TL;DR

There is a mismatch between the fee rate on v2.1 and v3. The DAO needs to decide whether to increase the v2.1 fee rate, or decrease the v3 fee rate, to align them. V2.1 has generated 2x the fees than v3. This is likely due in part to the lower fee rate, but also due to fewer integration established for v3. Decreasing the v3 fee to 0.1% (to match v2.1) aims to increase the fee revenue captured by the protocol, encourage integrations with v3, and allow for more accurate analysis between the two pools.

Key Points

• Fee revenue for ETH is greater for v2.1 than for v3 despite v3 having higher liquidity.
• ETH fee rate on v3 is 0.2% while on v2.1 the rate is only 0.1%. As per BIP17
• Propose to decrease the ETH fee rate on v3 to 0.1% to capture additional fee revenue.
• ETH is likely to become more highly traded as the PoS merge approaches, and could be an opportunity to capture more fees.

Discussion

V2.1 is generating 3x the volume and 2x the fees with less liquidity than v3 (Table 1). While integrations could be responsible for v2.1 success, the fee rate likely plays a significant role. With a lower fee rate on v3 and the deeper liquidity, traders will be incentivized to utilize v3 pools and drive fee revenue to our LPs.

Table 1. ETH pool comparison v2.1 and v3. Data as at 2022-08-08.

ETH Pool	v3	v2.1	delta
Liquidity	$13,913,134	$11,141,519	125%
Fee Rate	0.20%	0.10%	200%
Volume - last 7d	$2,329,929	$8,480,699	27%
Fees - last 7d	$2,333	$4,205	55%
Trades - last 7d	332	2,364	14%
Mean Trade Size	$986	$3,587	27%
Mean Fee Size	$3.6	$1.8	202%
Target:Source Split	51%	48%	106%

V3’s fee revenue is led by DAI, LINK and ETH (Figure 1) however v2.1 ETH fees are superior despite the higher trading liquidity on v3. The protocol needs additional volume, fees and more user integrations, all which are promoted by offering lower fees and aligning the ETH pools protocol-wide.

Figure 1. Top 10 v3 pools, cumulative 7 day fee revenue per pool for v2.1 and v3.

Voting Instructions

FOR - Immediately decrease the fee rate on the V3 ETH pool to 0.1%

AGAINST - Take no action