Original | Odaily Planet Daily (@OdailyChina)
On November 11, Uniswap founder Hayden Adams published a post on X and the governance forum, submitting his first personal proposal to the Uniswap governance body along with team members Devin Walsh and Kenneth Ng. The proposal suggests officially activating the protocol fee switch and using the fees for UNI burn, to align the incentives of the protocol with token holders.
The specific contents of the proposal include:
- 1: Enable protocol fees and use the revenue for UNI burn;
- 2: Include Unichain sequencer fees in the UNI burn mechanism;
- 3: One-time burn of 100 million UNI from the treasury to represent the portion that should have been burned during the inactive protocol fee period since the token issuance;
- 4: Launch a "protocol fee discount auction" mechanism to optimize LP returns and internalize MEV;
- 5: Introduce an aggregator Hook, allowing Uniswap v4 to aggregate external liquidity on-chain and charge protocol fees;
- 6: Restrict Labs through contracts to focus solely on growth plans that align with community governance interests and stop charging fees in interfaces, wallets, and APIs;
- 7: Transfer foundation employees to Labs and establish a growth fund to accelerate protocol expansion;
- 8: Migrate the Unisocks liquidity held by governance to v4 on Unichain and burn that LP position.
UNI holders have long awaited the activation of Uniswap's "fee switch." For a long time, UNI has been criticized for having almost no value capture ability aside from governance utility, which is seen as the most critical factor limiting UNI's appreciation.
In the proposal, Hayden Adams attributed the delay in advancing this initiative to the harsh regulatory environment faced by Uniswap Labs in the past, emphasizing the pressure exerted on Uniswap Labs by Gary Gensler during his tenure at the SEC. He noted that the current advancement is possible due to changes in the regulatory environment in the U.S., and the Uniswap community is prepared for the next steps in development.
Driven by this positive news, UNI surged sharply this morning. OKX market data shows that UNI briefly reached 10.3 USDT, and as of 10:50, it was reported at 9.73 USDT, with a 24-hour increase of 46.68%.
This increase is not surprising; aside from the deflationary significance of directly burning 100 million tokens, based on current trading volume data, Uniswap could allocate approximately $460 million in fees annually for buybacks and burns, which will provide strong and sustainable buying support for UNI in the future.
However, amidst the community's cheers, Uniswap's competitors are also celebrating wildly—Alexander, CEO of Dromos Labs, the team behind the leading DEX in the Base ecosystem, Aerodrome, posted on X: "I never thought that on one of the most important days of my life (note: Aerodrome is suspected to announce a major product tomorrow), and on the eve of an important day for all members of Dromos Labs, we would be so lucky to receive such a significant blunder from our biggest competitor."
Later, Alexander responded to community discussions, stating: "This is a massive strategic error made by Uniswap at the most inappropriate time."
In response to Aerodrome's unexpected reaction, Berachain DeFi's Cap'n Jack Bearow speculated that Aerodrome might announce cross-chain expansion on Wednesday, while Uniswap's activation of the fee switch would reduce the profitability of liquidity providers (LPs). Considering Aerodrome's ve3,3 model can offer higher LP returns, this could benefit Aerodrome's competitive position in the future.
Although Alexander did not directly acknowledge this, he replied with "Interesting," seemingly agreeing with the statement.
According to the governance proposal submitted by Hayden Adams, Uniswap's fee switch will first be activated for v2 pools and some v3 pools, which are the main battleground for Uniswap—these pools contribute 80-95% of the fees for liquidity providers (LPs) on the Ethereum mainnet.
For Uniswap v2, before the protocol fee switch is activated, the fees available to LPs are 0.3%. After the switch is turned on, LP fees will be 0.25%, and the protocol fee will be 0.05%. For Uniswap v3, the protocol fee ratio for 0.01% and 0.05% trading pools will initially be set at 1/4 of LP fees. The protocol fee ratio for 0.3% and 1% trading pools will be set at 1/6 of LP fees.
In short, the protocol revenue activated by the fee switch will not come from nowhere but will take a portion of the fee revenue that originally belonged to LPs, which will objectively reduce LP's fee income.
Regarding this situation, Arca analyst Topher also expressed a similar viewpoint: "What people don't see is that this will actually benefit Aerodrome while hurting Uniswap… Aerodrome has defeated Uniswap on Base (with approximately a 2:1 trading volume dominance) because LPs only care about the returns generated per dollar of liquidity. Aero has an advantage in this regard. If Uniswap activates the fee switch, it means LPs will earn less, or trading fees will be significantly increased."
As for the future buyback strength of UNI, Alexander also expressed skepticism, as the hundreds of millions in annual buyback scale is derived from historical data, but with declining LP returns, funds in Uniswap's liquidity pools may experience outflows, so historical data cannot be directly applied.
In summary, after Uniswap finally unveiled the long-awaited fee switch, the market's reaction shows clear divergence, and there is a hint of rivalry between competing protocols.
As a DeFi enthusiast, I personally enjoy this feeling, especially during a recent period when the market has been relatively subdued due to security issues; this positive clash of ideas is beneficial for the continuous evolution of DeFi.
As for what Aerodrome will officially announce tomorrow? How will its competition with Uniswap evolve in the longer term? We cannot provide clear answers for now, but we look forward to witnessing the unfolding story.
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