Rudy Insight — The Risk in Uniswap: Fees vs. Impermanent Loss

How will it work?

Uniswap sets fees for each pool individually. They can try the switch on a limited set of pools and analyze the results. If the trading execution, liquidity, and amount does not decrease, the test is a success. The proposal plans two test runs on two different pools:

  • USDC / ETH @ 0.05%, initialize 1/10 “protocol fee”.
  • USDC / USDT @ 0.01%, initialize 1/10 “protocol fee”.
Fees of USDC/ETH Pool after the fee switch chart
Figure 1: Fees of USDC/ETH Pool after the fee switch (source: Rudy)
Weekly Yield of USDC/ETH Pool after the fee switch chart
Figure 2: Weekly Yield of USDC/ETH Pool after the fee switch (source: Rudy)

How does this compare to impermanent loss?

A study by Bancor revealed that simply holding the coins would have made the investors better off than putting them into liquidity pools. Half of all liquidity providers suffer negative returns after fees.

The classification of Uniswap according to the ITC

The UNI token is the primary token for the Uniswap decentralized exchange and plays a vital role due to the fact that it offers holders an on-chain governance functionality so that they can participate in the decision-making process on how the platform is managed and developed in the future.

Figure 3: The Uniswap Tokenbase entry (Source: https://itin.itsa.global/FVJ07CC49)

List of Uniswap LP Tokens V2

Figure 4: Tokenbase list with top 10 Uniswap LP-tokens by total value locked (Source: https://bit.ly/3APv1wt)

The International Token Standardization Association (ITSA) e.V.

The International Token Standardization Association (ITSA) e.V. is a not-for-profit association of German law that aims at promoting the development and implementation of comprehensive market standards for the identification, classification, and analysis of DLT- and blockchain-based cryptographic tokens. As an independent industry membership body, ITSA unites over 100 international associated founding members from various interest groups. In order to increase transparency and safety on global token markets, ITSA currently develops and implements the International Token Identification Number (ITIN) as a market standard for the identification of cryptographic tokens, the International Token Classification (ITC) as a standard framework for the classification of cryptographic tokens according to their inherent characteristics. ITSA then adds the identified and classified token to the world’s largest register for tokens in our Tokenbase.

  • The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
  • The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to the market capitalization of classified tokens.
  • ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.

Remarks

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The risk in Uniswap. Fees vs. Impermanent loss article cover image

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International Token Standardization Association

International Token Standardization Association

The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.