jakiro
Author: Cathy
November 11, 2025DeFi giant Uniswap finally activated the “fee switch” that has been dormant for many years.
As soon as the news came out, the market exploded instantly.Uniswap’s governance token UNI, an air currency that has long been criticized by the community as “worthless except for voting,” saw its price soar by nearly 40% in 24 hours..Analysts have shouted that UNI is evolving from a “worthless governance token” to an “interest-bearing asset” or a “deflationary asset.”CryptoQuant’s CEO even predicted that it would usher in “parabolic” growth.
Why has this switch been stuck for two years?How profitable is this switch?How will it “inject” nearly $500 million in value into UNI tokens every year through an extremely sophisticated design?
01game of thrones
To understand why “now,” you have to know how this proposal has failed “seven times” in the past two years.
Although Uniswap is known as “decentralized governance,” the venture capital giant Andreessen Horowitz (a16z) holds about 55 million to 64 million UNIs, which gives them de facto “veto power.”Over the past two years, a16z has been the biggest impediment to activating the fee switch.In December 2022, they personally cast 15 million votes against it, killing the proposal at that time.
Why is a16z opposed?Don’t they like making money?
Of course they do.But compared to making money, this giant VC headquartered in the United States is more afraid of one thing:Legal Risks.
What they fear is the “Howey Test” of the U.S. SEC (Securities and Exchange Commission).This is a legal “tightening curse” and one of the core standards is“Do investors generate profit expectations based on the efforts of others?”.
The logic of a16z is very simple:If the Uniswap protocol (“others”) starts making money and distributes the money to UNI holders (“investors”), this perfectly meets the definition of a “security”.Once UNI is recognized as a security, a16z, as one of its largest holders, will face huge legal and tax disaster.
Therefore, the question is not “whether to open it”, but “how to open it safely”.
In 2025, two key “breaking points” appear:
The birth of DUNA model
Before the “UNIfication” proposal, a key “pre-proposal” was passed in August 2025:Register a legal entity called DUNA (Decentralized Unincorporated Non-Profit Association) for Uniswap DAO.
This is a new legal structure launched in Wyoming, the US state where “legal shields” are popular.You can think of it as a “legal bulletproof vest”.Designed to provide “legal and tax liability protection” for DAO participants (such as voting a16z).
Interestingly, a16z himself is an active promoter of DUNA mode.Its legal experts even wrote publicly, saying that DUNA can “engage in for-profit activities,” including “capturing revenue from protocol operations.”
a16z’s strategy is:“Put on the body armor first (DUNA), then reach for the money (Fee Switch)”.
The east wind of policy
Another change comes from the “change of administrations” in U.S. regulation.With Trump’s election as president and the end of the era of SEC “encryption hawk” Gensler, the entire industry has ushered in a “period of political stability.”Hayden Adams, the founder of Uniswap, also bluntly mentioned in the proposal that they have “fought legal battles in the hostile regulatory environment of Gensler’s SEC in the past few years” and that “this climate has changed in the United States.”
When the “bulletproof vest” is put on and the “regulatory dark clouds” in the sky dissipate, a16z’s “veto power” will naturally become ineffective.This power game finally ended with the “tacit approval” of the VC giants.
02A $500 million annual “deflation engine”
With the politics out of the way, let’s look at the “protagonist” of this drama—money.
What exactly does this switch turn on?It activates a huge and sophisticated “value engine.”The reason why the UNI token has skyrocketed is because it has transformed from a “useless” governance token into a “deflation machine.”
The money-making effect of this “UNIfication” proposal can be achieved in two steps:
The first step: “Shock Therapy”, destroy 100 million UNI at one time
The most dramatic one in the proposal is to destroy 100 million UNIs from the Uniswap vault at one time.
This represented 10% of the total supply and was worth nearly $800 million at the time.The official line is that this is for “retroactive compensation” – so much would have been destroyed over the years if the fee switch had been turned on from the beginning.
This is more like a clever “financial performance.”It immediately created a huge “supply shock” in the market, and the effect was immediate.Arthur Hayes, the founder of BitMEX, even compared it to “Bitcoin halving”, and its shocking power is evident.
Step Two: “Deflation Engine”, the continuous destruction of nearly $500 million per year
This is the real “engine”.The proposal will activate protocol fees for v2 and v3 pools.Specifically, the total handling fee paid by traders (for example, 0.3%) remains unchanged, but 100% of the income originally given to LPs will now be “drawn” by the agreement.
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v2 pool:Take 1/6 of the LP fee (i.e. 0.05% of 0.3%).
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v3 pool:According to different rates, 1/6 to 1/4 of the LP fee will be charged.
How much money is this?Based on Uniswap’s annualized handling fees of nearly $2.8 billion per year, analysts estimate that this will generate approximately $460 million to $500 million in annual revenue.
All of these revenues (could be ETH, USDC, etc.) will be used to buy back and destroy UNI tokens.This means,There are about 38 million US dollars of “hardcore buyers” in the market every month who continue to buy and destroy UNI, causing it to continue to deflate..
You may ask:Isn’t this “dividends”?Is worrying about a16z’s legal risks in vain?
No, that’s the beauty of the proposal.itInstead of choosing “dividends”,Designed a “destruction in exchange for value” mechanism to perfectly avoid legal risks:
The money earned by the protocol (ETH, USDC, etc.) will enter a contract called “Token Jar”.
If UNI holders want to split their money, they must actively throw their UNI tokens into a contract called the “Fire Pit” for destruction.
In exchange for burning, you can take away assets of equal value (ETH, USDC, etc.) from the “token tank” in proportion.
Do you understand?The agreement does not “actively” send you money.It was you who “actively” destroyed your tokens in exchange for the assets in the “jar”.This “active” action legally distinguishes it from “passive income based on the efforts of others” (the core of the Howey test).This is an extremely sophisticated legal evasion technique.
03“DEX Civil War”
A $500 million per year “deflation engine” sounds great, but here’s a problem:Whose pocket did this $500 million come from?
The answer is:liquidity provider(LPs).
This is the dark side of the “UNIfication” proposal and the trigger for a DEX “civil war”.
The essence of the fee switch is “interest redistribution”.The money paid by traders has not changed, but the income of LPs has been directly cut by a cut (1/6 to 1/4).LPs are part of this reform“The most obvious short-term losers“, their income will be reduced in real terms.
The move drew immediate ridicule from rivals.The CEO of Aerodrome, the main competitor on the Base chain, publicly called Uniswap’s move a “huge strategic mistake.”
This is not alarmist.The risks are real.A report by on-chain data analysis company Gauntlet once pointed out,Even a 10% protocol fee could result in a liquidity drop of approximately 10.7%.Broader models predict that activating the fee switch could result in an outflow of liquidity (TVL) of 4% to 15%.
In the emerging battlefield of L2 (layer two network), LPs are like “mercenaries”, going wherever the profits are high.While competitors such as Aerodrome are using high incentives to crazily “throw away coins” to grab people, Uniswap is doing the opposite and “cutting salaries” for its LPs.Some community members even predicted pessimistically,Once the switch is turned on, half of Uniswap’s trading volume on the Base chain may “disappear overnight”.
04Uniswap’s V4 conspiracy
So, are Uniswap founder Hayden Adams and the Labs team stupid?Don’t they understand that “salary cuts” will lead to the loss of LPs?
No, not only did they understand, but it was probably part of their plan.
This “UNIfication” proposal is by no means an isolated “fee switch” proposal, it is a “combination punch”.While “cutting salaries”, it also provided a series of so-called “compensatory measures”,For example:
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PFDA (Protocol Fee Discount Auction):A complex new mechanism,Aims to “internalize MEV”(i.e., the profit of the pre-emptive trading robot), in theory, it can bring some additional returns to LPs.
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V4 Hooks: Allows implementing “dynamic fees” or routing liquidity from other DEXs,In theory, it can optimize LP returns.
Almost all of these fancy “compensation” measures are unique features of Uniswap V4.
This is the real “conspiracy” of Uniswap.
The income of LPs in the V2 and V3 pools will definitely decrease, but the “compensation” will be in V4.Uniswap Labs is leveraging this governance proposal to create a powerful economic incentive,Force all LPs to mass migrate from the old V2/V3 version to their latest V4 platform.
They’re not compensating LPs, they’re “weeding out” LPs that aren’t willing to upgrade.
05Summary
This turn of Uniswap marks the end of one era and the beginning of another..
it’s completely over““DeFi’s Barbaric Growth Period” and “Valueless Governance Tokens”“narrative.It proves that the agreement cannot rely solely on “Network Effects” live, it must be its “shareholders“(Token holders) create real”cash flow“.
This is essentially a huge gamble by Uniswap.What they bet is:V4’s new technology + the brand’s strong moat are enough to offset the 15% liquidity outflow.
They are consciously sacrificing “mercenary mobility” in exchange for“Sustainable protocol profits” and “technical lock-in of the V4 platform”.
If the bet wins, Uniswap will complete its transformation from a “product” to a “platform hegemon.”If the bet fails, it will be cannibalized by competitors due to “strategic mistakes.”This game has just begun.
