Uniswap founder Hayden Adams has submitted his first-ever governance proposal in the protocol’s history, titled “UNIfication.” The plan seeks to activate protocol fees, introduce a UNI-burning mechanism, and realign incentives across the ecosystem.

The announcement boosted investor confidence. Following Adams’ announcement, Uniswap’s native token, UNI, surged to a two-month high.

The UNIfication Proposal Explained

The UNIfication proposal from Adams, on behalf of Uniswap Labs and the Uniswap Foundation, seeks to make Uniswap the leading decentralized exchange. The plan activates protocol fees that will be used to burn UNI tokens, making it a deflationary asset.

At launch, fees will apply to Uniswap v2 and major v3 pools on Ethereum. For v2, liquidity providers (LPs) will earn 0.25% per trade, with 0.05% allocated to the protocol. For v3, governance will collect one-fourth or one-sixth of the liquidity provider fees, based on the fee tier.

The proposal calls for a burn of 100 million UNI from the Uniswap treasury as a retroactive burn. This represents the amount that might have been burned if fees had been active since the protocol’s start.

“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,” the proposal reads.

The introduction of Protocol Fee Discount Auctions enables users and liquidity providers to bid for fee-free trading periods. This innovation aims to benefit liquidity providers and maximize protocol value. Aggregator hooks will allow Uniswap v4 to act as an on-chain aggregator, collecting protocol fees from external liquidity sources.

Governance and Structural Changes

Besides fee activation and burning, the UNIfication proposal overhauls Uniswap’s structure. Uniswap Labs will cease collecting fees on its app, wallet, and API, and will instead use the funds to fuel protocol growth and adoption.

The plan also shifts Foundation employees to Labs under a growth fund supported by the treasury. This move aims to unify the ecosystem and speed up protocol expansion. Governance-owned Unisocks liquidity will transfer to v4 on Unichain, then the liquidity position will be burned.

The proposal still requires approval from the Uniswap community before changes can take effect. The governance process will take around 22 days, including a 7-day comment period, a 5-day snapshot vote, and a 10-day on-chain execution window.

Adams emphasized the proposal’s importance in his announcement on X. He highlighted the regulatory hurdles Uniswap Labs faced, noting the significant legal costs. The regulatory environment’s recent evolution now supports this shift in governance.

“UNI launched in 2020, but for the past 5 years Labs has been unable to meaningfully participate in Uniswap governance, and has been greatly restricted in the ways it can build value for the Uniswap community. That ends today!” he said.

Market Response and UNI Price Activity

After Adams’ announcement, UNI’s price pumped. It reached a high of $10 in early Asian trading hours. This level was last seen in September.

At the time of writing, the altcoin traded at $9.43. This represented an appreciation of 41.7% over the past day.

Uniswap (UNI) Price Performance. Source: BeInCrypto Markets

This reaction highlights investor confidence in Uniswap’s new direction. Token burns play a crucial role in shaping a cryptocurrency’s long-term value.

By permanently removing tokens from circulation, the supply decreases, potentially increasing scarcity. When demand remains steady or grows, as often happens with successful ecosystem expansions, this scarcity can exert upward pressure on price.

“Uniswap could go parabolic if the fee switch is activated. Even just counting v2 and v3, with $1 trillion in YTD volume, that’s about $500 million in annual burns if volume holds. Exchanges hold $830 million, so even with unlocks, a supply shock seems inevitable. Correct me if I’m wrong,” CryptoQuant CEO Ki Young Ju stated.

However, some community members have voiced concerns about insider advantages and potential conflicts of interest. Critics questioned whether early investors could have positioned themselves ahead of the announcement and how the proposal might affect existing equity holders.