Uniswap voting delayed: Are token holders becoming second-class citizens?

By Daniel Kuhn, CoinDesk; Compiled by Wuzhu, Golden Finance

On Friday, the Uniswap Foundation announced that it was delaying a key vote on whether to upgrade the protocol’s governance structure and fee mechanism to better reward holders of the UNI governance token. The nonprofit cited concerns from a “stakeholder” believed to be an equity investor in the organization behind the largest ethereum decentralized exchange.

“Last week, a stakeholder raised a new issue related to this work that would require additional effort on our part to fully review. Due to the immutable nature and sensitivity of our proposed upgrade, we have made the difficult decision to delay the release of this vote,” the foundation wrote on X (formerly Twitter).

While the foundation said the decision was “unexpected” and apologized for it, it is far from the first time it has postponed a vote on whether to initiate a “fee switch” that would shift a modest amount of the protocol’s transaction fees to token holders. This is also far from the only time that the interests of token holders appear to conflict with those of Uniswap’s other “stakeholders.”

“We will keep the community informed of any significant changes and will update everyone once we have more certainty about future timelines,” the foundation added.

Uniswap issued the UNI token in the wake of the “Summer of DeFi” in 2020 to fend off an alleged “vampire attack” on Sushiswap.Sushiswap launched with the governance token SUSHI and quickly began to attract liquidity. Given that Sushiswap is governed by a DAO and passes trading fees directly to token holders, it is considered relatively close to the community.

Version 2 of Uniswap included code that would have split 0.3% of trading fees paid to liquidity providers (or people who contribute tokens to trade on a decentralized exchange), with 0.25% going to LPs and the remaining 0.05% going to UNI token holders. But “fee switching” was never activated.

With the launch of Uniswap V3, discussions about fee switching activation have resurfaced. GFX Labs, makers of Uniswap’s front-end interface Oku, raised a plan to test protocol fee allocations across several pools on Uniswap V2, which attracted widespread attention. But the talks ultimately fizzled out, in part due to concerns that activation could cause LPs and liquidity to leave the platform, but also due to legal concerns.

One of the main concerns at the time was that the fee switch could have tax and securities law implications for UniDAO, since it would essentially pay a kind of income-based dividend to token holders.

It’s unclear exactly which concerns the Uniswap Foundation was responding to when it decided to postpone the vote again. Gabriel Shapiro, a prominent cryptocurrency legal expert, wrote that this is another example of DeFi protocols treating token holders as “second-class” citizens whose wishes are subordinate to a small group of stakeholders.

Late last year, Uniswap Labs made a similar argument when it imposed a 0.15% trading fee on its front-end site and wallet — the development group’s first attempt to directly monetize its work. The fee only applies to products maintained by Uniswap Labs, not the exchange protocol itself, but it was indeed imposed after raising $165 million.

There’s no reason to be completely cynical here and suggest that a hard-coded fee switch to reward UNI token holders will never be implemented. Uniswap Labs and UNI token holders are different entities with their own interests; ideally, the two would align to do what’s best for the protocol itself.

But if there’s one lesson from DeFi, it’s that token holders don’t always have the final say.