Uniswap Proposes Fee Switch Activation and UNI Token Burn

Uniswap leadership has introduced a plan to activate the long-discussed “fee switch” feature. This upgrade would reroute a share of the protocol’s swap fees into a “token jar,” which UNI holders can access by burning their tokens. The aim is to reduce total UNI supply and potentially increase the remaining token value by withdrawing a proportional amount of crypto.

Instead of distributing revenue directly to tokenholders, the fees would accumulate in this token jar. Users burning UNI tokens via a smart contract called “fire pit” will draw an equivalent crypto value from the jar. The proposal includes burning almost 100 million UNI tokens, valued at about $800 million, representing the amount that would have been burned if the fee switch had been active since Uniswap’s launch.

The plan has backing from the Uniswap Foundation, Uniswap Labs, and founder Hayden Adams. Approval by tokenholders would lead to the eventual closure of the Foundation. Adams indicated that Uniswap Labs, which developed all four versions of the Uniswap protocol, would assume a stronger governance role, ending previous limitations on its participation.

Currently, liquidity providers earn all swap fees on the platform, which roughly total $229 million over the last 30 days. The fee switch would allocate one-quarter to one-sixth of these fees to the token jar. To balance liquidity provider incentives, the proposal includes a Protocol Fee Discount Auction to capture Miner Extractable Value (MEV) that would otherwise go to searchers or validators.

The fee switch activation would initially cover Uniswap v2 and v3 pools, responsible for up to 95% of the fees on the Ethereum mainnet. Votes for enabling it on Uniswap v4 and other blockchains will be held separately in the future.

Separately, the proposal requests disbanding the Uniswap Foundation, a nonprofit funded by the DAO to support the Uniswap community. Most Foundation staff would transfer to Uniswap Labs, which would take over ecosystem support, governance, and developer relations. The Foundation’s remaining employees would manage a $100 million grants program until the nonprofit dissolves.

Under the plan, Labs would stop collecting fees from interfaces it operates for non-technical users, such as a Labs-built website and crypto wallet, but retains the ability to collect new fees later. The proposal states, “Monetization of Labs interfaces will continue to evolve over time and any fees on volume originating from these products will benefit the Uniswap ecosystem.”

The fee switch has faced controversy over the years. Supporters believe it aligns UNI’s value with protocol success, while the Foundation has previously delayed votes citing concerns. The Foundation’s influence in the DAO raised questions about decentralization, noted at a Congressional hearing where Representative Sean Casten asked if the Foundation’s unilateral decisions weaken claims of decentralization.

After the Foundation waited for the approval of a legal structure called a Decentralized Unincorporated Nonprofit Association (DUNA), which protects DAO members from legal and tax risks, the path to activating the fee switch cleared in August. This new proposal signals a renewed push for activation.

Since the announcement, UNI’s price rose by over 29%.

For further details, see the original proposal and technical overview of the protocol fee.

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