- Uniswap will commence another vote on a “fee switch” proposal on Friday.
- The proposal is designed to boost participation in the Uniswap community.
- However, some members fear it could provoke more SEC scrutiny.
Uniswap DAO members will on Friday begin voting on a proposal that brings the cooperative one step closer to turning on the so-called “fee switch.”
For years, proponents have argued turning on the fee switch would be a boon for investors of Uniswap’s governance token, UNI, by creating a way for them to share in Uniswap’s success.
Uniswap has collected more than $3.6 billion in fees since its launch almost five years ago.
“The presumption many have been making is, ‘Someday, this thing is going to get turned on, and I will get some revenue,’” Getty Hill, co-founder of GFX Labs, told DL News.
“Otherwise, there hasn’t really been much of a reason to tokenise these things in the first place,” he said.
GFX Labs is one of the largest participants in the Uniswap DAO, helping run the network.
Uniswap, the largest decentralised exchange on the Ethereum blockchain, processed more than $20 billion in trades over the past week, according to DefiLlama data. UNI jumped more than 20% on the announcement of Friday’s vote.
But activation of the fee switch isn’t a done deal, according to Hill.
“This is another vote in a series of many votes, and there needs to be some more votes until we actually get to a ta-da moment where revenue begins to flow,” Hill said.
What is the fee switch?
UNI tokens grant membership in Uniswap DAO, the digital cooperative that manages the exchange, as well as the right to propose and vote on changes.
The fee switch proposal would divert a portion of Uniswap’s revenue to UNI token holders.
The latest version of the proposal — and the first to have the backing of the Uniswap Foundation, a nonprofit tasked with supporting the protocol — is designed to accomplish something else, as well: boost otherwise lacklustre participation in the DAO.
Under the current fee switch proposal, only those who “delegate” their tokens for use in protocol governance will earn revenue via the fee switch. Delegation is when users loan the voting rights attached to their governance tokens, typically to subject matter experts. Token holders can also delegate to themselves.
“Free-riding and apathy remain existential risks to the Uniswap Protocol’s sustainability,” reads the February 23 proposal, authored by Uniswap Foundation governance lead Erin Koen. “Less than 10% of circulating UNI is used to vote on a given proposal.”
Friday’s vote “lays the groundwork for autonomous fee collection and distribution,” Koen wrote in Uniswap’s governance forum. “Additional votes will be required to turn on fees in Uniswap V3 pools.”
Koen didn’t immediately return DL News’ request for comment.
That process might not conclude until the latter half of August, Hill said.
And, while he’s confident Friday’s rather technical proposal will pass, he’s less certain that later votes that actually activate the fee switch will garner enough support.
“I’m optimistic, but I wouldn’t call it a certainty by any means,” he said.
The SEC looms
That’s because a regulatory cloud still hangs over the effort.
“We have heard questions about whether the proposal could make it more likely that UNI is scrutinised more closely” in the US, the foundation wrote in 2022 in response to an earlier, failed effort to turn on the fee switch.
“Regulators or private litigants could bring lawsuits against the DAO, and seek to hold UNI token holders liable.”
Indeed, the Securities and Exchange Commission last month signaled its intent to sue Uniswap Labs — the company that built the Uniswap protocol — for violating federal securities laws.
Among other things, the SEC alleged that UNI is an unregistered security, according to Uniswap Labs.
It was a significant escalation in the SEC’s war against crypto, marking the first time the regulator turned its ire toward the developers of a major DeFi protocol.
Additionally, some delegates are worried about tax implications of activating the fee switch, according to Hill.
Others simply dislike the proposal, afraid it could drive away liquidity providers, who currently earn all the revenue generated by the protocol.
Liquidity providers deposit their crypto in Uniswap to facilitate trading.
“There’s still a lot of opinions that are floating around about how this should be done,” Hill said. “It’s one thing to talk about implementing and arguing over the infrastructure, but it’s a complete other thing to say, ‘Hey, let’s actually turn it on, finally.’”
Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email him at aleks@dlnews.com.
