Uniswap Fee Proposal Has Potential To Revolutionise DeFi Sector

By Aaron Feuerstein February 27, 2024 In DeFi, Exchanges, Uniswap
  • Uniswap proposes to rejuvenate its governance system by enabling token holders who stake and delegate their tokens to benefit from the protocol’s fee mechanism.
  • To combat governance apathy and “stale” delegations, the proposal introduces incentives for active and “thoughtful” engagement among token holders.
  • Meanwhile UNI saw a significant price surge, highlighting the market’s positive reception to governance and protocol improvements.

Uniswap, one of crypto’s largest decentralised exchanges (DEXs), has put forward a proposal aiming to revitalise Uniswap’s governance system. This initiative—which could not only have a significant impact on UNI token holders but DeFi (decentralised finance) in general—suggests enhancing the protocol to allow UNI token holders, who have delegated and staked their tokens, to benefit from the protocol’s fee mechanism.

The core idea is to make Uniswap’s governance model more dynamic and engaging, thereby ensuring its long-term sustainability and growth. The governance oversees the Uniswap Treasury and critical protocol parameters, which are pivotal for its future success.

Governance Activities and Improvements

Over the past year, Uniswap has worked to improve its governance structure, launching platforms for delegates and initiatives like GovSwap to enhance decision-making and promote engagement.

However, challenges like apathy and the presence of “stale” delegations threaten the protocol’s sustainability, with only a small fraction of UNI tokens actively involved in governance. The proposal aims to boost governance participation by incentivizing active and considerate engagement among UNI token holders, linking delegation to protocol fees to encourage the selection of proactive delegates.


Erin Koen, the governance lead at Uniswap Foundation, commented on the proposal:

If approved by the community, Uniswap Governance’s resilience and decentralization will increase.

Erin Koen

Technical Enhancements

To implement this proposal, the Uniswap Foundation has developed two new smart contracts aimed at upgrading governance and fee distribution mechanisms. These contracts are designed to work within Uniswap’s existing ecosystem, allowing for the permissionless collection of protocol fees and their distribution to actively engaged UNI token holders.

The technical changes include the introduction of mechanisms for fee collection and distribution, ensuring governance retains control over key protocol parameters.

Two truths: The Uniswap Protocol is immensely useful (trillions of USD in lifetime swap volume), and it is governance minimized (two adjustable parameters in v3, one in v4).

Erin Koen

Next Steps and UNI Price

The proposal outlines a series of steps towards its implementation, including audits, community discussions, and an on-chain vote. The governance process is designed to be transparent and inclusive, with milestones such as the deployment of new contracts and the initiation of a bug bounty programme.

Meanwhile, Uniswap (UNI) gained 76% in the last month, with much of these gains in the past few days when UNI skyrocketed from USD $7.12 (AUD $10.91) to currently USD $10.53 (AUD $16.12). Of course, over the past 24 hours we have seen the whole market move, UNI however as seen has rallied for a different reason.

Uniswap (UNI), 1-month graph, source: CoinMarketCap

Aaron Feuerstein

Aaron Feuerstein

Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.

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