Uniswap founder Hayden Adams yesterday announced his proposal to activate the long-awaited UNI fee-switch on the decentralized finance (DeFi) sector’s leading exchange.
The proposal, Adams’ first to Uniswap governance, would effectively share swap fees with UNI token holders via a buy-and-burn system.
Widely expected to pass this time, the move would mark a significant milestone for DeFi… but not everyone is convinced.
The proposal
The proposal would see a portion of fees, which currently go to liquidity providers (LPs), redirected to the buy-and-burn of UNI.
For most pools, this would be a sixth of the total fees, with some of the lower tiers coughing up 25%.
One hundred million UNI will be burned to represent the amount that “would have been burned if fees were on from the beginning.”
Sequencer fees from Unichain will also go towards the UNI burn, while other features would look to earn fees on external pools and capture MEV on the protocol.
The wildly unpopular front-end fees which have, to date, made almost $180 million for Uniswap Labs, will be abolished.
Read more: Uniswap’s new trading fee neglects UNI holders
Despite multiple fruitless attempts, the UNI fee-switch has yet to make it across the finish line.
Legal worries have often been cited as a reason to hold back; Adams refers to this as “a hostile regulatory environment that cost thousands of hours and tens of millions in legal fees.”
The Trump Administration’s more permissive regulatory landscape may have eased earlier nerves. Coming this time from founder Adams (who talks as if it’s a done deal), it seems likely that the changes will be enacted after a total of 22 days of governance proceedings.
Read more: To fee or not to fee? That is the question — does Uniswap have an answer?
New era for DeFi
Adams states the “proposal comes as DeFi reaches an inflection point.” As well as the shift in regulatory approach, he praises decentralized platforms’ “performance and scale,” tokens “going mainstream,” and institutional adoption among the tailwinds pushing the sector forward.
Uniswap is DeFi’s dominant decentralized exchange, with approximately $5 billion of total value locked (TVL) and over $100 billion of volume in the past 30 days.
In that period, it raked in $109 million in fees which, at a minimum, would translate to $18 million of UNI tokens burned, or 0.3% of its $5.7 billion market cap.
Estimates using annualized revenue put the number at $38 million monthly revenue. This would put the magnitude of the scheme between similar efforts for PUMP and HYPE.
The idea is proving popular amongst the DeFi community, with $30 billion liquid staking giant Lido mulling similar buybacks.
The “anti-cyclical” mechanism would increase buybacks during bull markets and tighten the purse strings during the tougher times.
Read more: Uniswap Labs launches Unichain without UNI unanimity
Competitors, however, argue that the reduction in swap fees going to LPs may lead to an exodus of liquidity, worsening trade execution and opening up the field to other exchanges.
Others still point out that “scammy” wash trading pools will become unviable with a portion of fees siphoned off, which could lead to a further drop in trading activity.
More widely, though, supporters feel that the move signals a new era of confidence for DeFi.
Bankless’ Ryan Sean Adams summed up the moment as Uniswap “[keeping] a promise” and “inject[ing] a little belief back into our jaded souls.”
Read more: TradFi tactics win on Uniswap v3 says BIS study
‘A sad day for DAOs‘
Adams’ proposal hasn’t completely escaped criticism, however. While many celebrate a long-awaited milestone, others have focused on what the move means for decentralized governance at large.
Read more: Is Uniswap becoming more TradFi than DeFi?
Worries over the influence of large UNI stakeholders such as a16z and Binance have often led to accusations of decentralization theater.
Critics are frustrated with further transfer of power to Labs, whose actions are not governed by token holders.
Under the proposal, Foundation teams would move to legal-wrapper Labs, a move dubbed an admission that “DAOs are inefficient at governing and allocating resources.”
Adams states an “explicit commitment from Labs… ensuring Labs does not pursue strategies that conflict with token holder interests.” He insists, too, that Uniswaps’ “vision… has always been to minimize the need for it by relying on automation and protocol decentralization.”
Others posit that Uniswap never wanted a token in the first place, only launching UNI in order to compete with 2020 rival SushiSwap.
The fee-switch proposal “basically revert[s] this, buy back and burn is the mostly [sic] simple, boring way to do so.”
