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Uniswap DAO Rejects Fee Switch Proposal

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A proposal to turn on protocol fees for liquidity providers narrowly missed being passed by the Uniwap community.

Photo by Juliana Araujo the artist on Unsplash

Posted June 1, 2023 at 5:57 pm EST. Updated June 1, 2023 at 5:57 pm EST.

A community vote that ended at 1:05 pm ET on Thursday concluded with 18 million UNI tokens used to vote against a proposal that would activate fees on Uniswap. 

It is worth noting that the proposal failed to pass despite more than 54% of the community being in favor of charging liquidity providers procotol fees. However, members of this camp were divided on the amount of fees to be charged, with 42% in favor of charging 1/5 pool fees, 12% in favor of charging 1/10 pool fees and just 0.04% in favor of 1/6 pool fees.

Another factor that potentially turned the vote around at the last minute was a handful of wallets that voted against protocol fees. A closer look at these wallets shows that the addresses were only recently created and had almost no transaction history prior to the vote.

“The whales that dominate Uniswap governance (a16z, Hayden, etc) refuse to activate the fee switch because they don’t want to create a legal liability. The irony is that they’re still creating legal liability by using their massive voting power to kill every fee switch proposal,” commented DeFi researcher Chris Blec.

The proposal was put forth on May 10 by Uniswap governance delegate GFX Labs as a way to further monetize the protocol and incentivize development. Uniswap’s current fee structure is set up to offer rebates to liquidity providers, who earned $77 million in fees in the month of March alone.

Still, the effort was met with resistance from some members of the community, who voiced concerns that a fee-generating Uniswap might be considered a security in the eyes of regulators.

This is the second time a fee-switch proposal has been rejected by members of Uniswap’s decentralized autonomous organization (DAO). A community discussion on both the previous fee switch proposal and the current one suggests that the center of these concerns stemmed from a potential tax obligation that could arise from turning on fees.

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