Uniswap wants holders to share in revenue – what does that mean?

Uniswap is the largest decentralized exchange (DEX) in crypto space. The DeFi protocol allows users to trade cryptocurrencies peer-to-peer in a secure manner without the need for a central intermediary. To provide this service, Uniswap relies on a so-called liquidity pool model, in which users provide liquidity to a pool controlled by a smart contract. In return, the liquidity providers receive a share of the trading fees that users pay when they use the respective liquidity pools to exchange tokens.

In this way, in the last 30 days, Uniswap has more than $34 million in fees, a certain portion of which goes to the liquidity providers of the respective trading pairs on Uniswap.

This makes Uniswap the second largest protocol in crypto space after Ethereum. UNI token holders, on the other hand, have not received a cent of this revenue so far – but that is exactly what is about to change.

That’s what Uniswap planned

As early as July this year, several members of the Uniswap community proposed changing UNI’s fee model and token design. After a lot of back and forth and some revised proposals, Uniswap now wants one start pilot project, where a certain percentage of fees go directly to UNI token holders. Specifically, around 10 percent of the fees produced by Uniswap trading pairs ETH-USDT, DAI-ETH, and USDC-ETH are said to go directly to UNI-Token holders flow.

The switch will not increase trading fees for users, but will retain a small portion of what is currently paid out to Liquidity Provider. According to the developers of the decentralized exchange, the test run should be considered successful if it does not negatively affect the conditions for trades on the DEX will.

A likely consequence of the switch is that the liquidity providers on the DEX will generate less income. The problem with this could be that Liquidity Providers choose to withdraw their capital from the decentralized exchange to switch to other DEXes where they receive higher compensation. This in turn would result in liquidity on Uniswap falling and token swaps no longer being as effective as before the transition.

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UNI soon in the sights of the US authorities?

In addition, UNI could be targeted by the authorities in the USA due to the new token design. Since the DeFi protocol wants UNI token holders to participate directly in DEX revenue, it is likely that this change will see UNI classified as a security in the US. This in turn could result in the pilot having a negative impact on members of the Uniswap Community, Uniswap Labs, the Uniswap Foundation. People who were involved in the development of the test run could also be affected.

Despite the risks, reactions to the proposal are currently overwhelmingly positive. It is therefore expected that the pilot project will start in the next few weeks. Later this week should UNI Holder to vote on the change.