UNIfication

This vote covers the UNIfication proposal and includes the final copy of the services agreement, indemnification agreements for the independent negotiation committee, final spec, and an updated list of v3 pools that has been refreshed to reflect the latest available data. We recommend reading the full details before voting.

Proposal Spec

If this proposal passes, it will execute eight function calls:

/// Burn 100m UNI
UNI.transfer(0xdead, 100_000_000 ether);

/// Set the owner of the v3 factory on mainnet to the configured fee controller to enable v3 protocol fees
V3_FACTORY.setOwner(address(v3FeeController));

/// Change the FeeToSetter parameter on the v2 factory on mainnet to the Governance Timelock
IOldV2FeeToSetter(V2_FACTORY.feeToSetter()).setFeeToSetter(TIMELOCK);

/// Change the FeeTo parameter on the v2 factory on mainnet to enable v2 protocol fees
V2_FACTORY.setFeeTo(address(tokenJar));

/// Approve two years of vesting into the UNIVester smart contract  
/// UNI stays in treasury until vested and unvested UNI can be cancelled by setting approve back to 0
UNI.approve(address(uniVesting), 40_000_000 ether);

/// Execute the services agreement with Uniswap Labs on behalf of DUNI
AgreementAnchor.attest(address(0xC707467e7fb43Fe7Cc55264F892Dd2D7f8Fc27C8));

/// Execute the indemnification agreement with Hart Lambur on behalf of DUNI
AgreementAnchor.attest(address(0x33A56942Fe57f3697FE0fF52aB16cb0ba9b8eadd));

/// Execute the indemnification agreement with DAO Jones LLC on behalf of DUNI  
AgreementAnchor.attest(address(0xF9F85a17cC6De9150Cd139f64b127976a1dE91D1));

Proposal

Hayden Adams, Ken Ng, Devin Walsh

Today, Uniswap Labs and the Uniswap Foundation are excited to make a joint governance proposal that turns on protocol fees and aligns incentives across the Uniswap ecosystem, positioning the Uniswap protocol to win as the default decentralized exchange for tokenized value.

The protocol has processed ~$4 trillion in volume, made possible by thousands of developers, millions of liquidity providers, and hundreds of millions of swapping wallets.

But the last several years have also come with obstacles: we’ve fought legal battles and navigated a hostile regulatory environment under Gensler’s SEC. This climate has changed in the US, and milestones like Uniswap governance adopting DUNI, the DUNA, have prepared the Uniswap community for its next steps.

This proposal comes as DeFi reaches an inflection point. Decentralized trading protocols are rivaling centralized platforms in performance and scale, tokens are going mainstream, and institutions are building on Uniswap and other DeFi protocols.

This proposal establishes a long-term model for how the Uniswap ecosystem would operate, where protocol usage drives UNI burn and Uniswap Labs focuses on protocol development and growth. We propose to:

1. Turn on Uniswap protocol fees and use these fees to burn UNI
2. Send Unichain sequencer fees to this same UNI burn mechanism
3. Build Protocol Fee Discount Auctions (PFDA) to increase LP returns and allow the protocol to internalize MEV
4. Launch aggregator hooks, turning Uniswap v4 into an onchain aggregator that collects fees on external liquidity
5. Burn 100 million UNI from the treasury representing the approximate amount of UNI that would have been burned if fees were on from the beginning
6. Focus Labs on driving protocol development and growth, including turning off our interface, wallet, and API fees and contractually committing to only pursue initiatives that align with DUNI interests
7. Move ecosystem teams from the Foundation to Labs, with a shared goal of protocol success, with growth and development funded from the treasury
8. Migrate governance-owned Unisocks liquidity from Uniswap v1 on mainnet to v4 on Unichain and burn the LP position, locking in the supply curve forever

Protocol Fees

The Uniswap protocol includes a fee switch that can only be turned on by a UNI governance vote. We propose that governance flip the fee switch and introduce a programmatic mechanism that burns UNI.

Protocol Fee Rollout

To minimize impact, we propose fees roll out over time, starting with v2 pools and a set of v3 pools that make up 80-95% of LP fees on Ethereum mainnet. From there, fees can be turned on for L2s, other L1s, v4, UniswapX, PFDA, and aggregator hooks.

Uniswap v2 fee levels are hardcoded and governance must enable or disable fees across all v2 pools at once. With fees off, LP fees are 0.3%. Once activated, LP fees are 0.25% and protocol fees are 0.05%.

Uniswap v3 has fixed swap fee tiers on mainnet, with protocol fees that are adjustable by governance and set at the individual pool level. Protocol fees for 0.01% and 0.05% pools would initially be set to 1/4th of LP fees. For 0.30% and 1% pools, protocol fees would be set to 1/6th of LP fees.

Labs will assist the community in monitoring the impact of fees and may make recommendations to adjust. To improve efficiency, we propose governance votes on fee parameters skip the RFC process and move straight to Snapshot followed by an onchain vote.

Update 12/18:

The list of Uniswap v3 pools included in the proposal has been refreshed to reflect the latest available data. The full updated list can be found here.

Unichain Sequencer Fees

Unichain launched just 9 months ago, and is already processing ~$100 billion in annualized DEX volume and ~$7.5 million annualized sequencer fees.

This proposal directs all Unichain sequencer fees, after L1 data costs and the 15% to Optimism, into the burn mechanism.

Fee Mechanism for MEV Internalization

The Protocol Fee Discount Auction (PFDA) is designed to improve LP performance and add a new source of protocol fees by internalizing MEV that would otherwise go to searchers or validators.

This mechanism auctions off the right to swap without paying the protocol fee for a single address for a short window of time, with the winning bid going to the UNI burn. Through this process, MEV that would typically go to validators instead burns UNI. For a detailed breakdown of this mechanism, read the whitepaper.

Early analysis shows these discount auctions could increase LP returns by about $0.06-$0.26 for every $10k traded, a significant improvement given that LP returns typically range between -$1.00 and $1.00 for this amount of volume.

Aggregator Hooks

Uniswap v4 introduced hooks, turning the protocol into a developer platform with infinite possibilities for innovation. Labs is excited to be one of the many teams unlocking new functionality using hooks, starting with aggregation.

These hooks source liquidity from other onchain protocols and add a programmatic UNI burn on top, turning Uniswap v4 itself into an aggregator that anyone can integrate.

Labs will integrate aggregator hooks into its frontend and API, providing users access to more sources of onchain liquidity in a way that benefits the Uniswap ecosystem.

Retroactive Burn

Many community members wish the fee switch had been turned on earlier as UNI holders have missed out on years of fees on ~$4 trillion in Uniswap protocol volume. Alas, we cannot turn back the clock… or can we?

We propose a retroactive burn of 100 million UNI from the treasury. This is an estimate of what might have been burned if the protocol fee switch had been active at token launch.

Technical Implementation

Each fee source requires an adapter contract, that sends fees into an immutable onchain contract called TokenJar where they accumulate. Fees can only be withdrawn from TokenJar if UNI is burned in another smart contract called Firepit.

TokenJar and Firepit are already implemented, along with adapters for v2, v3, and Unichain. PFDA, v4, aggregator hooks, and bridge adapters for fees on L2s and other L1s are in progress and will be introduced through future governance proposals.

Detailed documentation on protocol fees and UNI burn can be found here.

UNIfication and Growth Budget

Labs led development of every version of the Uniswap protocol, grew the initial community, popularized AMMs and DeFi, and launched products used by tens of millions. Foundation expanded this ecosystem through grants, gov

... please visit link below to view full proposal

https://tally.xyz/gov/uniswap/proposal/93