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Uniswap Cuts UNI Token Rewards and Liquidity Drops Over 40%

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Uniswap made a reputation for itself due to the rewards it offered for liquidity. However, once those rewards expired, the platform lost a huge amount of liquidity. 

This article will go into detail on what exactly happened and the best opportunities for liquidity farming from here on out.

Uniswap Incentives

To understand what happened, it’s important to first understand the incentives that Uniswap offered customers for liquidity mining. 

Uniswap offered two income streams from liquidity mining:

  • All fees generated by the AMM trading desk.
  • Rewards of UNI tokens.

However, these rewards were only offered for a handful of pairs on Uniswap – these pairs include the following:

  • WBTC-ETC
  • USDC-ETH
  • USDT-ETH
  • DAI-ETH

Those pairs happened to be the pairs with the largest amount of liquidity on the platform. This became apparent when Uniswap lost 40% of its liquidity providers the day the rewards expired

That is a lot of liquidity. The dollar amount went from $3.2 billion in liquidity to $1.8 billion in liquidity in the span of one week. 

However, that raises an interesting question. Where did all the liquidity go?

Sushiswap Offers Rewards

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The answer is simple. Sushswap, a competitor to Uniswap, offered rewards on all the same liquidity mining pairs that Uniswap cancelled rewards for. Additionally, Sushiswap offered these rewards the day before the Uniswap rewards were set to expire. 

It was a clever move by Uniswap that led to a huge amount of liquidity entering the Sushiswap platform. Sushiswap gained $250 million worth of liquidity in a day. And that number will only increase as time goes on unless Uniswap offers rewards again.

Will Uniswap bring back UNI token rewards for liquidity mining?

Well, Uniswap did put up a vote to bring back UNI token rewards for liquidity mining for two more months. 

This idea was proposed with keeping the status quo in line, but the massive loss of liquidity partners was likely higher than expected.

Anyway, this proposal received a small majority of votes (53%) in favor of the proposal. 

When will Uniswap return?

The future’s looking bleak for Uniswap. A massive loss in liquidity like that is oftentimes difficult to recover from. 

The more concerning aspect for Uniswap is that customers went to Sushiswap, a smaller exchange, rather than the two exchanges larger than Uniswap – Maker and Wrapped Bitcoin.

Final Thoughts

That’s about it for Uniswap cutting their rewards. It was a situation that was inevitable – Uniswap could not continue offering rewards forever.

However, it does lead to a problem where Uniswap looked much bigger than it actually was in reality. Personally, we do not believe that Uniswap will collapse, but the future of the exchange looks a little bleak. 

It’s unlikely that Uniswap will exceed Maker and Wrapped Bitcoin at any point in the near future. Plus, the fees offered by Uniswap just are not good enough without the UNI token rewards.

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