<\/p>\n
Uniswap Labs new swap fee heightened tensions between token holders and shareholders, while opening the door to competitors.<\/p>\n
There\u2019s Uniswap Labs, the company with its equity and shareholders. And there\u2019s Uniswap, the blockchain protocol with its token and token holders.<\/p>\n
The two sets of investors are vying to extract value from the decentralized exchange, with each asset carrying different economics and rights. It\u2019s an unstable balance and sparks fly when one side perceives the scale is tilting the other way.<\/p>\n
That\u2019s what happened this week when Uniswap Labs announced it\u2019s implementing<\/a> a fee for swapping select pairs on the DEX\u2019s website and wallet. That\u2019s revenue for the company, which will benefit shareholders. Meanwhile, UNI token holders are still waiting<\/a> to turn on a protocol-level fee that would benefit them.<\/p>\n The dynamic between company and protocol is common across DeFi. Teams hoping to build a decentralized protocol often retain control over a centralized company which becomes one of what they hope, will be many builders and service providers on top of the protocol. In these cases it\u2019s not always clear how value accrues to owners of equity versus token holders.<\/p>\n <\/a><\/p>\n The case for Uniswap Labs\u2019s new swap fee is simple. Uniswap Labs needs to make money and the new 15 basis point cut on the most popular trading pairs allows it to. <\/p>\n It\u2019s already working \u2014 Labs made<\/a> nearly $84,000 in the first 24 hours since introducing the fee on Oct.16, which annualizes to over $30M.<\/p>\n Will Warren<\/a>, co-founder of 0x, a set of trading APIs, and Matcha<\/a>, a trading aggregator which sources liquidity from Uniswap, said Labs\u2019s move \u201cindicates we\u2019ve kind of matured from a space where everything is subsidized.\u201d<\/p>\n \u201cI think Uniswap turning on fees is great,\u201d Warren said in an interview. \u201cIt’s going to allow companies that are actually creating value for users to start to be able to be sustainable.\u201d<\/p>\n Gnosis co-founder Martin Koppelmann tweeted<\/a> the frontend fee switch was \u201cgood news.\u201d <\/p>\n \u201c\u200b\u200bIf we want to have resilient systems that work at scale there needs to be entities that have a sustainable income.\u201d<\/p>\n Start for free<\/a><\/div>\n But when Labs made the announcement<\/a>, UNI dropped 6% in the 24 hours after as holders wondered whether they would ever catch a similar break. Holders have long hoped<\/a> that UNI will eventually entitle holders to a share of revenue on trades.<\/p>\n UNI is down 23% year-to-date, compared with ETH\u2019s 34% increase, and is down 91% from its all-time high of $44.9 in May 2021, according to data by Coingecko. Uniswap Labs last year raised<\/a> $165M in a Series B round at a valuation of $1.66B.<\/p>\n Scott Lewis, the founder of DeFi Pulse and Slingshot Crypto, was quick to criticize the move, and tweeted that Uniswap Labs is \u201crugging $UNI holders by monetizing Uniswaps Labs equity with a fee switch,\u201d before monetizing the token.<\/p>\n Popular Crypto Twitter account Autism Capital said the move \u201cabsolutely neglects all the holders of their useless ‘governance token’ UNI that *still* hasn\u2019t turned on a fee switch to provide one scrap of value to those tricked into buying it.\u201d<\/p>\n The first proposal to turn on the protocol-level fee switch dates back to September 2020, almost immediately after the token was first issued<\/a>, and the latest fee proposal was made as recently as May.<\/p>\n But the vote closed in June with over 45% of participants in favor of no fee, while 42% were in favor of a fee. Even token holders are split on the decision as they weigh whether a fee would diminish liquidity, make Uniswap less competitive, trigger tax complications and invite regulatory scrutiny.<\/p>\n Getty Hill, co-founder of GFX Labs, which drafted the proposal, said in an interview it was shot down by a single entity that controlled UNI through a variety of wallets. That party also owned equity in Labs, making for what Hill called a \u201cdelicate situation.\u201d<\/p>\n Tension is compounded by potential conflicts of interest as Labs also owns UNI tokens \u2014 the Labs team received 21% of the token supply of UNI.<\/p>\n Investors, who also own a stake in Labs, received 18% of the tokens. That means equity holders can also participate in token governance, and while they stand to gain from an upside in the token, they will also protect their equity holdings.<\/p>\n Competitors, like Curve Finance<\/a>, LlamaSwap<\/a>, were quick to capitalize on the fee swap turmoil.<\/p>\n Antonio Juliano<\/a>, the founder of dYdX<\/a>, was also one of them, noting that the derivatives exchange charges fees at the protocol level and not at on its interface<\/p>\n \u201cdYdX interfaces will have zero, yes zero, fees to dYdX Trading Inc. come dYdX chain,\u201d he posted<\/a> less than an hour after Uniswap Labs\u2019 founder Hayden Adams, announced<\/a> the 15 basis point fee.<\/p>\n Nathan Cha, marketing lead at dYdX Trading, told The Defiant in a later interview that the company had built up six years of runway thanks to the fees it already charged.<\/p>\n \u201cI think our standpoint is just fundamentally different because of how we’ve run our business over the last few years,\u201d he said. \u201cWe prioritized profitability at first but our aim was always progressive decentralization.\u201d<\/p>\n Matcha is one of many aggregators which will bypass Labs\u2019 fee by interacting directly with the underlying Uniswap protocol.<\/p>\n \u201cWe’re not going to charge fees just to access publicly [available] liquidity,\u201d 0x\u2019s Warren said. \u201cWhere we are willing to charge and where we see a big opportunity to deliver value beyond just a great user experience within Matcha is in trade execution.\u201d<\/p>\n Matcha charges a 15 basis point fee on its Auto feature, which protects users against maximal extractable value (MEV<\/a>), and increases trade speed, among other potential advantages. Warren estimated that roughly 70% of the aggregator\u2019s users use Auto.<\/p>\n Like Juliano, Matcha\u2019s Twitter feed took a subtle shot<\/a> at Uniswap, this time suggesting that the aggregator\u2019s fee is more visible than Uniswap\u2019s when comparing the two interfaces.<\/p>\n Likewise, Oku, which launched in July and is focused on giving a sleek trading experience, highlighted that despite using Uniswap V3 exclusively under the hood, users don\u2019t have to pay any fees.<\/p>\n GFX Labs, the group behind the latest proposal to turn on protocol-level fees on Uniswap, is the developer of Oku<\/a>.<\/p>\n But Uniswap is not alone at charging fees at the interface level. MetaMask, the most popular wallet in crypto, charges 87.5 basis points on swaps. MetaMask made over $500,000 in the past week off those fees and has made $200M in total revenue from the feature, according to a Dune Analytics dashboard<\/a>.<\/p>\n The difference with MetaMask though, is that the Consensys-backed wallet doesn\u2019t have a token.<\/p>\n$84,000 for Labs in 24 Hours<\/h2>\n
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UNI Drops on News<\/h2>\n
Fee Switch Proposals<\/h2>\n
Conflicts of Interest<\/h2>\n
Competitors Salivate<\/h2>\n
Bypassing Uniswap\u2019s Frontend<\/h2>\n
Unsiwap is Not Alone<\/h2>\n