A temperature check vote proposing to deploy Uniswap v3 on BNB Chain has passed with over 80% of the vote. This is despite community concerns about moving the decentralized exchange (DEX) to a more centralized platform.
However, despite the vote attracting “the biggest number [of participating wallets] for the whole Uniswap Governance History,” with just 0.1% of voting wallets making up 99% of the 24.9 million votes, Uniswap may have centralization problems of its own.
Uniswap’s v3 protocol is active on just five blockchains: Polygon, Arbitrum, Optimism, and Celo in addition to Ethereum, which contains 90% of its total value locked (TVL). This is more conservative than other popular DEXs such as Curve (12) and Sushi (23).
The move, pushed by Plasma Finance, would target the $2.45 billion TVL of BNB Chain’s current leading exchange, Pancake Swap, which is itself a fork of Uniswap’s simpler v2.
Uniswap v2 is one of the most forked protocols, with SushiSwap’s famous ‘vampire attack’ draining a large portion of Uniswap’s TVL back in 2020. To combat this, Uniswap launched v3 in the spring of 2021 under a two-year business license. On expiry, v3 code will become open-source and is likely to be forked on many different blockchains.
Plasma Finance, which has its own Active Liquidity Management Protocol, Quadrat, operating on top of Uniswap v3, is apparently keen to establish v3 TVL on the retail-friendly BNB Chain before the forking begins.
However, it would also mean Ethereum’s most popular DEX moving to a more centralized environment. Back in October, BNB Chain demonstrated just how far removed it is from crypto’s ideals of immutability and decentralization when it paused the entire network in response to a hack.
High speeds and lower fees have made BNB Chain (previously Binance Smart Chain) a favorite among so-called ‘retail’ investors, especially during the peak of the bull market, when they were priced out of Ethereum. But, while it may be good for traders, v3 isn’t retail-friendly when it comes to providing liquidity.
Uniswap v3 allows liquidity providers to specify a price range between which they are willing to facilitate trading. However, these should be updated as prices diverge in order to remain profitable. Many retail traders simply stick to passive LPing (as on v2), which turns out to be a losing game as they received less in trading fees than they lose to so-called impermanent loss, as more sophisticated traders arbitrage price differences.
Uniswap responded with its own analysis that showed passive LPs do in fact make money. However, the query turned out to be inaccurate.
A protocol is only as decentralized as the blockchain it’s built upon. And during the past year, the perils of centralized crypto platforms have been demonstrated time and again.
While governance is set to stay on Ethereum for now, Uniswap users’ funds on the BNB Chain won’t be underpinned by the same guarantees of decentralization.
This makes the apparent desire for the move seem somewhat bizarre, given its would-be status as one of the prime examples of decentralization in the sector.