Written by: Cathy

On November 11, 2025, the DeFi giant Uniswap finally activated the "fee switch" that had been dormant for years.

As soon as the news broke, the market exploded. Uniswap's governance token UNI, long criticized by the community as "worthless except for voting," saw its price soar nearly 40% within 24 hours. Analysts were quick to declare that UNI was evolving from a "worthless governance token" into a "yield-bearing asset" or "deflationary asset." The CEO of CryptoQuant even predicted a "parabolic" growth for it.

Why had this switch been stuck for two years? How profitable is this switch? How will it "inject" nearly $500 million in value into UNI tokens each year through an extremely clever design?

The Game of Power

To understand why it is "now," you must know how this proposal "failed seven times" over the past two years.

Although Uniswap claims to have "decentralized governance," venture capital giant Andreessen Horowitz (a16z) holds about 55 to 64 million UNI, giving them a de facto "veto power." Over the past two years, a16z has been the biggest obstacle to activating the fee switch. In December 2022, they cast 15 million votes against it, killing the proposal at that time.

Why did a16z oppose it? Don't they like making money?

Of course, they do. But more than making money, this giant VC based in the U.S. fears one thing: legal risk.

They are terrified of the U.S. SEC's "Howey Test." This is a legal "tightening spell," one of the core criteria being "whether investors expect profits based on the efforts of others."

a16z's logic is simple: if the Uniswap protocol ("others") starts making money and distributes it to UNI holders ("investors"), it perfectly fits the definition of a "security." Once UNI is classified as a security, a16z, as one of its largest holders, would face enormous legal and tax disasters.

So, the question is not "whether to turn it on," but "how to turn it on safely."

In 2025, two key "breakthrough points" emerged:

The Birth of the DUNA Model

Before the "UNIfication" proposal, a key "pre-proposal" was passed in August 2025: to register a legal entity for the Uniswap DAO called DUNA (Decentralized Non-Profit Association).

This is a new legal structure launched in Wyoming, a state known for producing "legal shields." You can think of it as a "legal bulletproof vest," specifically designed to provide "legal and tax liability protection" for DAO participants (like voting a16z).

Interestingly, a16z itself is a strong proponent of the DUNA model. Their legal experts even publicly stated that DUNA can "engage in profit-making activities," including "capturing revenue from protocol operations."

a16z's strategy is: "First put on the bulletproof vest (DUNA), then reach out for the money (Fee Switch)."

The Favor of Policy

Another change came from the "regulatory regime change" in the U.S. With Trump's election as president and the end of the SEC's "crypto hawk" Gensler era, the entire industry entered a "political stability period." Uniswap's founder Hayden Adams also bluntly mentioned in the proposal that they had "fought legal battles in a hostile regulatory environment under Gensler's SEC" over the past few years, and "this climate has changed in the U.S."

When the "bulletproof vest" is on and the "regulatory clouds" clear, a16z's "veto power" naturally becomes ineffective. This power game ultimately ended with the "tacit approval" of the VC giant.

The $500 Million "Deflationary Engine"

Having sorted out the politics, let's look at the "protagonist" of this play—money.

What exactly does this switch open? It activates a huge and clever "value engine." The reason UNI tokens skyrocketed is that they transformed from a "useless" governance token into a "deflationary machine."

The profit-making effect of this "UNIfication" proposal unfolds in two steps:

Step One: "Shock Therapy," a one-time destruction of 100 million UNI

One of the most dramatic points in the proposal is: to destroy 100 million UNI from the Uniswap treasury in one go.

This accounts for 10% of the total supply, worth nearly $800 million at the time. The official explanation is that this is for "retroactive compensation"—if the fee switch had been turned on from the beginning, this amount should have been destroyed over the years.

This is more like a clever "financial performance." It immediately created a massive "supply shock" in the market, with immediate effects. BitMEX founder Arthur Hayes even compared it to "Bitcoin halving," highlighting its shock value.

Step Two: "Deflationary Engine," nearly $500 million in ongoing destruction each year

This is the real "engine." The proposal will activate protocol fees for v2 and v3 pools. Specifically, the total transaction fees paid by traders (e.g., 0.3%) remain unchanged, but the income that was originally 100% for LPs will now be "cut" by the protocol.

• v2 pool: 1/6 of LP fees will be taken (i.e., 0.05% of the 0.3%).
• v3 pool: 1/6 to 1/4 of LP fees will be taken, depending on different rates.

How much money is this? Based on Uniswap's nearly $2.8 billion annualized transaction fees, analysts estimate this will generate about $460 million to $500 million in revenue each year.

This revenue (possibly in ETH, USDC, etc.) will be entirely used to buy back and destroy UNI tokens. This means that there will be about $38 million of "hardcore buying" in the market every month, continuously buying and destroying UNI, leading to ongoing deflation.

You might ask: isn't this just "dividends"? Did a16z's legal risks turn out to be unfounded?

No, this is precisely the cleverest part of the proposal. It did not choose "dividends," but designed a mechanism of "destruction in exchange for value," perfectly avoiding legal risks:

The money earned by the protocol (ETH, USDC, etc.) will enter a contract called the "Token Jar."

If UNI holders want to share in the profits, they must actively throw their UNI tokens into a contract called the "Fire Pit" for destruction.

In exchange for the destruction, they can proportionally take out equivalent assets (ETH, USDC, etc.) from the "Token Jar."

Got it? The protocol does not "actively" give you money. You "actively" destroyed your tokens to exchange for the assets in the "jar." This "active" action legally distinguishes it from "passive income based on the efforts of others" (the core of the Howey Test). This is an extremely clever legal evasion technique.

"DEX Civil War"

A $500 million "deflationary engine" sounds wonderful, but there is one problem: where is this $500 million coming from?

The answer is: liquidity providers (LPs).

This is the dark side of the "UNIfication" proposal and the fuse for a DEX "civil war."

The essence of the fee switch is "redistribution of interests." The money paid by traders remains unchanged, but LPs' income is directly cut (1/6 to 1/4). LPs are the "most obvious short-term losers" in this reform, and their income will be significantly reduced.

This move immediately drew ridicule from competitors. The CEO of Aerodrome, a major competitor on the Base chain, publicly called Uniswap's action a "huge strategic mistake."

This is not alarmism. The risks are real. A report from on-chain data analysis company Gauntlet pointed out that even a 10% protocol fee could lead to about a 10.7% drop in liquidity. Broader models predict that activating the fee switch could lead to a liquidity outflow of 4% to 15% (TVL).

In the emerging battlefield of L2 (Layer 2 networks), LPs are like "mercenaries," going wherever the profits are high. While competitors like Aerodrome are frantically "spreading tokens" with high incentives to attract users, Uniswap is going in the opposite direction, "cutting salaries" for its LPs. Some community members even pessimistically predict that once the switch is flipped, half of Uniswap's trading volume on the Base chain could "disappear overnight."

Uniswap's V4 Conspiracy

So, are Uniswap's founders Hayden Adams and the Labs team foolish? Do they not understand that "cutting salaries" will lead to LPs leaving?

No, they understand very well, and this is likely part of their plan.

This "UNIfication" proposal is by no means an isolated "fee switch" proposal; it is a set of "combination punches." While "cutting salaries," it also offers a series of so-called "compensation measures," such as:

• PFDA (Protocol Fee Discount Auction): a complex new mechanism aimed at "internalizing MEV" (i.e., profits from front-running bots), theoretically providing some extra returns to LPs.
• V4 Hooks: allowing for "dynamic fees" or routing liquidity from other DEXs, theoretically optimizing LP returns.

These flashy "compensation" measures are almost all unique features of Uniswap V4.

This is Uniswap's true "conspiracy."

LPs' income in V2 and V3 pools is definitively decreasing, while the "compensation" is in V4. Uniswap Labs is using this governance proposal to create a powerful economic incentive, forcing all LPs to migrate en masse from the old V2/V3 versions to their latest V4 platform.

They are not compensating LPs; they are "eliminating" those who are unwilling to upgrade.

Conclusion

Uniswap's shift marks the end of one era and the beginning of another.

It completely ends the narrative of the "barbaric growth period of DeFi" and "worthless governance tokens." It proves that protocols cannot survive solely on "network effects"; they must create real "cash flow" for their "shareholders" (token holders).

This is essentially a huge gamble for Uniswap. They are betting that the new technology of V4 + the strong moat of the brand is enough to offset the 15% liquidity outflow.

They are consciously sacrificing "mercenary liquidity" in exchange for "sustainable protocol profits" and "technical lock-in of the V4 platform."

If they win the bet, Uniswap will complete its transformation from a "product" to a "platform leader." If they lose, they will be eaten away by competitors due to "strategic missteps." This game has just begun.

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