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title: 'Uniswap''s UNIfication Proposal: What''s Actually Changing'

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# Uniswap's UNIfication Proposal: What's Actually Changing

After five years of processing nearly $4 trillion in trading [volume](https://dune.com/uniswaplabs/uniswap-protocol-stats) without capturing economic value for UNI token holders, Uniswap made the most significant restructuring in the protocol's history.

This isn't just about turning on fees. It's a complete realignment of how Uniswap Labs operates, how the Foundation functions, and how UNI token holders relate to protocol success. The community [voted](https://snapshot.box/#/s:uniswapgovernance.eth/proposal/0x58d854c1f2468db6b67baab026cca1329c7bcaa5bf834146aa7563a5b45ad09f) with a resounding Yes and let's break down exactly what's changing.

![image](https://hackmd.io/_uploads/rkI5xHjbWx.png)

## Three Core Changes

The proposal bundles eight interconnected mechanisms into three strategic shifts.


## 1. The Revenue Engine: Multiple Streams → Single Destination

Uniswap is building a multi-vector value capture machine where every revenue source flows into the same mechanism: permanent UNI supply reduction.

![image](https://hackmd.io/_uploads/SyBA2u2ZWx.png)


### Protocol fees activated across v2 and v3

The dormant "fee switch" finally turns on:

- **V2 pools**: LP fees drop from 0.3% to 0.25%, with 0.05% captured as protocol fees
- **V3 pools**: Protocol takes 1/4th of LP fees for volatile pairs, 1/6th for stable pairs
- **Implementation**: Gradual rollout starting with v2 and major v3 pools on mainnet

Every captured fee gets converted to UNI and burned, just permanent supply reduction.

### Unichain Sequencer Revenue

Unichain launched nine months before this proposal and already generates ~$7.5 million annually in sequencer fees. After covering L1 data costs and sending 15% to Optimism, the rest goes straight to UNI burn.

This creates a second revenue stream that's completely independent of DEX trading volume. Even if trading slows down, Unichain keeps generating fees.

### Protocol Fee Discount Auctions Capture MEV

Instead of letting MEV searchers and validators extract value, Uniswap auctions the right to trade without paying protocol fees for short time windows. Winning bids get burned as UNI.

Early estimates suggest this adds $0.12 per $10,000 traded (1.2 basis points) back to the protocol. The mechanism essentially internalizes MEV by making searchers pay the protocol for the privilege of extracting it.

### Aggregator Hooks Turn v4 Into Cross-Protocol Burner

Uniswap v4 hooks will source liquidity from competing protocols while adding a programmatic UNI burn on top. Every cross-protocol swap burns UNI, even when the liquidity isn't native to Uniswap.

This is strategically fascinating—Uniswap positions itself as an aggregator layer that captures value from the entire DeFi ecosystem, not just its own pools.

### How It Works: TokenJar and Firepit

The mechanism uses two immutable smart contracts:

- **TokenJar**: Where all protocol fees accumulate onchain
- **Firepit**: Where UNI burns happen

![image](https://hackmd.io/_uploads/rk7h9d3-Zx.png)


The coupling is critical: fees can only be withdrawn from TokenJar if UNI is burned in Firepit. This creates an atomic link between protocol revenue and supply reduction.

You can't extract value without burning UNI. The mechanism is trustless—no multisig, no governance vote needed to execute burns. It happens automatically as part of the withdrawal process.



## 2. The Realignment: Protocol Growth intiatives

The most dramatic shift isn't what Uniswap is *adding* it's what Uniswap Labs is *giving up*.

### Labs Eliminates All User-Facing Fees

Uniswap Labs previously charged 0.15% on the user interface and for accessing APIs and are both removed from making any revenue.

Instead of extracting value from users, Labs bets everything on protocol growth.

The logic: Lower fees → more volume → more protocol revenue → more UNI burns → higher token value → Labs' 20M UNI annual budget becomes more valuable.

### Labs Gets Protocol-Aligned Compensation

Starting January 2026, Labs receives 20 million UNI annually (distributed quarterly) to fund development. Instead of monetizing users, Labs gets compensated by governance for growing the protocol.

This is the key insight: **Labs' incentives now perfectly align with UNI holders**. When the protocol succeeds, Labs benefits through UNI appreciation, not through user fees.

### Foundation Consolidates Into Labs

Most Foundation employees transition to Labs. Hayden Adams and Callil Capuozzo join the Foundation board alongside Devin Walsh, Hart Lambur, and Ken Ng. A smaller Foundation team handles remaining grants and incentives.

No more confusion about who's responsible for what. One streamlined organization focused on execution, one focused on ecosystem support.

### Why This Matters

For five years, there was fundamental tension: Labs needed revenue to operate, but capturing revenue could classify UNI as a security. Labs solved this by charging users directly through interface fees.

Now that tension is resolved. The protocol captures revenue through burns (regulatory safe), and Labs gets funded by governance. The entire operational model shifts from "monetize users" to "grow the protocol and align with token holders."



## 3. The Reset: Compensating for Five Years of Missed Fees

Uniswap missed five years of protocol revenue. The proposal acknowledges this history and creates symbolic closure before moving forward.

### 100 Million UNI Retroactive Burn

To compensate for missed protocol fees since launch, Uniswap burns 100 million UNI from the treasury upfront. This represents an estimate of what would have been burned if the fee switch was active from day one.

It's a one-time reset that acknowledges the opportunity cost of not monetizing earlier.

### Unisocks Migration to Unichain v4

The original Uniswap v1 SOCKS/ETH position migrates from mainnet v1 to Unichain v4 and gets burned, permanently locking the price curve and tokenized socks supply.

Unisocks represents Uniswap's earliest experiment with AMMs. Migrating it to Unichain v4 symbolizes the transition from Uniswap's experimental past to its production-ready future.

## Why Now?

The regulatory environment has shifted post-2020s hostility under former SEC chair Gensler. Uniswap governance adopted [DUNI](https://gov.uniswap.org/t/governance-proposal-establish-uniswap-governance-as-duni-a-wyoming-duna/25770) (Wyoming DUNA structure) for legal clarity.

For five years, Uniswap avoided turning on the fee switch because distributing revenue to token holders could trigger SEC classification of UNI as a security. The buy-and-burn mechanism sidesteps this risk entirely as there's no dividend, no claim on cash flows, just supply reduction.

## What This Means for UNI Holders

The UNIfication Proposal fundamentally changes what it means to hold UNI:

**Before**: Governance rights with no economic value capture  
**Now**: Governance rights + direct exposure to protocol revenue through supply reduction

Every swap, Unichain transaction, MEV auction flows into UNI burns. Protocol success translates directly into reduced supply, which (theoretically) increases the value of each remaining token.

## Open Questions

The proposal is comprehensive, but two critical risks remain: Will LPs tolerate lower yields when competing protocols offer token incentives? Reducing LP fees while Curve, Aerodrome, and Fluid actively subsidize liquidity could trigger migration. And if liquidity does migrate, will Uniswap governance need to deploy UNI incentives to remain competitive directly offsetting the burn mechanism the proposal is built around?

Uniswap is betting that brand strength and organic volume create enough moat to capture value while giving LPs lower yields. Next year will reveal whether that bet pays off, or whether protocols willing to subsidize liquidity win the fight for mainnet dominance.
