Uniswap approves key changes to protocol economics

Key points:

• The Uniswap community has almost unanimously approved an update that changes the distribution of fees and makes the UNI token deflationary.
• A portion of the protocol’s revenue will be allocated to regular token burning, reducing its supply.

The Uniswap community has supported important changes that significantly restructure the protocol’s economy and put the UNI token into deflationary mode.

Uniswap creator Hayden Adams announced the completion of the vote on Thursday. According to him, the initiative was approved almost unanimously: more than 125 million UNI holders voted in favor, while only a few hundred tokens voted against it.

Source: X.com

This is a proposal prepared by Uniswap Labs in collaboration with the Uniswap Foundation back in the fall. It launches a fee distribution mechanism that the ecosystem has been waiting for for a long time. Now, part of the trading revenue, which previously went entirely to liquidity providers, will be directed to the protocol itself and used for the regular destruction of UNI tokens. The net fees from the Unichain network will also go there.

How the Uniswap economy will change

In fact, the protocol is transitioning to a model in which increased user activity leads to a reduction in token supply. The higher the trading volume, the more UNI is removed from circulation, which can have a positive impact on its long-term value.

In addition, the update also affects the internal structure of the project. The operational tasks of the Uniswap fund will be transferred to the Uniswap Labs team. The company will also waive fees for working with the interface, wallet, and API. Separately, there are plans to create an annual development fund, which will be financed by UNI and aimed at expanding the ecosystem.

After the decision is officially approved, there will be a two-day waiting period. At the end of this period, the protocol will conduct a one-time burn of 100 million UNI — comparable to the amount that could have been destroyed if the new model had been in place since the token’s launch.

The changes were proposed amid pressure from regulators and proceedings involving the SEC during Gary Gensler’s tenure. In the document, Uniswap notes that market conditions have changed and decentralized finance has moved beyond a niche segment.

Hayden Adams said he sees Uniswap as a key platform for token trading in the future. According to him, the decision lays the foundation for the protocol’s sustainable growth over the next decade.