Uniswap protocol fee allocation proposal detonates the market, what is the future direction?

Original author: defioasis

Original editor: Colin Wu

On the evening of February 23, Uniswap Foundation Governance Leader (Gov Lead) Erin Koen reported to The Uniswap Governance Forum has launched a proposal to use a fee mechanism to reward UNI token holders who have delegated and staked their tokens. In the years since Uniswap announced its token airdrop in mid-to-late September 2020, there has been discussion about whether UNI should capture protocol fees to increase the utility of the token, but almost all has come to nothing. This proposal put forward by the head of the Uniswap Foundation formally places the utility of UNI tokens for discussion at the governance level, which has aroused the excitement of many holders and led to the emergence of UNI and other DeFi protocol representatives. The currency rises.

First of all, it should be clear that this proposal was proposed by a representative of the Uniswap Foundation, and the Uniswap Foundation is not equal to Uniswap Labs. Uniswap Labs is responsible for developing and maintaining, updating and upgrading the Uniswap protocol, playing a core role in technology development and innovation. At its core, Uniswap Labs is a commercial company. The Uniswap Foundation mainly focuses on the governance and community development of the Uniswap protocol and is a non-profit organization. Uniswap Labs will focus more on considering issues at the protocol/company level, and the Uniswap Foundation represents community interests to a certain extent. It is not difficult to find that the Uniswap Labs official tweet did not mention or forward this matter, and even Hayden, the founder of the Uniswap protocol, did not participate in much discussion.

Secondly, you need to clarify what the agreement fee is. Currently, it can be divided into two types of fees, front-end fees and LP fees. The front-end fee refers to the 0.15% fee for executing transactions through the Uniswap Labs front-end starting in mid-October 2023, that is, the fee collected from the Uniswap official front-end and paid to Uniswap Labs; Hayden said that the purpose of charging this fee is to Funding Uniswap Labs’ sustainable operations. The LP fee is the fee of the Uniswap pool, which is paid by traders to LP. For example, the fee charged by WBTC/ETH, the pool with the highest TVL in Uniswap V3, is 0.3%. In the proposal, it is clearly stated that the protocol fee is expressed as a fraction of the LP fee, which can be 0, 1/4, 1/5, 1/6, 1/7, 1/8, 1/9 or 1/10 (currently set is 0), the specific score can be adjusted through governance.

(Data source: https://tokenterminal.com/terminal/projects/uniswap)

According to Token Terminal’s data on February 25 , Uniswap’s annualized LP fees are approximately US$626 million. If the proposal is passed and 1/10 to 1/4 of the LP fee is allocated to UNI holders as protocol fees, then UNI holders can receive annualized dividends of approximately US$62.62 million to US$156.5 million. The current market value of UNI is approximately US$8 billion, and the ratio of market value to annualized dividends is approximately between 51.1 and 127.8. It should be noted that this is just a simple calculation example and not any investment advice.

Finally, this proposal is still in the proposal and community discussion stage. Whether it will be passed depends on the final voting results of the community and UNI delegates representing multiple forces. The Uniswap Foundation believes that if there are no major obstacles, it expects to release Snapshot voting on March 1 and on-chain voting on March 8. As an early investor in Uniswap, a16z may play a key role in future votes on the proposal. According to Arkham data, the address marked a16z (and suspected a16z) may control approximately 60 million UNIs.

Of course, everything has not yet settled, and whether the proposal will be passed is still full of variables, but this is ultimately an attempt to transform into a utility token. Even if this proposal ultimately fails, I believe that there will still be other institutions or individuals working hard to convert UNI into a utility token; and if the proposal is finally passed, part of the LP income will be eaten up as dividends to token holders, which will have a negative impact on the token holders. How much harm LP brings and how to better balance the interests of UNI holders and LP as the protocol develops will also become new governance points.

After several years of development, Uniswap has become a Beta that can represent the entire Crypto industry after BTC and ETH. Now that the foundation has officially proposed to empower UNI, this may benefit from the victory of Grayscale and Ripple, the smooth passage of the spot BTC ETF, and active trading. The US regulatory policy has become relatively milder. At the same time, this may also set an example for other protocol developers or teams, especially those in the United States. For example, Blur and Blast founder Pacman recognized the proposal put forward by the Uniswap Foundation and hoped that Blur could learn from its experience. (Note: The NFT trading market Blur token BLUR is similar to UNI, both are governance tokens without empowerment.)

Whether it is UNI or BLUR, the protocols they represent are the best in their fields. Uniswap occupies about 60% of the market share in the DEX field. It not only has excellent technological innovation and market influence, but also has made an indelible contribution to promoting the development of the Crypto industry. These are the core of our continued focus. For Uniswap, empowering UNI may be just the icing on the cake, and the upcoming v4 hook may be even more exciting.

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