UNI token holders approve $165.5 million in new foundation funding, laying groundwork for long-promised 'fee switch'

The Uniswap community has voted in favor of two governance proposals to drive growth of the recently launched Unichain Layer 2 and Uniswap v4 protocols through a new grants program and other liquidity incentives. Notably, the governance decision lays the groundwork to activate the long-promised "fee switch."

Both proposals, part of the "Uniswap Unleashed" plan, aim to expand the Uniswap ecosystem and mark "the beginning of our community's next era" by unlocking "new opportunities to build, grow and to create and capture value," the Uniswap Foundation wrote on the social media platform X.

Created in collaboration with the Uniswap Foundation and web3 risk management protocol Gauntlet, the liquidity incentives would draw in new users and sustain ecosystem growth through developer-focused campaigns, according to the proposal. The foundation requested an investment of $95.4 million into its grants budget and an additional $25.1 million to fund operations over the next two years. In a separate incentives proposal, the foundation requested a $45 million budget to support liquidity incentives.

Gauntlet deployed and configured an Aera vault for the Uniswap Foundation on mainnet, which will be seeded with over 7.5 million UNI tokens, worth about $52 million at press time. UNI is up over 10%, according to The Block's price page. 

"We recognize and appreciate the size of this request. It reflects an investment into the success of the Uniswap Protocol and Unichain, and into value for the Uniswap community," according to the proposal.

As for the fee switch, that would come after the Uniswap Foundation decides to incorporate the necessary legal steps to disperse protocol fee revenue to the governance members. "If adopted, this step would pave the way for the potential introduction (or re-introduction) of a governance proposal for delegators to earn Protocol revenue," the proposal states.

The so-called fee switch would drive a portion of protocol revenues that are currently captured by liquidity providers to UNI token holders. Its delayed activation has been longterm consternation among community members, especially after earlier votes failed to deliver. Uniswap has collected over $1 billion in annualized fees. 

The Uniswap Foundation is an independent non-profit that oversees the growth the Uniswap protocol, community and ecosystem. It was founded, in part, to prepare "the groundwork" for a fee switch.

Uniswap v4 went live in mid-January, converting the decentralized exchange into a developer protocol by deploying "hooks," or contracts developers can use to augment interactions within pools, swaps, fees and other items. Uniswap Labs, the firm developing the Uniswap ecosystem, also launched the Layer 2 network Unichain using the Optimism tech stack, The Block previously reported.