Last week, there was quite a stir within a portion of the Ethereum community regarding the removal of 129 tokens from the Uniswap interface (“interface” is the important word here). This immediately brought up a question in the community around “Is Uniswap actually decentralized?”... This is important because many blockchain gaming economies are building on top of Ethereum contracts and leveraging the Uniswap protocol for liquidity.
Protocol vs Portal: to start, it’s important to highlight that Uniswap and Uniswap Labs are two separate things. Uniswap is an open-source protocol (a decentralized exchange) and Uniswap Labs is a website portal (they own app.uniswap.org domain). The portal of app.uniswap.org “points to an IPFS hosted instance of the Uniswap Interface” (Hayden Adams).
Uniswap Labs and holders of UNI (the Uniswap governance token) have no control over what the protocol can or can not support. What makes this differentiation important is that, under the current structure, Uniswap Labs falls outside of the regulatory definition of being an “exchange” as long as they don’t offer securities. The portal (web 2.0) is a centralized product that can be taken down by a government if it illegally offers access to offerings deemed a security and is accessible to that jurisdiction's citizens.
The Uniswap protocol (web 3.0) was built to create an automated market maker for token pairs (i.e. being able to swap ETH for UNI) that creates liquidity for tokens without the need for a buyer and seller to determine the price independently. Anyone can contribute to liquidity pools and benefit from fees paid within that liquidity pool. Anyone can access and leverage the Uniswap protocol no matter where they are based.
What happened last week is that Uniswap Labs (portal) decided that they were not going to list a certain set of 129 tokens. This was seen as antithetical to the idea of decentralization, yet in reality, nothing was stopping anyone from directly interacting with the Uniswap protocol to access those same “delisted” tokens. This is because Uniswap (the protocol) is decentralized while Uniswap Labs (the portal) is centralized.
Uniswap did this because they wanted to avoid regulatory scrutiny for being an exchange. To give a web 2.0 analogy, this is similar to how we as consumers interact with the Internet Message Access Protocol, the protocol that allows us to access our emails from a mail server. Companies like Google created Gmail that allows us to leverage this protocol through an easy to use interface.
Uniswap, at its core, is a decentralized, permissionless, smart contract; you can (in theory) access the protocol through any number of interfaces, not just one.
Within the blockchain games ecosystem, most games leverage their own token. The main purpose of this is for governance but it also allows the community to share in the profits of a game through staking. Without a token, a lot of user generated value is left on the table. Outside of staking, games need to be able to provide liquidity (buying and selling) for their tokens so users can withdraw the value they’ve accrued in-game. Play-to-earn can only exist if economic value can be extracted into real-world value, mainly through fiat.
What Uniswap Labs has built is truly one of the most innovative solutions to Decentralized Finance (DeFi). However, for these games to grow even more, we think that more games will move to build their own liquidity pools, leveraging the Uniswap protocol, to separate themselves from the risks of a centralized organization which may come under regulatory scrutiny.
The other benefit is keeping all touch points for the game under the same domain which lowers the barrier for users to liquidate and realize the value they’ve created. The Uniswap protocol resides under no jurisdiction and is open to anyone to leverage.
The benefit of gaming companies using Uniswap Labs’ portal is that their portal has been tried, tested, and audited many times over. This has created “trust” in the industry around Uniswap Labs’ portal. But, by leveraging their portal (instead of building its own) to list a game's token, a game is at risk of being delisted. This could make it harder for players to extract their value from an in-game economy.
A brand new game that launches will likely want to leverage the “trust” of the Uniswap Labs’ portal instead of creating their own in the market (brand new, lack of trust, etc). With each new game comes new risks of legitimacy, and giving wallet access to an unproven game can actually be a reason for users to be hesitant. Games like Axie Infinity built their community trust over years of leveraging third party solutions but are now building out their own side chain (Ronin) which will include their own liquidity pool solutions. This will not only help with efficiency, as the only transactions that will be done will be related to Axie (less network congestion), but also will benefit the players, as all fees will be recycled back to the community in the form of rewards to AXS holders.
The best part about this is that these decisions will be handled by the DAO that is composed of not only Sky Mavis (creator of Axie Infinity), but also the community that holds and stakes their AXS. It’s decentralized all the way through the economy’s value chain.
Takeaway: a third party offering, like Uniswap Labs’ portal, not only offers the infrastructure to launch a game’s economy but also comes with the added benefit of user trust. As games continue to evolve, we believe that the most successful games will leverage decentralized protocols to build their own solutions that are then controlled by a Decentralized Autonomous Organization (DAO). This same DAO will comprise both players and creators of the game, creating a more vibrant community and network effect for the growth of the game.