Crypto

After years on the drawing board, Uniswap is finally flipping the fee switch. Until now, the UNI token hasn't accrued direct value from protocol activity, with utility limited to governance participation and staking yield. After recently surpassing $3 trillion in processed cumulative trading volume, the leading decentralized exchange has proposed to activate a long-awaited protocol fee switch mechanism. That would transform UNI from a passive governance token into a productive asset with direct onchain value accrual.

Billed as "UNIfication" in an announcement by founder Hayden Adams on Monday, the confirmation of the rumoured plans sent UNI soaring more than 40% as traders rushed to revalue the token.

For the proposal to take effect, it must still clear Uniswap DAO’s governance process, starting with a community discussion before moving on to an offchain snapshot vote and, finally, an onchain approval by token delegates. A similar fee-switch proposal failed last year.

Switch 'n' burn

Under the new initiative, Uniswap governance would activate the fee switch across its main deployments and burn UNI using protocol revenue, permanently reducing supply over time. Crucially, the plan also includes a retroactive burn of 100 million UNI from the treasury, roughly $800 million at current prices, representing the amount that would have been destroyed had the fee switch been active since inception.

The move mirrors a traditional corporate buyback – when companies use earnings to repurchase their shares from investors, usually rewarding long-term holders by boosting the price of their stock as the float shrinks.

If approved, the new structure would finally align Uniswap’s massive trading footprint with token holder economics.

Following Aave’s Path

It's not the first notable fee-switch episode this year. Uniswap’s move echoes Aave’s initiative in April, when the lending protocol began using treasury revenues to purchase and remove AAVE supply from the open market. The switch established structural, recurring spot demand and came just as capital rotated toward fundamentally driven DeFi tokens, fueling AAVE’s broader market outperformance amid a rally in Ether (ETH).

Over the three-month period following the first DAO-led buyback, AAVE rose as much as 138% while Ether and Bitcoin climbed 88% and 52% respectively. By redirecting real protocol earnings into value-accretive mechanics, AAVE demonstrated that investors reward credible, cash-flow-backed tokenomics and Uniswap’s proposal now takes that logic a step further, applying it to a protocol that has far greater scale and potential fee throughput.

How Uniswap fees flow

Now for some details. The fee switch implementation means that a share of transaction fees generated on Uniswap V2, V3 and V4 pools, along with Unichain’s sequencer revenues, will be directed to the burn mechanism.

In practice, every Uniswap trade involves a liquidity provider (LP) – users who deposit pairs of tokens into smart contracts so others can swap against their liquidity. In return, LPs earn a small trading fee taken from every swap. Since inception, Uniswap has evolved through several iterations (V1, V2, V3, now V4 and Unichain), each refining how liquidity and fees are managed.

(Source: Token Terminal)

Until now, all fees have gone entirely to LPs. The proposed switch changes that logic: a small share of trading fees will now be redirected to the protocol itself, and used to buy and burn UNI, linking token value directly to the platform’s onchain activity.

Alongside these swaps, Uniswap’s new Unichain network also earns sequencer fees – small payments made by users for ordering and batching transactions on the layer-2 chain. Since it emerged nine months ago, Unichain has already processed about $100 billion in annualized trading volume and accumulated $3.1 million in sequencer fees. Under the proposal, these sequencer revenues will likewise flow into the burn mechanism after costs.

Below is a conservative estimate of how much the fee switch could contribute to UNI burns based on 2025 year-to-date data for Uniswap V2 and V3, excluding V4 since fee parameters are yet to be finalized:

*Uni V2 Pool is a classic Uniswap pools with a 0.30% swap fee; Uni V3 Pool is a concentrated-liquidity pool with tiered fees (0.01 - 1%); Unichain Sequencer is the Uniswap Layer-2 network

Under these conservative assumptions, and without counting V4’s future contribution, Uniswap could already be burning around $150 million per year, or roughly 2.5% of UNI’s total circulation supply, purely from existing trading activity. One tantalizing scenario for investors to consider is for further growth in trading volume and ongoing, programmatic token scarcity.