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Hello readers,
Launched in 2018, Uniswap is a breakthrough innovation that enables the organic formation of two-sided markets for the trading of financial assets. Since inception, the protocol has generated over $3.3 trillion of trading volume and $4.7 billion of trading fees.
Yet, we’ve always viewed Uniswap as an uninvestible project.
Why?
Multiple capital tables. One for equity investors. One for tokenholders.
This structure is not unique to Uniswap. But what is unique is that Uniswap routinely routed revenues to its equity holders. But not to its tokenholders.
That’s a massive conflict of interest.
But we have good news. It looks like it’s all about to change, thanks to a recent governance proposal by Uniswap’s founder, Hayden Adams.
Today, we’re breaking down what it all means from the tokenholder perspective + providing an update on Uniswap fundamentals.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
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Let’s go.
In traditional finance, it is not uncommon for a company to have multiple classes of shares. For example, preferred shareholders often have a higher claim to assets than common shareholders in a liquidation.
With that said, investors generally understand that if a company performs well (grows revenue and profits), the value created will accrue proportionally to all classes of shares.
For this reason, ownership in Uniswap (or any crypto project or company) must accrue to a single investment vehicle. In this case, the UNI token.
Why?
If Uniswap Labs (core team + investors) were to capture revenue from various business lines while disregarding UNI tokenholders (who have no legal rights), the market could lose trust in the governance of the Uniswap DAO.
This is precisely what was happening.
That’s why UNI was uninvestible to us.
Now. Let’s break down the business lines and how they might change under the proposed new structure.
In this section, we’ll lay out where revenues currently accrue within Uniswap’s org structure — and where they will accrue if the governance proposal passes (it currently has 100% support).
Data: The DeFi Report, Token Terminal
In 2023, Uniswap Labs unilaterally implemented a 0.15% fee (later increased to 0.25%) for users interacting with Uniswap through the official Uniswap dot org web interface — or via the Uniswap wallet (mobile users).
$132m has since accrued to Uniswap Labs.
However, UNI tokenholders had no say in the decision and no claim on these fees.
This obviously had to change.
Under the proposed new structure, Uniswap will turn off its interface, wallet, and API fees.
Labs will also contractually commit to pursuing only initiatives that align with DUNI's interests and, by extension, UNI tokenholders (DUNI is a new legal entity for the foundation, established under the model of a Wyoming-registered Decentralised Unincorporated Nonprofit Association).
While aligning Labs with DUNI/tokenholders, this eliminates $132m in fees generated since early ‘23. If any of these fees were used to fund protocol development, they’ll have to be covered by other sources moving forward.
Data: The DeFi Report, Token Terminal
Uniswap’s cash cow is its trading business. Since inception, the protocol has generated over $4.7 billion in trading fee revenue.
100% of these fees have been paid to 3rd party liquidity providers. However, the governance proposal would turn on the “fee switch” for tokenholders as follows:
.05% protocol fee for V2 pools
1/4 of LP fees on .01% and .05% v3 pools
1/6 of LP fees on .30% and 1% v3 pools
If approved, the fee switch will be rolled out over time, starting with V2 and V3 pools that make up 80-95% of LP fees on Ethereum Mainnet. All fees generated by the new fee switch will be used to programmatically burn the UNI token (accruing value to tokenholders).
Below is a view of the fee split between LPs and the Protocol that would have applied from inception. The Protocol Fees (blue) would have been burned, reducing the UNI circulating supply.
Data: The DeFi Report, Token Terminal
In hindsight, we estimate that roughly $780m UNI would have been burned. If the governance proposal passes, Uniswap will retroactively burn 100 million UNI tokens ($663m at current UNI prices).
This would reduce the existing token float by roughly 16%.
While the protocol fee will shift some trading fees away from LPs, the governance proposal includes a fee mechanism to improve LP performance and introduce a new source of fees by internalising MEV.
With that said, the MEV captured by the protocol (that would otherwise go to validators) gets burned post-upgrade (accrues to tokenholders rather than LPs).
Unichain is a general-purpose Ethereum L2 launched by Uniswap nine months ago.
It’s already processing $100b in annualised DEX volume and has generated over $3 million in cumulative sequencer fees.
Data: The DeFi Report, Token Terminal
If the governance proposal passes, these fees (net of L1 data costs and the 15% fee to OP) will be converted into burned UNI.
Shifting to a “health check” on Uniswap KPIs.
Despite most of the speculative activity shifting to Solana and Hyperliquid this cycle, Uniswap continues to grow. The protocol peaked at $34b in trading volume the week of 10/6 — a 50% increase over its best week during the ‘21 cycle.
40% of Uniswap’s volume now comes from Ethereum, down from 55% last year.
For reference, BNB is up from just 2% one year ago. Base is up from 15.3% one year ago. Finally, Unichain now makes up for 4.2% of Uniswap’s total volume.
Version 3 (pink) was launched in May of ‘21. 68.7% of Uniswap volume is currently running through v3. Version 4 (blue) was launched in January of this year. It currently has 24.9% of the volume. Version 2 (launched in May of ‘20) still has 6.3% of the volume.
Uniswap volumes look healthy. But we also know that there are wash volumes included in that data. That’s why we wanted to better understand Uniswap’s true volume or “organic volume” vs its “inorganic volume.”
We arrived at the “inorganic volume” by aggregating volumes from trading pools that fit the following criteria:
Have less than 1k unique addresses
Have less than 10 days traded
Have one trader with more than 30% of the volume
Have 10 or fewer addresses making up greater than 80% of the volume
Median volume traded is less than $25k
By applying these filters, we found that 12.3% of Uniswap’s volume in ‘24 was “inorganic.” In ‘25, it nearly doubled to 23.3% of the volume.
What’s more interesting is that we’ve seen a big spike in “inorganic volume” post the 10/10 liquidation event.
Since that time, the “inorganic” volumes have jumped to 43%. Why? We think it’s possible that volumes are being “faked” in thinly traded pools to attract new traders, given the recent decline in “animal spirits” onchain.
Over the last 30 days, Uniswap is averaging over 857k recurring users/day — up from 450k/day one year ago.
In terms of new users/trading addresses, the protocol is currently averaging 278k/day — down from 434k/day one year ago.
If the recent governance proposal is passed as expected, this will change our view on Uniswap. Specifically, it will no longer be an uninvestible protocol for us.
Furthermore, this move likely forces other protocols to adopt similar measures to align with their tokenholders — a healthy outcome for the industry.
Summarizing the key impacts of the governance proposal:
Uniswap Labs loses the interface, wallet, and API fees, as their focus shifts to serving the DAO/tokenholders exclusively. To the extent that the $132m earned from these revenue sources was used to fund protocol development, that capital will need to come from somewhere else moving forward.
Uniswap users are the winners here.
LPs will lose roughly 16% of trading fees to the protocol fee switch. They will benefit from enhancements to the Protocol Fee Discount Auction (PFDA).
Uniswap estimates that the new auctions could improve LP returns by $0.06- $ 0.26 per $10k traded.
100m UNI burned ($663m at current UNI prices). The circulating supply of UNI is currently 629,892,760, with a market value of $4.17 billion ($6.63/token).
With the passage of the governance proposal, the circulating supply drops to 529,892,760. The price/token magically jumps to $7.88 via the reduced float.
Moving forward, roughly 16% of trading fee revenues will be burned. YTD, this would amount to $136m of burned UNI (20.5 million UNI). An additional $3m of Unichain sequencer fees would be burned (452k UNI).
These changes are unquestionably positive for UNI holders.
There should be no meaningful impact on traders, besides better execution through the new PFDA auctions. The trading fees will remain the same.
Data: The DeFi Report
The proposed changes to align with UNI holders have no impact on Uniswap’s relative valuation when compared to Aerodrome (Base), Raydium (Solana) or Pump (Solana).
However, it now puts UNI holders on the same playing field in terms of token economics & value accrual to tokenholders.
As shown above, Raydium appears significantly undervalued relative to its peers.
What will determine the winner of the DEX category?
Ultimately, we think it comes down to where Wall Street decides to build. We should begin to get some answers over the next year or two.
One thing we are keeping an eye on is Uniswap's “hooks,” which were rolled out in v4 earlier this year. Hooks enable the following:
Dynamic Fees (fees that auto-adjust based on volatility)
Onchain KYC/permissioned pools (necessary for institutions)
Time Weighted Average Market Maker Execution (allows large orders to be executed slowly)
Oracle Augmented Pools (swap pricing can reference external oracles)
Custom Fee Flows (automatically burn tokens or distribute them to stakers)
Circuit Breakers/Risk Rules (halt trading during extreme volatility)
Concentrate Liquidity Automation (automatically rebalance LP positions)
We believe this infrastructure (already built) is what institutions will look for when deciding where to build.
Uniswap was somewhat of a “forgotten” protocol this cycle. But the roots are now in place for that to potentially change in the next one.
As such, UNI is now on The Watch List. If you’d like to be notified if/when we add it to our portfolio + receive a weekly update on cycle awareness and portfolio management, you can sign up for TDR Pro here.
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Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.