Will new Uniswap protocol fee proposals drive ‘substantial UNI burn’?

Uniswap has officially submitted three governance proposals for protocol fee activation across several chains and different versions of the DEX.

The first fee proposal will be for versions 2 (V2) and 3 (V3) on the Robinhood chain. The new Ethereum L2 debuted this month, attracting several DEXes, including Uniswap. About 10 days after launch, Uniswap crossed $1B in trading volume – ultimately showing its growing traction. 

Similarly, the project seeks to activate fees on V4 across Ethereum, Base, Arbitrum, Robinhood, BNB Chain, Polygon and Optimism. Hayden Adams, Uniswap’s CEO, added that a third fee proposal for remaining V4 chains will also be submitted soon. 

Adams said, 

Both direct all new protocol fees into the existing UNI burn mechanism. Based on current volumes, especially Robinhood, we expect the impact on UNI burn to be substantial.

Mixed reactions to Uniswap’s fee proposal

For clarity, fees are what users pay for each swap on the DEX, and they mostly go to liquidity providers (LPs). Protocol revenue (which is partly directed for UNI burn) is a percentage of the swap fees that goes to the project after a governance vote. 

In other words, such proposals would directly reduce fees collected by LPs. As such, it was not surprising that some LP providers like Gamma Strategies opposed V4 fee proposals because they would affect their lifeline. 

Still, Gamma Strategies made a sound argument for their opposition, noting that Uniswap V4 was still not competitive enough and the fees would make it lose to rivals.

It (V4) still lags Uniswap V3 in terms of volumes, and there’s evermore increasing competition from AMMs, propAMMs, RFQ’s, and spot limit order book DEX’s such as Lighter/Hyperliquid.

That said, Uniswap has only activated fees across a few chains and versions. However, most of the fees collected go to LPs.

In fact, LPs have made a whopping +$5B in cumulative fees since 2018. Yet, the protocol has made only $25M in cumulative revenue.   

If the proposal goes through and is balanced with competition, more protocol revenue would translate to more UNI burn rates, as Adams projected. 

That said, the project has now burned a total of 107.49M UNI tokens. UNI burn rate surged 3x from $51K to over $160K in the past week. 

Can UNI extend its July rally?

The Robinhood traction was front-run by traders as the Uniswap [UNI] price surged. In July, UNI price surged 41% from $2.7 to $3.8. 

But the bullish strength has eased as the price stalled below the 200-day Moving Average (blue line). As such, price could remain sideways above $3.5 or slip to $3 if Robinhood momentum stabilizes. 

But the next move higher could be triggered by renewed Robinhood momentum and if the fee proposals drive more UNI burn. 

Final Summary

• Uniswap pushes three fee protocol fee proposals to accelerate UNI burn. 
• Currently, Uniswap LPs have accrued over $5B while the protocol makes relatively little revenue