enableFeeAmount(100)–on the factory contract. Governance controls this contract, so a simple proposal could make this change. The enableFeeAmount function takes as parameters 1. Fee: the fee amount denominated in 100ths of a basis point. 2. tickSpacing: the granularity one may specify a liquidity range (see the Uniswap v3 Core whitepaper for more details) To add a 1 basis point fee option, fee would be 100. tickSpacing requires some consideration. On the one hand, too high of a value restricts LPs’ ability to set granular prices, since initializable price ticks would be roughly [tickSpacing] basis points apart. On the other hand, too low of a value could entail liquidity being too low in each tick, meaning that larger orders may need to cross multiple ticks to fill, entailing extra gas cost for each additional tick. We suggest that a value of 1 for tickSpacing would be reasonable for 1 basis point fee pools, allowing LPs to set prices with precision in positions that span ~1 basis point between initializable ticks. For a stablecoin market like USDC-USDT, we expect most of the liquidity to reside in 6 ticks. Orders <$1m will like only require 1 tick and larger orders may require a second or third tick. For each tick used it adds about 15k-20k gas costs. ### Too many fee tiers can fragment liquidity The downside of adding too many fee tier possibilities is that liquidity is then fragmented across pools. However, we believe that LPs will naturally settle over time into the fee tier that is most appropriate for the volatility of the pair. Pairs with particularly low volatility, like stablecoin<>stablecoin pairs, will likely have a liquidity migration to the 1 bps tier, as the required return to capital should be low in equilibrium given the low risk of impermanent loss. ### LPs may earn less in fees Assuming overall volume stays stable (although it’s worth mentioning more competitive fees should grow the pie), total fees paid will go down (volume would have to 5X for fees paid to LPs to stay the same). However, LPs are not the only constituency to take into consideration–takers will be paying lower fees in aggregate. Growing Uniswap’s market share and being the best place to trade across many pairs is important. These pools could become more enticing to large traders looking to swap stablecoins, for instance. ## Concluding Thoughts We believe this simple change could boost Uniswap’s competitiveness in low volatility pairs, and the change presents minimal risk for Uniswap.enableFeeAmount(100)–on the factory contract. Governance controls this contract, so a simple proposal could make this change. The enableFeeAmount function takes as parameters 1. Fee: the fee amount denominated in 100ths of a basis point. 2. tickSpacing: the granularity one may specify a liquidity range (see the Uniswap v3 Core whitepaper for more details) To add a 1 basis point fee option, fee would be 100. tickSpacing requires some consideration. On the one hand, too high of a value restricts LPs’ ability to set granular prices, since initializable price ticks would be roughly [tickSpacing] basis points apart. On the other hand, too low of a value could entail liquidity being too low in each tick, meaning that larger orders may need to cross multiple ticks to fill, entailing extra gas cost for each additional tick. We suggest that a value of 1 for tickSpacing would be reasonable for 1 basis point fee pools, allowing LPs to set prices with precision in positions that span ~1 basis point between initializable ticks. For a stablecoin market like USDC-USDT, we expect most of the liquidity to reside in 6 ticks. Orders <$1m will like only require 1 tick and larger orders may require a second or third tick. For each tick used it adds about 15k-20k gas costs. ### Too many fee tiers can fragment liquidity The downside of adding too many fee tier possibilities is that liquidity is then fragmented across pools. However, we believe that LPs will naturally settle over time into the fee tier that is most appropriate for the volatility of the pair. Pairs with particularly low volatility, like stablecoin<>stablecoin pairs, will likely have a liquidity migration to the 1 bps tier, as the required return to capital should be low in equilibrium given the low risk of impermanent loss. ### LPs may earn less in fees Assuming overall volume stays stable (although it’s worth mentioning more competitive fees should grow the pie), total fees paid will go down (volume would have to 5X for fees paid to LPs to stay the same). However, LPs are not the only constituency to take into consideration–takers will be paying lower fees in aggregate. Growing Uniswap’s market share and being the best place to trade across many pairs is important. These pools could become more enticing to large traders looking to swap stablecoins, for instance. ## Concluding Thoughts We believe this simple change could boost Uniswap’s competitiveness in low volatility pairs, and the change presents minimal risk for Uniswap.
