- Uniswap management has proposed activating the so-called fee shift.
- The activation would divert some of the protocol’s revenue towards burning UNI tokens.
- The proposal also calls for the eventual shutdown of the Uniswap Foundation.
Uniswap management has proposed a major overhaul of the UNI token that includes the long-debated “fee change,” an upgrade that would divert some of the protocol’s revenue to token holders.
However, rather than sending revenue directly to token holders, the proposal would send that revenue into a “token pot.” UNI holders could destroy their UNI tokens and, in turn, withdraw an equivalent amount of crypto from the token pot.
This would reduce the supply of UNI and, in theory, increase the value of the remaining tokens.
The proposal also aims to burn nearly 100 million Uniswap tokens worth almost $800 million. This is the amount of tokens that would have been burned if the proposed fee change had been implemented since Uniswap’s inception several years ago.
The proposal is supported by the Uniswap Foundation, Uniswap Labs and Uniswap founder Hayden Adams. If approved by token holders, this would also result in the eventual closure of the Foundation.
In a social media post, Adams suggested that Uniswap Labs – the company that built all four versions of the Uniswap protocol – would take a more muscular role in managing the protocol in the future.
“UNI launched in 2020, but over the past 5 years, Labs has not been able to meaningfully participate in the governance of Uniswap and has been significantly limited in how it can create value for the Uniswap community,” he wrote. “It ends today!”
Devin Walsh, executive director of Uniswap Labs and the Uniswap Foundation, did not immediately return. DL News’ request for comment.
The change in fees
Uniswap is the largest decentralized exchange on Ethereum. It has processed over $150 billion in transactions in the last 30 days.
Today, liquidity providers receive a cut of every transaction on Uniswap. It’s a lucrative business: users have paid more than $229 million in swap fees over the past 30 days, according to data from DefiLlama.
The proposed fee change would maintain the current swap fees. But that would divert between a quarter and a sixth of those fees into a smart contract known as a token jar. Anyone burning UNI tokens – using a smart contract called a “hearth” – would be able to withdraw an equivalent amount of crypto from the token pot.
To compensate liquidity providers, the proposal would greenlight the development of a protocol fee reduction auction, which would “add a new source of protocol fees by internalizing the MEV that would otherwise go to researchers or validators.”
The proposal would enable the change in pool fees in Uniswap v2 and Uniswap v3, which represent up to 95% of liquidity provider fees collected on Uniswap transactions settled on the Ethereum mainnet.
Votes to enable the fee change on Uniswap v4 and other blockchains would come at a later date, according to the proposal.
The Foundation
The proposal also seeks to dissolve the Uniswap Foundation, a nonprofit organization funded by the DAO and “dedicated to driving the growth, sustainability, and decentralization of the Uniswap community,” according to its website.
The proposal would move the majority of Foundation staff to Uniswap Labs, a for-profit company. The Labs would assume several responsibilities currently under the Foundation, including ecosystem support and funding, governance support, and developer relations.
The Foundation’s remaining employees would administer the nonprofit’s $100 million grant program. Subsequently, the Foundation would close its doors.
Labs would also stop charging fees on interfaces that allow non-technical traders to use the Uniswap protocol, including a website and crypto wallet created by Labs.
But it reserves the right to charge new fees in the future.
“The monetization of Labs interfaces will continue to evolve over time and any volume fees derived from these products will benefit the Uniswap ecosystem,” the proposal states.
Background
Reversing the so-called fee shift has been a major source of controversy within the Uniswap DAO in recent years.
Supporters say this would be a boon for token holders, linking UNI’s value to the success of the Uniswap protocol, a decentralized exchange that has processed more than $150 billion in transactions in the past 30 days.
But the Foundation, one of the major players in the Uniswap ecosystem, was cautious.
After proposing a fee change last year, the Foundation canceled a planned vote at the 11th hour, citing “a new issue” raised by an anonymous stakeholder.
In addition to frustrating proponents of the fee change, the Foundation’s apparent influence over the DAO became the subject of a congressional hearing this year.
“If you accept that decentralization involves distributing voting power among your UNI token holders,” said Rep. Sean Casten, “doesn’t the fact that the Uniswap Foundation can make decisions unilaterally undermine any claim that it is decentralized?”
Shortly after, the Foundation reported that a new vote on the fee change was imminent. But that would only come after token holders approved the creation of a decentralized non-profit unincorporated association, or DUNA — a sort of legal wrapper for crypto cooperatives like the Uniswap DAO.
The incorporation would protect members of the Uniswap DAO from any legal or tax liability, a prerequisite for activating the so-called Uniswap fee change, according to the Foundation.
DUNA’s approval came in August. But the Foundation has remained mum on a possible vote on a fee change – until now.
UNI jumped more than 29% on Monday.
Aleks Gilbert is DL News‘ DeFi correspondent based in New York. You can reach him at aleks@dlnews.com.
