When I woke up, UNI had risen by nearly 40%, leading the entire DeFi sector to rise across the board. The reason for the price increase is that Uniswap has revealed its final trump card. Uniswap founder Hayden released a new proposal, the core of which revolves around the age-old topic of "fee on/off". In fact, this proposal has been put forward seven times in the past two years, and it is nothing new to the Uniswap community. This time, however, it's different. The proposal was personally initiated by Hayden, and in addition to a fee switch, it also includes a series of measures such as token burning and the merger of Labs and the Foundation. Several large investors have already expressed their support, and the probability of the proposal passing is as high as 79% in the prediction market. The "cost switch" failed seven times in two years, a series of repeated defeats. Fee switching is actually a fairly common mechanism in the DeFi space. Take Aave as an example. In 2025, it successfully activated its fee switch, using a "buy + distribute" model to use protocol revenue to buy back AAVE tokens, driving the price of the token from $180 to $231, an annualized increase of 75%. Besides Aave, fee switching on protocols such as Ethena, Raydium, Curve, and Usual has also achieved significant success, providing a paradigm of sustainable token economics for the entire DeFi industry. Given so many successful precedents, why is it still failing with Uniswap? a16z has relented, but Uniswap's troubles have only just begun. Here we must mention a key figure – a16z. Historically, Uniswap has generally had a low quorum, typically requiring only around 40 million UNI to reach the voting threshold. However, this venture capital giant previously controlled approximately 55 million UNI tokens, giving it a very direct influence on the voting results. They have consistently opposed the relevant proposals. Initially, in two temperature-based tests in July 2022, they abstained, only expressing some concerns on the forum. However, in the third proposal in December 2022, when pools like ETH-USDT and DAI-ETH were preparing to activate on-chain voting for a 1/10 fee rate, a16z cast a clear vote against it, using 15 million UNI votes. This vote ultimately ended with 45% support, failing due to insufficient quorum despite a majority of supporters. On the forum, a16z clearly stated: "We ultimately cannot support any proposal that does not consider legal and tax factors." This was their first public opposition. In subsequent proposals, a16z consistently maintained this stance. In May and June 2023, GFX Labs launched two fee-related proposals. Although the June proposal garnered 54% support, it ultimately failed due to insufficient quorum, influenced by 15 million dissenting votes cast by a16z. The same scenario played out with the governance upgrade proposal in March 2024—approximately 55 million UNI supported it, but it failed due to a16z's opposition. Most dramatically, the proposal from May to August 2024 attempted to circumvent legal risks by establishing a Wyoming-based DUNA entity. The vote, originally scheduled for August 18th, was indefinitely postponed due to "new questions from an unnamed stakeholder," widely believed to be a16z. So what exactly is a16z worried about? The core issue lies in legal risks. They believe that once the fee switch is activated, the UNI token may be classified as a security. According to the well-known Howey Test in the United States, if investors have a reasonable expectation of "profiting from the efforts of others," then the asset may be considered a security. The fee switch creates precisely such an expectation—the protocol generates revenue, and token holders share the profits, which is highly similar to the profit distribution model of traditional securities. Miles Jennings, a partner at a16z, bluntly stated in a forum comment: "DAOs without legal entities face the exposure of personal liability." Beyond securities law risks, tax issues are equally thorny. Once fees flow into the protocol, the IRS may require the DAO to pay corporate taxes, with initial estimates suggesting back taxes could reach as high as $10 million. The problem is that the DAO itself is a decentralized organization, lacking the legal entity and financial structure of a traditional corporation. How to pay taxes and who should bear these costs remain unresolved issues. In the absence of a clear solution, hastily activating the fee switch could expose all token holders involved in governance to tax risks. As of now, UNI remains the largest single token holding in a16z's cryptocurrency portfolio, with approximately 64 million UNI, and still possesses the ability to influence voting results independently. However, as we all know, with Trump's election and the change of leadership at the SEC, the crypto industry has entered a period of political stability, reducing Uniswap's legal risks and demonstrating a gradual softening of a16z's stance. Clearly, this is no longer an issue, and the likelihood of this proposal being passed has greatly increased. However, this does not mean that there are no other contradictions. Uniswap's fee switching mechanism still has some controversial points. You can't have your cake and eat it too. To understand these new points of contention, we first need to briefly explain how this fee switch works. From a technical implementation perspective, this proposal involves detailed adjustments to the fee structure. In the V2 protocol, the total fee remains unchanged at 0.3%, but 0.25% is allocated to LPs, and 0.05% goes to the protocol itself. The V3 protocol is more flexible, with protocol fees set at one-quarter to one-sixth of the LP fees. For example, in a 0.01% liquidity pool, the protocol fee is 0.0025%, equivalent to a 25% share; while in a 0.3% pool, the protocol fee is 0.05%, approximately 17%. Based on this fee structure, Uniswap could conservatively generate $10 million to $40 million in annualized revenue, while in a bull market scenario, based on historical peak trading volumes, this figure could reach $50 million to $120 million. Meanwhile, the proposal also includes the immediate burning of 100 million UNI tokens, equivalent to 16% of the circulating supply, and the establishment of a continuous burning mechanism. In other words, by switching on fees, UNI will transform from a "worthless governance token" into a real yield asset. This is certainly great news for Uni holders, but that's precisely where the problem lies. Because the essence of the "fee switch" is a redistribution between LPs and protocol revenue. The total fees paid by traders will not change; only the profits that originally belonged entirely to the LPs will now have to be allocated to the protocol. Ultimately, the cost will be borne by the LPs; as the protocol's profits increase, the LPs' income will inevitably decrease. You can't have your cake and eat it too. When faced with the question of "LPs or protocol revenue?", Uniswap clearly chose the latter. Community discussions suggest that once the "fee switch" takes effect, half of Uniswap's transaction volume on the Base chain will disappear overnight. The potential negative impact of this redistribution should not be underestimated. In the short term, LP returns will be reduced by 10% to 25%, depending on the protocol fee sharing ratio. More seriously, according to model predictions, 4% to 15% of liquidity may migrate from Uniswap to competing platforms. To mitigate these negative impacts, the proposal also introduces several innovative compensation measures. For example, internalizing MEV through the PFDA mechanism can provide LPs with additional rewards, generating an extra $0.06 to $0.26 per $10,000 of trading. The V4 version of the Hooks feature supports dynamic fee adjustments, and aggregator hooks can also open up new revenue streams. Furthermore, the proposal adopts a phased implementation strategy, starting with a pilot program in the core liquidity pool, monitoring the impact in real time, and adjusting based on the data. The dilemma of cost switches Despite these mitigation measures, whether they can truly dispel LPs' concerns and ultimately secure the proposal remains to be seen. After all, even Hayden's personal intervention might not be enough to save Uniswap from this predicament. The more direct threat comes from market competition, especially the direct confrontation with Aerodrome on the Base chain. Following Uniswap's proposal, Alexander, CEO of Dromos Labs, the Aerodrome development team, sarcastically commented on X: "I never imagined that our biggest competitor would deliver such a major blunder the day before Dromos Labs' most important day." Aerodrome is crushing Uniswap on the Base chain. Data shows that in the past 30 days, Aerodrome's transaction volume was approximately $20.465 billion, accounting for 56% of the Base chain market share; while Uniswap's transaction volume on Base was approximately $12-15 billion, with a market share of only 40-44%. Aerodrome not only leads in transaction volume by 35-40%, but also surpasses Uniswap's $300-400 million in TVL with $473 million. The root of the gap lies in the significant difference in LP yields. Taking the ETH-USDC pool as an example, Uniswap V3's annualized yield is approximately 12-15%, derived solely from transaction fees; while Aerodrome, through AERO token incentives, can offer 50-100% or even higher annualized yields, 3-7 times that of Uniswap. In the past 30 days, Aerodrome distributed $12.35 million in AERO incentives, precisely guiding liquidity through the veAERO voting mechanism. In contrast, Uniswap primarily relies on organic fees, occasionally launching targeted incentive programs, but on a much smaller scale than its competitors. As one member of the community pointed out, "The reason Aerodrome can crush Uniswap in terms of Base trading volume is because liquidity providers only care about the return on every dollar of liquidity they invest. Aerodrome wins in this respect." This observation is spot on. For LPs, they won't stay because of Uniswap's brand influence; they only care about yield. On emerging L2 exchanges like Base, Aerodrome, as a native DEX, has established a strong first-mover advantage with its specially optimized ve(3,3) mode and high token incentives. In this context, if Uniswap activates its fee switch, further reducing LP returns, it could accelerate the migration of liquidity to Aerodrome. Model predictions suggest that the fee switch could lead to a 4-15% liquidity outflow, and this percentage could be even higher in highly competitive markets like Base. Once liquidity decreases, slippage increases, and trading volume also declines, creating a negative spiral. Can the new proposal save Uniswap? From a purely numerical perspective, the fee switch can indeed generate substantial revenue for Uniswap. According to detailed calculations by community member Wajahat Mughal, the situation is already quite considerable, even considering only versions V2 and V3. The V2 protocol has generated $503 million in total fees since the beginning of 2025, with the Ethereum mainnet contributing $320 million and a transaction volume of $50 billion in the last 30 days. Based on a 1/6 fee split, and considering Ethereum mainnet activity, protocol fee revenue is projected to reach $53 million in 2025. The V3 protocol has performed even stronger, with total fees reaching $671 million since the beginning of the year, with the Ethereum mainnet contributing $381 million and a 30-day transaction volume of $71 billion. Considering the different fee pool splits—low-fee pools receiving 1/4 of the protocol fees and high-fee pools receiving 1/6—V3 may have already generated $61 million in protocol fees since the beginning of the year. Adding V2 and V3 together, year-to-date protocol fee revenue is projected to reach $114 million, and that's with six weeks left in the year. More importantly, this figure is far from capturing Uniswap's full revenue potential. This figure doesn't include the remaining 20% of the V3 pools, fees from all chains outside the Ethereum mainnet (especially the Base chain, which generates almost the same fees as the Ethereum mainnet), V4 transaction volume, protocol fee discount auctions, UniswapX, aggregation hooks, and Unichain's sorter revenue. If all of these were taken into account, annualized revenue could easily exceed $130 million. Combined with the plan to immediately burn 100 million UNI tokens (worth over $800 million at current prices), Uniswap's tokenomics will fundamentally change. The fully diluted valuation after the burn will drop to $7.4 billion, with a market capitalization of approximately $5.3 billion. Based on an annualized revenue of $130 million, Uniswap will be able to buy back and burn approximately 2.5% of its circulating supply annually. This means UNI's price-to-earnings ratio is approximately 40, which doesn't seem cheap, but considering that many revenue growth mechanisms haven't been fully realized yet, this figure has significant room to decrease. As one member of the community remarked, "This is the first time UNI tokens have truly become attractive to hold." However, behind these impressive figures lie hidden concerns that cannot be ignored. First, trading volume in 2025 is significantly higher than in previous years, largely due to the bull market. Once the market enters a bear market cycle, trading volume will decline sharply, and protocol fee revenue will shrink accordingly. Using revenue forecasts based on bull market data as the basis for long-term valuation is clearly misleading. Secondly, the specific operational method of the buyback mechanism remains unknown. Will it employ an automated buyback system similar to Hyperliquid, or will it be implemented through other means? The frequency of buybacks, price sensitivity, and impact on the market—these details will directly affect the actual effectiveness of the burn mechanism. If implemented improperly, large-scale market buybacks could trigger price fluctuations, leaving UNI holders in the awkward position of "shifting funds from one hand to the other." While platforms like Aerodrome, Curve, Fluid, and Hyperliquid are attracting liquidity through high incentives, will Uniswap's reduction of LP returns accelerate capital outflows? The data looks promising, but without liquidity as a foundation, even the most impressive revenue forecasts are just castles in the air. There's no doubt that the fee switch can provide value support for UNI. However, whether it can truly "save" Uniswap and bring this former DeFi giant back to its peak remains to be seen and will require both time and market validation.When I woke up, UNI had risen by nearly 40%, leading the entire DeFi sector to rise across the board. The reason for the price increase is that Uniswap has revealed its final trump card. Uniswap founder Hayden released a new proposal, the core of which revolves around the age-old topic of "fee on/off". In fact, this proposal has been put forward seven times in the past two years, and it is nothing new to the Uniswap community. This time, however, it's different. The proposal was personally initiated by Hayden, and in addition to a fee switch, it also includes a series of measures such as token burning and the merger of Labs and the Foundation. Several large investors have already expressed their support, and the probability of the proposal passing is as high as 79% in the prediction market. The "cost switch" failed seven times in two years, a series of repeated defeats. Fee switching is actually a fairly common mechanism in the DeFi space. Take Aave as an example. In 2025, it successfully activated its fee switch, using a "buy + distribute" model to use protocol revenue to buy back AAVE tokens, driving the price of the token from $180 to $231, an annualized increase of 75%. Besides Aave, fee switching on protocols such as Ethena, Raydium, Curve, and Usual has also achieved significant success, providing a paradigm of sustainable token economics for the entire DeFi industry. Given so many successful precedents, why is it still failing with Uniswap? a16z has relented, but Uniswap's troubles have only just begun. Here we must mention a key figure – a16z. Historically, Uniswap has generally had a low quorum, typically requiring only around 40 million UNI to reach the voting threshold. However, this venture capital giant previously controlled approximately 55 million UNI tokens, giving it a very direct influence on the voting results. They have consistently opposed the relevant proposals. Initially, in two temperature-based tests in July 2022, they abstained, only expressing some concerns on the forum. However, in the third proposal in December 2022, when pools like ETH-USDT and DAI-ETH were preparing to activate on-chain voting for a 1/10 fee rate, a16z cast a clear vote against it, using 15 million UNI votes. This vote ultimately ended with 45% support, failing due to insufficient quorum despite a majority of supporters. On the forum, a16z clearly stated: "We ultimately cannot support any proposal that does not consider legal and tax factors." This was their first public opposition. In subsequent proposals, a16z consistently maintained this stance. In May and June 2023, GFX Labs launched two fee-related proposals. Although the June proposal garnered 54% support, it ultimately failed due to insufficient quorum, influenced by 15 million dissenting votes cast by a16z. The same scenario played out with the governance upgrade proposal in March 2024—approximately 55 million UNI supported it, but it failed due to a16z's opposition. Most dramatically, the proposal from May to August 2024 attempted to circumvent legal risks by establishing a Wyoming-based DUNA entity. The vote, originally scheduled for August 18th, was indefinitely postponed due to "new questions from an unnamed stakeholder," widely believed to be a16z. So what exactly is a16z worried about? The core issue lies in legal risks. They believe that once the fee switch is activated, the UNI token may be classified as a security. According to the well-known Howey Test in the United States, if investors have a reasonable expectation of "profiting from the efforts of others," then the asset may be considered a security. The fee switch creates precisely such an expectation—the protocol generates revenue, and token holders share the profits, which is highly similar to the profit distribution model of traditional securities. Miles Jennings, a partner at a16z, bluntly stated in a forum comment: "DAOs without legal entities face the exposure of personal liability." Beyond securities law risks, tax issues are equally thorny. Once fees flow into the protocol, the IRS may require the DAO to pay corporate taxes, with initial estimates suggesting back taxes could reach as high as $10 million. The problem is that the DAO itself is a decentralized organization, lacking the legal entity and financial structure of a traditional corporation. How to pay taxes and who should bear these costs remain unresolved issues. In the absence of a clear solution, hastily activating the fee switch could expose all token holders involved in governance to tax risks. As of now, UNI remains the largest single token holding in a16z's cryptocurrency portfolio, with approximately 64 million UNI, and still possesses the ability to influence voting results independently. However, as we all know, with Trump's election and the change of leadership at the SEC, the crypto industry has entered a period of political stability, reducing Uniswap's legal risks and demonstrating a gradual softening of a16z's stance. Clearly, this is no longer an issue, and the likelihood of this proposal being passed has greatly increased. However, this does not mean that there are no other contradictions. Uniswap's fee switching mechanism still has some controversial points. You can't have your cake and eat it too. To understand these new points of contention, we first need to briefly explain how this fee switch works. From a technical implementation perspective, this proposal involves detailed adjustments to the fee structure. In the V2 protocol, the total fee remains unchanged at 0.3%, but 0.25% is allocated to LPs, and 0.05% goes to the protocol itself. The V3 protocol is more flexible, with protocol fees set at one-quarter to one-sixth of the LP fees. For example, in a 0.01% liquidity pool, the protocol fee is 0.0025%, equivalent to a 25% share; while in a 0.3% pool, the protocol fee is 0.05%, approximately 17%. Based on this fee structure, Uniswap could conservatively generate $10 million to $40 million in annualized revenue, while in a bull market scenario, based on historical peak trading volumes, this figure could reach $50 million to $120 million. Meanwhile, the proposal also includes the immediate burning of 100 million UNI tokens, equivalent to 16% of the circulating supply, and the establishment of a continuous burning mechanism. In other words, by switching on fees, UNI will transform from a "worthless governance token" into a real yield asset. This is certainly great news for Uni holders, but that's precisely where the problem lies. Because the essence of the "fee switch" is a redistribution between LPs and protocol revenue. The total fees paid by traders will not change; only the profits that originally belonged entirely to the LPs will now have to be allocated to the protocol. Ultimately, the cost will be borne by the LPs; as the protocol's profits increase, the LPs' income will inevitably decrease. You can't have your cake and eat it too. When faced with the question of "LPs or protocol revenue?", Uniswap clearly chose the latter. Community discussions suggest that once the "fee switch" takes effect, half of Uniswap's transaction volume on the Base chain will disappear overnight. The potential negative impact of this redistribution should not be underestimated. In the short term, LP returns will be reduced by 10% to 25%, depending on the protocol fee sharing ratio. More seriously, according to model predictions, 4% to 15% of liquidity may migrate from Uniswap to competing platforms. To mitigate these negative impacts, the proposal also introduces several innovative compensation measures. For example, internalizing MEV through the PFDA mechanism can provide LPs with additional rewards, generating an extra $0.06 to $0.26 per $10,000 of trading. The V4 version of the Hooks feature supports dynamic fee adjustments, and aggregator hooks can also open up new revenue streams. Furthermore, the proposal adopts a phased implementation strategy, starting with a pilot program in the core liquidity pool, monitoring the impact in real time, and adjusting based on the data. The dilemma of cost switches Despite these mitigation measures, whether they can truly dispel LPs' concerns and ultimately secure the proposal remains to be seen. After all, even Hayden's personal intervention might not be enough to save Uniswap from this predicament. The more direct threat comes from market competition, especially the direct confrontation with Aerodrome on the Base chain. Following Uniswap's proposal, Alexander, CEO of Dromos Labs, the Aerodrome development team, sarcastically commented on X: "I never imagined that our biggest competitor would deliver such a major blunder the day before Dromos Labs' most important day." Aerodrome is crushing Uniswap on the Base chain. Data shows that in the past 30 days, Aerodrome's transaction volume was approximately $20.465 billion, accounting for 56% of the Base chain market share; while Uniswap's transaction volume on Base was approximately $12-15 billion, with a market share of only 40-44%. Aerodrome not only leads in transaction volume by 35-40%, but also surpasses Uniswap's $300-400 million in TVL with $473 million. The root of the gap lies in the significant difference in LP yields. Taking the ETH-USDC pool as an example, Uniswap V3's annualized yield is approximately 12-15%, derived solely from transaction fees; while Aerodrome, through AERO token incentives, can offer 50-100% or even higher annualized yields, 3-7 times that of Uniswap. In the past 30 days, Aerodrome distributed $12.35 million in AERO incentives, precisely guiding liquidity through the veAERO voting mechanism. In contrast, Uniswap primarily relies on organic fees, occasionally launching targeted incentive programs, but on a much smaller scale than its competitors. As one member of the community pointed out, "The reason Aerodrome can crush Uniswap in terms of Base trading volume is because liquidity providers only care about the return on every dollar of liquidity they invest. Aerodrome wins in this respect." This observation is spot on. For LPs, they won't stay because of Uniswap's brand influence; they only care about yield. On emerging L2 exchanges like Base, Aerodrome, as a native DEX, has established a strong first-mover advantage with its specially optimized ve(3,3) mode and high token incentives. In this context, if Uniswap activates its fee switch, further reducing LP returns, it could accelerate the migration of liquidity to Aerodrome. Model predictions suggest that the fee switch could lead to a 4-15% liquidity outflow, and this percentage could be even higher in highly competitive markets like Base. Once liquidity decreases, slippage increases, and trading volume also declines, creating a negative spiral. Can the new proposal save Uniswap? From a purely numerical perspective, the fee switch can indeed generate substantial revenue for Uniswap. According to detailed calculations by community member Wajahat Mughal, the situation is already quite considerable, even considering only versions V2 and V3. The V2 protocol has generated $503 million in total fees since the beginning of 2025, with the Ethereum mainnet contributing $320 million and a transaction volume of $50 billion in the last 30 days. Based on a 1/6 fee split, and considering Ethereum mainnet activity, protocol fee revenue is projected to reach $53 million in 2025. The V3 protocol has performed even stronger, with total fees reaching $671 million since the beginning of the year, with the Ethereum mainnet contributing $381 million and a 30-day transaction volume of $71 billion. Considering the different fee pool splits—low-fee pools receiving 1/4 of the protocol fees and high-fee pools receiving 1/6—V3 may have already generated $61 million in protocol fees since the beginning of the year. Adding V2 and V3 together, year-to-date protocol fee revenue is projected to reach $114 million, and that's with six weeks left in the year. More importantly, this figure is far from capturing Uniswap's full revenue potential. This figure doesn't include the remaining 20% of the V3 pools, fees from all chains outside the Ethereum mainnet (especially the Base chain, which generates almost the same fees as the Ethereum mainnet), V4 transaction volume, protocol fee discount auctions, UniswapX, aggregation hooks, and Unichain's sorter revenue. If all of these were taken into account, annualized revenue could easily exceed $130 million. Combined with the plan to immediately burn 100 million UNI tokens (worth over $800 million at current prices), Uniswap's tokenomics will fundamentally change. The fully diluted valuation after the burn will drop to $7.4 billion, with a market capitalization of approximately $5.3 billion. Based on an annualized revenue of $130 million, Uniswap will be able to buy back and burn approximately 2.5% of its circulating supply annually. This means UNI's price-to-earnings ratio is approximately 40, which doesn't seem cheap, but considering that many revenue growth mechanisms haven't been fully realized yet, this figure has significant room to decrease. As one member of the community remarked, "This is the first time UNI tokens have truly become attractive to hold." However, behind these impressive figures lie hidden concerns that cannot be ignored. First, trading volume in 2025 is significantly higher than in previous years, largely due to the bull market. Once the market enters a bear market cycle, trading volume will decline sharply, and protocol fee revenue will shrink accordingly. Using revenue forecasts based on bull market data as the basis for long-term valuation is clearly misleading. Secondly, the specific operational method of the buyback mechanism remains unknown. Will it employ an automated buyback system similar to Hyperliquid, or will it be implemented through other means? The frequency of buybacks, price sensitivity, and impact on the market—these details will directly affect the actual effectiveness of the burn mechanism. If implemented improperly, large-scale market buybacks could trigger price fluctuations, leaving UNI holders in the awkward position of "shifting funds from one hand to the other." While platforms like Aerodrome, Curve, Fluid, and Hyperliquid are attracting liquidity through high incentives, will Uniswap's reduction of LP returns accelerate capital outflows? The data looks promising, but without liquidity as a foundation, even the most impressive revenue forecasts are just castles in the air. There's no doubt that the fee switch can provide value support for UNI. However, whether it can truly "save" Uniswap and bring this former DeFi giant back to its peak remains to be seen and will require both time and market validation.