Uniswap Foundation proposes major upgrade to reward UNI token holders

The Uniswap Foundation (UF), the non-profit organization behind the popular decentralized exchange Uniswap, has put forward a proposal to upgrade the protocol’s governance and fee mechanism. The proposal aims to incentivize UNI token holders to delegate and stake their tokens, and reward them with a share of the protocol fees.

The proposal, titled “UF-01: Uniswap Protocol Governance and Fee Mechanism Upgrade”, has gone live for Snapshot voting on March 1, 2024. As of 11:00 UTC+8, the proposal leads with 10 million UNI (about $300 million) 100% agreeing to the upgrade. Voting will be open until March 7 at 2:30 AM.

What is the proposed upgrade?

According to the proposal, the UF is proposing a large-scale upgrade to Uniswap protocol governance to incentivize active, engaged, and thoughtful delegation. Specifically, the UF proposes to upgrade the protocol such that its fee mechanism rewards UNI token holders that have delegated and staked their tokens.

Currently, Uniswap protocol charges a 0.3% fee on every trade, which is distributed to the liquidity providers (LPs) who supply the tokens for the trading pairs. The protocol also has a switch that can be activated by a governance vote, which would divert 0.05% of the fee to a treasury controlled by UNI token holders.

The UF proposes to activate this switch and allocate the 0.05% fee to a new smart contract called the Delegation Rewards Contract (DRC). The DRC would distribute the fee rewards to UNI token holders who have delegated their voting power to other addresses and staked their tokens in the DRC. The DRC would also reward the delegates who receive the voting power from the stakers, based on their voting participation and alignment with the majority.

The UF argues that this upgrade would create a positive feedback loop for Uniswap governance, as it would encourage UNI token holders to delegate and stake their tokens, rather than hold them passively or sell them. This would increase the voting power and security of the protocol, as well as the value of the UNI token. The UF also claims that this upgrade would align the interests of the UNI token holders with the LPs and the users of the protocol, as they would all benefit from the growth and development of Uniswap.

What are the technical and logistical details?

The proposal provides detailed descriptions of the technical changes and logistics required to implement the upgrade. The main components of the upgrade are:

  • The Fee Switch Activation Contract (FSAC), which would activate the fee switch and divert the 0.05% fee to the DRC.
  • The Delegation Rewards Contract (DRC), which would distribute the fee rewards to the stakers and the delegates, based on a formula that takes into account the amount of tokens staked, the duration of staking, the voting participation, and the voting alignment.
  • The Delegation Rewards Interface (DRI), which would provide a user-friendly interface for UNI token holders to delegate, stake, claim, and withdraw their tokens and rewards.
  • The Delegation Rewards Oracle (DRO), which would provide the DRC with the necessary data on the voting outcomes and participation of the delegates.

The proposal also outlines the steps and timelines for deploying and testing the upgrade, as well as the communication and education strategies for informing and engaging the UNI token holders and the broader Uniswap community.

What are the next steps?

The proposal states that assuming no major blockers arise, a Snapshot vote for this proposal will be posted on March 1, 2024 and an on-chain vote will be posted on March 8, 2024. The Snapshot vote is a non-binding signal of the sentiment of the UNI token holders, while the on-chain vote is a binding execution of the proposal.

The proposal requires a quorum of 40 million UNI (about 10% of the total supply) and a supermajority of 66.67% of the votes to pass. If the proposal passes, the UF will proceed with the deployment and testing of the upgrade, and aim to launch it by the end of March 2024.

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