The new proposal reshapes the value of UNI: Is the forgotten Uniswap still worth investing in?

Written by: Michael Nadeau, The DeFi Report; Translated by: Glendon, Techub News

Uniswap was launched in 2018 and is a groundbreaking innovation that enables the organic formation of bilateral markets for trading financial assets. Since its establishment, the protocol has generated over $3.3 trillion in trading volume and $4.7 billion in trading fees.

However, we have always regarded Uniswap as a project not worth investing in.

Why is this?

Uniswap has multiple capital tables, one for equity investors and one for token holders. This structure is not unique to Uniswap, but what makes it unique is that Uniswap often allocates revenue to equity holders rather than token holders.

This is a serious conflict of interest.

But interestingly, under the governance proposal recently put forward by Uniswap founder Hayden Adams, all of this seems about to change. Today, we will analyze the implications of this governance proposal from the perspective of token holders and provide the latest data and information on Uniswap's fundamentals.

Uniswap Organizational Structure

Equity Holders and Token Holders (DAO)

In traditional finance, it is not uncommon for companies to issue multiple classes of shares. For example, during company liquidation, preferred shareholders usually have a higher claim on assets compared to common shareholders. In other words, investors generally believe that if a company performs well (with revenue and profit growth), the value it creates will be distributed proportionally among all classes of shares.

Therefore, the ownership of Uniswap (or any cryptocurrency project or company) must belong to a single investment instrument. In this case, the investment instrument is the UNI token.

Why do you say that?

Because if Uniswap Labs (core team + investors) generates revenue from various business lines without regard for UNI token holders (who have no legal rights), the market may lose trust in the governance of Uniswap DAO.

This is exactly what happened.

This is why we believe that UNI is not worth investing in.

Now, let's break down the various business lines and the changes that may occur under the new proposal framework.

Uniswap Business Line and Value Attribution

In this section, we will outline the current sources of income within the Uniswap organizational structure, as well as how subsequent income will be allocated if the governance proposal is passed (which currently has 100% support).

Interface/Wallet

In 2023, Uniswap Labs unilaterally charged users who interacted with Uniswap through the official Uniswap website interface or Uniswap Wallet (mobile users) a fee of 0.15% (later increased to 0.25%).

To date, Uniswap Labs has accumulated $132 million.

However, UNI token holders have no say in this decision and are not entitled to claim these fees. This situation clearly needs to change.

Key Points for Token Holders

Under the framework of the new proposal, Uniswap will close its interface, wallet, and API fees.

Labs will also commit through contracts to pursue initiatives that align with the interests of DUNI (DUNI is a new legal entity of the foundation, established under the model of a decentralized non-profit organization without legal personality registered in Wyoming), thereby aligning with the interests of UNI token holders.

While aligning Labs with DUNI/token holders, this will eliminate the $132 million in fees incurred since the beginning of 2023. If any of these fees were previously used to fund protocol development, then these fees will have to be borne by other sources in the future.

Trading/Smart Contract

Uniswap's main source of revenue comes from its trading business. Since its establishment, the protocol has generated over $4.7 billion in trading fee revenue.

100% of these fees have been paid to third-party liquidity providers (LPs). However, the governance proposal will enable the “fee switch” for token holders in the following way:

The protocol fee for the V2 pool is 0.05%;

The protocol fees for the 0.01% and 0.05% v3 trading pools are initially set at 1/4 of the LP fees.

The protocol fees for the 0.30% and 1% v3 trading pools are set at 1/6 of the LP fees.

If approved, the fee switch will be gradually rolled out, first applied to V2 and V3 pools on the Ethereum mainnet that account for 80-95% of liquidity provider fees. All fees generated by the new fee switch will be used to programmatically burn UNI tokens (thereby accumulating value for token holders).

LP Trading Fees and Protocol Fees

The diagram below shows the fee allocation scheme applicable from the very beginning between the LP and the protocol. The protocol fees (in blue) will be burned, thereby reducing the circulating supply of UNI.

Key Points

Looking back, we estimate that approximately 780 million USD worth of UNI tokens will be burned. If the governance proposal is passed, Uniswap will retroactively burn 100 million UNI tokens (valued at 663 million USD based on the current UNI price).

This will reduce the circulating supply of existing tokens by approximately 16%.

Impact on Liquidity Providers

Although the protocol fees will transfer part of the transaction costs from liquidity providers, the governance proposal includes a fee mechanism designed to improve LP performance by internalizing MEV and introducing new sources of fees.

In other words, the MEV captured by the protocol (which would originally be allocated to validators) will be destroyed after the upgrade (belonging to token holders, not LPs).

Unichain

Unichain is a universal Ethereum L2 launched by Uniswap 9 months ago.

It currently handles an annualized decentralized exchange (DEX) trading volume of 100 billion dollars, generating over 3 million dollars in Sequencer fees.

Key Points

If the governance proposal is approved, these fees (minus the L1 data costs and the 15% fee paid to OP) will also be converted into burned UNI.

Uniswap Fundamental Update

This section will conduct a “health check” on Uniswap's key performance indicators (KPI).

Trading Volume

Despite most speculative activities in this cycle shifting towards Solana and Hyperliquid, Uniswap's trading volume continues to grow. The protocol reached a peak trading volume of $34 billion in the week of October 6, which is a 50% increase compared to the best single week trading volume during the 2021 cycle.

Transaction Volume by Chain

Uniswap currently derives 40% of its trading volume from Ethereum, a decrease from 55% last year.

As a reference, the BNB Chain's share has risen from 2% a year ago, while the Base Chain's share has also increased from 15.3% a year ago. Finally, Unichain currently accounts for 4.2% of Uniswap's total trading volume.

Trading Volume by Version

V3 (pink) was launched in May 2021, currently accounting for 68.7% of Uniswap's trading volume running through V3; V4 (blue) was launched in January this year, currently accounting for 24.9% of the trading volume; as for V2, it was launched in May 2020 and still accounts for 6.3% of the trading volume at this stage.

“Organic Trading Volume” and “Inorganic Trading Volume”

The trading volume of Uniswap looks very healthy. However, we must clarify that this data actually includes “wash trading volume.” Therefore, we hope to better understand the true trading volume of Uniswap, that is, the distinction between “organic trading volume” and “inorganic trading volume.”

This article derives the “inorganic trading volume” by aggregating the trading volume of trading pools that meet the following criteria:

The unique address of the trading pool is less than 1000.

Less than 10 days of trading

Single traders account for over 30%

The top 10 addresses or fewer that account for more than 80% of the total traffic.

The median trading volume is below $25,000.

By applying these filtering criteria, we found that 12.3% of Uniswap's trading volume in 2024 was “inorganic trading volume.” In 2025, this percentage nearly doubled to 23.3%. More notably, after the liquidation event on October 10, the “inorganic trading volume” saw a significant surge, reaching as high as 43%.

Why is this? We believe this may be due to low market sentiment, with some liquidity pools with lower trading volumes “faking” trading volume to attract new traders.

New Users and Old Users

In the past 30 days, Uniswap's daily active users exceeded 857,000, up from 450,000 per day a year ago.

However, in terms of new users/transaction addresses, the protocol currently adds an average of 278,000 users/transaction addresses per day, which is lower than the 434,000 users/transaction addresses per day a year ago.

Final Thoughts

If the recent governance proposal is approved as expected, we will reevaluate Uniswap. Specifically, it will no longer be a protocol that is not worth investing in.

In addition, this move may compel other protocols to take similar measures to align the interests of token holders—this is a healthy development trend for the industry.

The core impact of governance proposals

Impact on Uniswap Labs

Uniswap Labs will lose revenue from interfaces, wallets, and API fees as their focus shifts to specifically serving DAO/token holders. If the previous $132 million from these revenue sources was used to fund protocol development, then in the future, this portion of funding will need to come from other channels. Uniswap users will undoubtedly become the biggest winners of this proposal.

Impact on Liquidity Providers (LPs)

Liquidity providers will lose about 16% of the trading fee share due to the protocol fee switch, but will benefit from the optimization of the Protocol Fee Discount Auction (PFDA). Uniswap estimates that the new auction mechanism could allow LPs to earn an additional $0.06 to $0.26 for every $10,000 in trading volume.

Impact on Token Holders/Token Economics

100 million UNI (valued at 663 million dollars based on the current UNI price) will be burned. The circulating supply of UNI will decrease from 629 million to 529 million, and the token price will rise to 7.88 dollars due to the reduction in circulation.

In the future, approximately 16% of the transaction fee revenue will be burned. So far this year, this will amount to the destruction of UNI tokens worth $136 million (20.5 million UNI). In addition, Unichain sorter fees worth $3 million will also be burned (452,000 UNI).

These changes will have a positive impact on UNI holders.

Impact on Traders

In addition to achieving more efficient trade execution through the new PFDA auction mechanism, there should be no significant impact on traders. Transaction fees will remain unchanged.

Uniswap current valuation comparison

Key Points Summary

Compared to Aerodrome (Base), Raydium (Solana), or Pump (Solana), the proposed changes that align with UNI holders have had no impact on the relative valuation of Uniswap.

However, in terms of token economics and the appreciation of token holders, it now places UNI holders in the same competitive environment. As shown above, Raydium appears to be severely undervalued compared to its peers.

Future Outlook

What will determine the winners of the DEX category?

Ultimately, we believe it depends on Wall Street's decision on where to build factories. We should start getting some answers in the next year or two.

Ultimately, we believe it depends on where Wall Street decides to “set up shop.” We should get some answers in the next year or two.

One point we are closely monitoring is Uniswap's “hooks,” which were launched earlier this year in version 4. “Hooks” can achieve the following functions:

Dynamic fees (fees that are automatically adjusted based on volatility);

On-chain KYC/Permission Pool (required for institutional users);

Time-weighted average market maker execution (allowing large orders to be executed slowly);

Oracle enhanced pool (trade pricing can refer to external oracles);

Custom fee flow (automatically burning tokens or distributing them to stakers);

Circuit breaker mechanism/risk rules (suspend trading during extreme volatility);

Concentrated liquidity automation (automated rebalancing of liquidity provider positions).

We believe that this (already established) infrastructure is precisely the factor that institutions will consider when deciding where to position themselves. Uniswap was once “forgotten” during this trading cycle, but now that the foundation has been laid, it may reverse its decline in the next trading cycle.