Will UNI Liquidity Mining Continue?
I don't think so.
The initial liquidity mining program for UNI ends on November 17th. Several projects’ communities (SNX, YFI, etc.) tried to earn UNI mining via governance but no one succeeded. And every governance proposal failed too. It was because of the required high quorum and relatively low participation rate. So UNI mining stops. Until a new mining proposal gets passed.
So the future is in the hand of the community. Then what does the community think? Let’s guess from now on.
Community means UNI token holders, from the governance participation perspective. And what do token holders want? numba go up.
Then would the token holders want to resume liquidity mining? I don’t think so.
Why Do Liquidity Mining?
A few days ago, there was an unofficial UNI community call. And it seems it was not very successful according to some participants’ tweet threads (@AutismCapital and @0xMaki). But fortunately, just before the call is ended Robert Leshner jumped in and he proposed maintaining the liquidity mining for ETH/USDC and ETH/WBTC pairs, and Gauntlet is doing an analysis related to the reward program. ..But how will the vote go?
Fundamental questions: why is liquidity mining required?
To gather users for the product.
To gather liquidity to make the token “tradable”
To distribute the token
I think these three are the core reasons. Let’s take a look one by one.
1. To gather users for the product
Uniswap is the most popular DEX. And It would be reasonable to expect that it continues.
A possible threat to Uniswap is losing its liquidity to the competitor as it decreases tradability. But as Uniswap is a de facto standard currently, that kind of threat seems not that big - at least for a while.
We’ll see this after the mining ends.
2. To gather liquidity to make the token “tradable”
UNI liquidity mining program didn’t have pool 2 like ETH/UNI pair. So the initial program was to gather the liquidity for the Uniswap.
UNI token has enough liquidity without mining reward. And there are CEXs. So UNI community doesn’t have enough incentive to make pool 2 from the tradability point. Also the crypto community has a bad image on pool 2s so better not to do it for the brand image.
So without pool 2, this point converges to #1.
And pool 2 itself might be not that necessary for all projects.
3. To distribute the token
Many early projects had a hard time distributing the token and establish initial liquidity. One way to solve it was liquidity mining.
But 400 UNI was distributed to Uniswap users initially. So UNI doesn’t have an initial supply/liquidity issue.
I think 400 UNI distribution was a great idea. Distributing more token can make the price lower. So if we should impact the price, doing it at the early phase is better from the price perspective + product builders’ psychological safety perspective (which is very important).
The 3 reasons are not fit to the current Uniswap. Therefore, UNI doesn’t need liquidity mining. If it does, it will be for boosting the Uniswap exchange.
Ironically, boosting the Uniswap is not that important for general UNI holders for the near future - as Uniswap is successful currently.
Boosting the Uniswap is rather important to the Uniswap team and VCs. Fortunately, they have a lot of tokens as I wrote in the past. So when there’s an emergency situation they will come up and vote. There would be some legal issues, but Uniswap team got a chief legal officer recently so they will find a way to mitigate the legal issues. That’s why people hire lawyers.
Summary until here
UNI token holders (except team/VCs) don’t have reasons to resume liquidity mining - because it makes numba go down.
If there’s a reason to resume in the future, it will be when a competitor drains the liquidity from Uniswap - like we saw Sushiswap and UNI token.
The resumption will happen only by team/VCs or someone who supports their will.
Possible Scenarios: Bold & Ideal Cases
My bold scenario is: burning the remaining UNIs.
How will it happen? Token holders want short-term profit - this kind of proposal would be passed if it is made. Team and VCs would be opposed to it, but if they stay still like the current situation, this scenario can happen really, at least not the whole remaining UNI but some, I think.
Somewhat ideally, liquidity mining can be resumed for WBTC and USDC. The past proposals failed narrowly, even one of the proposal was distributing 5M UNI. 5M was raising the emission rate by 25% at that time. But I think this proposal had political appropriateness and the cause, while the new liquidity mining program doesn’t.
More long term ideal scenario would be announcing another use case for UNI on the protocol level and integrate the reward with it. It would happen when Uniswap v3 comes out, and I assume that the team is trying to find this kind of solution.
Let’s see how it goes.
