Uniswap Proposal Overview: Enable Protocol Fee Switch and Introduce UNI Burn Mechanism, Burning 1 Billion UNI from the Treasury

BlockBeats News, November 11th, Devin Walsh, Executive Director and Co-Founder of the Uniswap Foundation, and Uniswap founder Hayden Adams officially proposed a joint governance proposal aimed at establishing a long-term operating model for the Uniswap ecosystem, enabling protocol usage to drive UNI burning, and allowing Uniswap Labs to focus on protocol development and growth. The proposal mainly includes the following:

· Activate the Uniswap protocol fee switch and use these fees for UNI burning;

· Include Unichain's sorter fees in the same UNI burning mechanism;

· Establish a protocol fee discount auction to increase Liquidity Providers' (LP) earnings, while internalizing the value that originally belonged to MEV searchers;

· Introduce Aggregator Hooks, making Uniswap v4 a chain-aggregator that charges fees from external liquidity;

· Burn 1 billion UNI from the treasury, representing the approximate amount that should have been burned if the fee switch had been enabled since the protocol's inception;

· Allow Labs to focus on protocol development and growth, including fee revenue from interfaces, wallets, and APIs, and commit in contracts to engage only in projects that align with DUNI's interests;

· Migrate the ecosystem team from the foundation to Labs, collectively aiming for protocol success, with growth and development funding provided by the treasury;

· Migrate governance-held Unisocks liquidity from the mainnet's Uniswap v1 to v4 on Unichain and burn LP positions, permanently locking the supply curve.

Protocol Fee: The Uniswap protocol includes a "fee switch" that can only be activated through UNI governance voting. This proposal suggests governance activate this fee switch and introduce an automated UNI burning mechanism.

Fee Activation Plan: To mitigate impact, the proposal suggests a phased approach to activate protocol fees, starting initially with v2 pools on the Ethereum mainnet and a portion of v3 pools representing 80%-95% of LP fees, before expanding to L2, other L1s, v4, UniswapX, PFDA, and aggregator hooks.

In Uniswap v2, the fee level is hard-coded, requiring governance to uniformly activate or deactivate fees for all v2 pools at once. When fees are deactivated: LP fee is 0.3%; when fees are activated: LP fee is 0.25%, and protocol fee is 0.05%.

In Uniswap v3, the mainnet features multiple fee tiers, with the protocol fee adjustable by governance on a per-pool basis. For the 0.01% and 0.05% fee pools, the protocol fee is initially set at 1/4 of the LP fee; for the 0.30% and 1% fee pools, the protocol fee is initially set at 1/6 of the LP fee.

Unichain Sorter Fees: Despite being launched only 9 months ago, Unichain has achieved an annualized DEX trading volume of about $100 billion, with annualized sorter fees of approximately $7.5 million. This proposal suggests that all Unichain sorter fees (net of L1 data costs and 15% shared with Optimism) be burned through the UNI burn mechanism.

MEV Internalization Fee Mechanism: The Protocol Fee Discount Auction (PFDA) is designed to boost LP returns and create a new fee stream for the protocol by internalizing MEV (Miner Extractable Value).