The end of years of “free riding”? Uniswap undergoes major changes, UNI sees a resurgence in value

Source: OxResearch

Authors: Carlos & Luke Leasure

Compiled and organized by: BitpushNews

Uniswap has become a typical example of the widespread “equity-token” structural contradiction in the industry. For years, Uniswap Labs has accumulated all the revenue generated by the protocol, while UNI token holders have not benefited.

Yesterday, Uniswap founder Hayden Adams released a governance proposal on behalf of Uniswap Labs and the Uniswap Foundation, aiming to activate Uniswap protocol fees and unify ecosystem incentives—an unexpected victory for token holders.

The Uniswap protocol includes a fee switch, which can only be activated through UNI governance voting. This proposal will activate the fee switch and introduce a programmatic token burn mechanism, while also retroactively burning 100 million UNI tokens from the treasury to compensate for the value accumulation missed by token holders over the years.

At the same time, the proposal stipulates that after deducting Layer 1 (L1) data costs and the 15% fee paid to Optimism, all sequencer fees from Unichain will be transferred to this burn mechanism.

In terms of incentive alignment, the proposal will also merge most of the Foundation’s functions into Labs and create an annual growth budget of 20 million UNI, aiming to allow Labs to focus on protocol adoption while reducing its take rate on the frontend interface, wallet, and API to zero.

Now that Uniswap will establish a clear value accumulation mechanism between the token and the protocol’s success, what is the fair value of UNI?

In the past two years, Uniswap has lost its dominance in the DEX (decentralized exchange) sector, with its trading volume market share dropping from over 60% in October 2023 to less than 15% last month.

This shift in DEX market share reflects the growing dominance of Solana in on-chain activity during the same period, as well as the rise of protocols like Aerodrome, which has successfully maintained a leading position relative to Uniswap on the Base chain.

If we look at Unichain, its network activity remains relatively sluggish, with weekly DEX trading volume continuously declining since July.

Last week’s recorded trading volume of $9.25 billion was the lowest figure since mid-April.

Unichain’s network revenue presents a more optimistic picture, although we have also seen a decline in revenue in recent weeks.

In the past 30 days, Unichain’s total network revenue was $460,000, which translates to an annualized revenue of about $5.52 million.

At an 84% profit margin, under the current structure, this would bring Uniswap Labs $4.64 million in revenue; after the proposal passes, this revenue will go into the burn mechanism.

That being said, Unichain is only a small part of the protocol’s total revenue, with most revenue still coming from the implementation of v2 and v3 versions.

Kunal, a researcher at Blockworks Research, has built an excellent dashboard based on this “UNIfication” proposal to display Uniswap’s estimated token burns.

If this mechanism had been enabled earlier, the protocol would have burned nearly $26 million worth of UNI in the past 30 days;

And year-to-date, nearly $150 million would have been burned.

The table below compares UNI with other decentralized exchanges (please note, we included Pump due to its AMM mechanism).

From this table, although the direction of the “UNIfication” proposal is correct, even considering the retroactive burn of 100 million UNI, UNI’s valuation remains high relative to the median and average price-to-sales ratios of its peers.