Uniswap's Unification Proposal

On November 10, 2025, Uniswap Labs and the Uniswap Foundation announced the "UNIfication" proposal, which has prompted discussions on the development of decentralized finance (DeFi) protocols and the role of governance tokens. This proposal involves activating protocol fees, introducing a token burn mechanism, and reorganizing aspects of governance and operations within the Uniswap ecosystem (1) .

The proposal aims to enhance the Uniswap protocol's position as a decentralized exchange for tokenized assets. It represents an effort to link protocol activity more directly to the value of the UNI token, which could influence how governance operates in DeFi protocols moving forward.

Uniswap's Development and the Context for the Proposal

Uniswap began as a project in 2018 and has since handled over $4 trillion in trading volume across its versions (v2, v3, and v4), serving as infrastructure for various applications. (2) However, the UNI token has primarily functioned for governance purposes without direct revenue ties.

The proposal addresses the long-discussed "fee switch," which was introduced in 2020 but delayed due to regulatory considerations, including interactions with the U.S. Securities and Exchange Commission (SEC) (3). The activation of fees has been a point of contention, as Uniswap generates significant trading volume without corresponding token mechanisms like burns or distributions.

The timing aligns with regulatory shifts in 2025, the launch of Unichain (handling around $100 billion in annualized volume), and trends in DeFi such as asset tokenization and increased institutional participation. (4)

Core Components and Mechanics

The proposal outlines eight main elements, including fee activation leading to UNI token burns, redirection of Unichain sequencer revenues, a retroactive burn of 100 million UNI tokens, Protocol Fee Discount Auctions (PFDA), aggregator hooks, a refocus of Uniswap Labs' operations, unification of Labs and the Foundation, and the migration and burn of Unisocks (5).

Fee activation begins with Uniswap v2, setting a 0.05% protocol fee and reducing the liquidity provider (LP) fee from 0.3% to 0.25%. For selected v3 pools, the protocol takes between one-fourth and one-sixth of LP fees (e.g., 0.0125% on a 0.05% pool). This extends to layer-2 networks, v4, and future iterations, with governance able to adjust rates through voting processes. Unichain contributes by directing approximately $7.5 million in annualized sequencer fees (after deductions for layer-1 costs and Optimism's 15% share) toward token burns, based on its current volume. (6)

The New Buyback Structure: From Fees to Token Burns

The structure uses a "TokenJar" contract to collect fees from v2 and v3 adapters, Unichain, PFDA, and other sources. Funds can only be withdrawn through a "Firepit" contract, which requires burning an equivalent amount of UNI tokens, creating a mechanism similar to a buyback but executed programmatically without centralized intervention (7).

This includes a one-time retroactive burn of 100 million UNI tokens, estimated based on historical volume as if fees had been active since 2020, along with ongoing burns linked to protocol activity. Models indicate a potential annual supply reduction of about 2.5%, with $38 million from current fees. Additional features include PFDA, where traders bid for fee discounts, with proceeds going to burns while potentially increasing LP returns by $0.06 to $0.26 per $10,000 traded through MEV internalization. Aggregator hooks allow v4 to function as an on-chain DEX aggregator, capturing fees from external liquidity sources (8).

This could lead to a reduction in UNI supply over time, similar to corporate stock repurchases, though actual outcomes depend on trading volume and governance decisions.

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Effects on Ecosystem Participants

For UNI token holders, the proposal shifts the token from a governance-only role to one with deflationary elements tied to protocol performance. The retroactive burn accounts for past activity, while ongoing mechanisms provide value accrual through scarcity.

Liquidity providers and traders face small fee adjustments (e.g., neutral net impact for v2 LPs due to PFDA benefits), with potential improvements in returns from MEV capture and aggregator efficiency. However, there could be short-term volume migration to alternatives without fees. Developers and users benefit from Uniswap Labs eliminating fees on its interface, wallet, and API, which may encourage broader adoption. The proposal emphasizes that protocol usage will drive token burns (9).

Potential Changes to Governance in DeFi

The proposal seeks to align incentives by merging Uniswap Labs (focused on development with a 20 million UNI annual budget via a DUNI agreement) and the Foundation (handling oversight). Labs agrees to operate in line with governance, with expanded board representation for accountability, which may address common tensions between founders and communities in DAOs. Governance processes are streamlined, allowing fee adjustments via Snapshot and on-chain votes without initial request-for-comment stages, while maintaining community control. The DUNI model positions Labs as a service provider, potentially serving as a template for hybrid DAO-corporate structures (10). In the broader DeFi context, this could encourage other protocols to implement revenue-sharing mechanisms, as seen with Lido's buyback approach. 

Over time, it may lead to DAOs where token value is more closely tied to usage, reducing reliance on speculation and supporting larger-scale operations.The UNIfication proposal activates fees, implements burns, and reorganizes governance to connect protocol activity with token economics. This development may contribute to the maturation of DeFi governance by emphasizing sustainable value mechanisms.

References

1. Uniswap Blog - UNIfication
2. CoinDesk - The Protocol: Sweeping Uniswap Proposal 'UNIfication' 
3. Blockworks - Uniswap finally turns the fee switch 
4. Etherworld - Uniswap Introduces “UNIfication” Proposal to Activate Protocol Fees 
5. Uniswap Blog - UNIfication
6. MEXC Blog - UNI Jumps 40%: What Is Uniswap's UNIfication Proposal?
7. Etherworld - Uniswap Introduces “UNIfication” Proposal to Activate Protocol Fees 
8. Uniswap Hits 2-Month High as Fee Switch Proposal Promises $500
9. AInvest - Uniswap's UNIfication Proposal

Uniswap Governance - UNIfication Proposal

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