, we sit down with prominent angels to hear their stories and strategies and gain unique insights about the early-stage financing space.

Anndy Lian is an all-rounded business strategist in Asia. He has provided advisory across various industries for local, international, and publicly listed companies and governments. He is an early blockchain adopter, serial entrepreneur, author, investor, board member, and keynote speaker.

In this edition, Lian shares his take on angel funding.

Edited excerpts:

How do you typically approach investing during a funding winter?

I would put my eggs into different baskets. In one of my baskets, I will focus on companies with solid fundamentals and a proven track record of generating revenue and profits. This kind of investment tends to be on the safe side, longer term, and returns may not be fantastic.

Then in my next basket, I will find low-valuation, high-potential startups with the right fundamentals to invest in. Crypto companies fit into this category nicely.

What are your typical investment criteria, such as industry, stage, and geographic location?

Investment criteria do not cover everything. It gives me guidelines that my team and I can use to filter out bad companies. In the current state of the market, I only look at tech companies, mainly in the cryptocurrency and blockchain industries. If they are more infrastructure-like, I do not mind investing in them at later stages. If the project is one of a kind, I would like to invest as early as possible, maybe pre-seed. If the project is more hype-driven, I will invest when the volume picks up.

Can you describe your investment process from initial contact to closing a deal?

First of all, the initial contact. We may learn about a potential investment opportunity through their personal network, a pitch event, or by contacting the company seeking funding directly. Then followed by screening. This process is a deeper level of evaluation where we will have longer calls to look for investment alignment.

We will go through the due diligence process if they pass this stage. We will conduct more in-depth research and analysis to evaluate the company’s business model, management team, financial performance, and growth potential. This process is the most important to me. The chance to interact with the team would be one of the key things.

The next stage would be negotiation. If we decide to move forward with the investment, we will negotiate the terms of the deal with the company, including the amount of funding and the valuation.

Once all parties have agreed upon the terms of the deal, legal documents will be prepared and signed to finalise the investment.

How do you evaluate a startup’s potential for growth and success?

Evaluating a startup’s potential for growth and success can be challenging, as many factors can impact a company’s future performance. I look at the market opportunity, business model, management team, financial performance and competition.

How important is the founder’s experience and background when making investment decisions?

Well, it is definitely important. The founder is the brain and creator of the company. If the main driver does not have the experience and background, the outcome would generally be disastrous.

Can you share your successful investment and what made that investment successful?

So far, crypto investments are the most successful in my portfolio. At crazy times, meme-coins can also be a potential 100X gem.

What are some common mistakes that startups make when pitching to angel investors? What are some myths about angel investment?

Some common mistakes that startups make when pitching to angel investors include not understanding the needs and goals of angel investors, failing to clearly articulate the value proposition, relying too heavily on financial projections, not doing enough research on potential investors, and not having a multi-faceted marketing strategy.

Another mistake is sending your executive summary or business plan unsolicited. Many investors do not read unsolicited emails and prefer a referral from someone in their network. It’s also important to do your homework on the investor and ensure your company is aligned with the investors’ objectives.

How important is the alignment of values between the investor and the founder?

The alignment of values between the investor and the startup founder is crucial. Ideally, your investors should be experts in your field or sector so that they not only understand the costs, time-to-market, and potential pitfalls of your vision but can also connect you with the right people and resources to help you achieve it. It’s important for the investor to spend some time understanding the skills and capabilities of startups.

How do you manage risks when investing in startups? Are there any specific metrics or indicators you look for?

Investing in startups is risky, but it can be very rewarding if the investments pay off. Most new companies or products do not make it, so the risk of losing one’s entire investment is a real possibility.

To manage risk, I can use strategies such as diversification, which refers to spreading my investments over a variety of assets with the aim that a portfolio of lowly-correlated assets does not all move in the same direction at the same time or even if they do move in the same direction, it should at least be by different degrees.

Can you share any advice for startups looking to raise funds from angel investors?

My humble advice to startup owners is to develop a business plan before approaching someone about funding. Put in writing what the investor is offering the business outside of funding because many angel investors expect to contribute their time actively to startups in which they invest. Establish roles.

It’s also important to create a strong, thorough, and engaging investor pitch deck and guidance on presenting to angel and venture capital investors.

 

Source: https://e27.co/i-use-strategies-such-as-diversification-to-manage-risks-blockchain-expert-invest-anndy-lian-20230524/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Risks and Rewards: A deep dive into Hong Kong’s crypto licensing regime

Risks and Rewards: A deep dive into Hong Kong’s crypto licensing regime

In recent times, Hong Kong has emerged as a key player in the global crypto market. The region’s location and regulatory environment have attracted many crypto investors and businesses. However, until recently, Hong Kong lacked a clear regulatory framework for cryptocurrencies, which raised concerns about investor protection and market stability. To address these concerns, Hong Kong’s Securities and Futures Commission (SFC) announced a new licensing regime for crypto exchanges in November 2021. The new regulations will require all virtual asset trading platforms operating in Hong Kong to obtain a license from the SFC, making it the first jurisdiction in Asia to implement such a regime.

Many investors and industry players have welcomed the move, seeing it as a positive step towards making Hong Kong a major player in the global crypto market. The new licensing regime is expected to attract more institutional investors to Hong Kong and improve the transparency and credibility of the crypto industry in the region.

However, some investors and industry players remain cautious and have raised concerns about the potential risks associated with the new regulation. In this opinion article, we will explore the opportunities and risks associated with the new Hong Kong crypto regulation, compare it with Singapore and South Korea, and discuss whether China is likely to back out.

Pros and Cons

The new Hong Kong crypto regulation presents several opportunities for the industry. Firstly, the licensing regime allows for the creation of new crypto exchanges, which will attract more investors and create more jobs. The new exchange, called Huobi Hong Kong, will focus on institutional investors and high-net worth individuals. This is good news for the industry as institutional investors are known to bring stability and liquidity to the market.

Secondly, the new regulation is expected to attract more foreign investment into Hong Kong. Hong Kong’s strong determination to regain the title of global crypto center is reflected in the series of policies and statements issued by the Hong Kong Monetary Authority. This is expected to create a favorable business environment that will attract foreign investors and companies to Hong Kong. This will benefit not only the crypto industry but also the overall economy of Hong Kong.

Thirdly, the new regulation is expected to enhance transparency and reduce the risk of money laundering and fraud. The Hong Kong Securities and Futures Commission has taken a regulatory approach to cryptocurrencies, which contrasts with recent actions in the US of regulation by enforcement. This approach will help build trust among investors and promote long-term growth in the industry.

Although the new Hong Kong crypto regulation presents several opportunities, it also comes with some risks. One of the biggest risks is the potential for increased market volatility. The crypto market is notoriously volatile, and the creation of new exchanges and the influx of more investors may exacerbate this. Moreover, there is the possibility of fraud and manipulation, which can further increase volatility and undermine investor confidence.

Secondly, the new regulation may lead to a concentration of power in the hands of a few large exchanges. This can lead to a lack of competition, which can result in higher fees and a decrease in innovation. This is a problem that has been observed in other industries, such as banking and telecommunications, where a lack of competition has resulted in poorer service and higher prices.

Thirdly, there is the risk of government interference. While the Hong Kong government has been supportive of the new regulation, there is always the possibility that it may change its stance. This could lead to a situation where the government restricts or bans crypto trading altogether. This would have a devastating impact on the industry and its investors.

Comparison with Singapore and South Korea

Hong Kong is not the only country in the region that is looking to regulate the crypto industry. Singapore and South Korea have also taken steps to regulate the industry. Singapore has been proactive in its approach, establishing a regulatory framework that encourages innovation while protecting investors. This has made Singapore a major player in the crypto market, with several major exchanges based in the country.

South Korea, on the other hand, has taken a more cautious approach. In 2017, the government banned initial coin offerings (ICOs), citing concerns about fraud and money laundering . However, the ban was lifted in 2018, and the government has since established a regulatory framework that requires exchanges to register with the Financial Services Commission. While this has led to a decrease in the number of exchanges in the country, it has also improved investor protection and reduced the risk of fraud.

Compared to Singapore and South Korea, Hong Kong’s new crypto regulation is more similar to Singapore’s approach. Both countries have taken a proactive approach to regulation, with a focus on promoting innovation while protecting investors. However, Hong Kong’s new licensing regime is more focused on institutional investors, while Singapore’s regulatory framework is designed to cater to a broader range of investors.

Possible Backlash from China

Finally, there is the question of whether China is likely to back out of the new Hong Kong crypto regulation. China has been cracking down on the crypto industry, with a ban on ICOs and cryptocurrency exchanges in 2017. However, there are indications that China may be softening its stance. In 2019, President Xi Jinping stated that China should accelerate the development of blockchain technology. Moreover, in 2021, several Chinese companies announced plans to enter the crypto industry.

Despite these positive signs, there is still a risk that China may object to the new Hong Kong crypto regulation. China sees Hong Kong as part of its territory and may view the new regulation as a challenge to its authority. If this happens, it could lead to a deterioration of relations between Hong Kong and China, which would have far-reaching consequences for the industry and its investors.

Conclusion

In conclusion, the new Hong Kong crypto regulation presents both opportunities and risks. While it is expected to attract more investors and create a favorable business environment, there is also the potential for increased market volatility, concentration of power, and government interference. Compared to Singapore and South Korea, Hong Kong’s approach is more focused on institutional investors, but shares a similar emphasis on promoting innovation and protecting investors. Whether China will back out of the new regulation remains to be seen, but there is a risk that it may object, leading to a deterioration of relations between Hong Kong and China.

 

Source: https://www.financialexpress.com/blockchain/risks-and-rewards-a-deep-dive-into-hong-kongs-crypto-licensing-regime/2998952/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j