Uniswap Major Change! Protocol fee activates burn mechanism, UNI surges 38%, market cap exceeds 6 billion

Uniswap Foundation and Uniswap Labs jointly announced the “UNIfication” proposal, introducing a protocol-level fee mechanism and planning to burn 100 million UNI tokens (approximately 16% of the circulating supply). Boosted by this news, UNI’s price surged about 38.5%, reaching $9.70, with market capitalization surpassing $6 billion.

Three Core Mechanisms of the UNIfication Proposal

(Source: Uniswap)

The Uniswap Foundation describes UNIfication as the “next era” for the protocol. One of the potential changes outlined in this proposal is enabling a protocol fee mechanism to burn the native UNI tokens. This is the most significant tokenomics adjustment since Uniswap’s launch in November 2018, aiming to make holding the token more attractive to investors.

The first core mechanism is the Protocol Fee Switch. Currently, all trading fees on Uniswap go to liquidity providers (LPs), with the protocol itself not collecting any fees. The UNIfication proposal will change this model, allowing the protocol to take a small portion of fees from each trade. These protocol fees will not go into the treasury or be distributed to UNI holders but will be directly used to burn UNI tokens, permanently removing them from the market.

The second core mechanism is the Protocol Fee Discount Auction system. This innovative design aims to balance protocol revenue with the interests of liquidity providers. In this system, market makers and professional traders can bid in auctions to receive discounts on protocol fees. The winners will pay lower fees, and the amount paid will be burned in the form of UNI. This mechanism can generate protocol income while maintaining Uniswap’s competitiveness in the decentralized exchange (DEX) space.

The third core mechanism is treasury token burns. The proposal plans to burn 100 million UNI tokens from the Uniswap treasury, about 16% of the current circulating supply. This one-time supply shock will immediately improve UNI’s supply-demand dynamics. Currently, UNI’s total supply is 1 billion, with approximately 627 million in circulation. Burning 100 million will reduce circulating supply to about 527 million, theoretically supporting the price if demand remains unchanged.

Key Points of the UNIfication Proposal

Protocol Fee Switch: Extract fees from trades to directly burn UNI, creating deflationary pressure

Fee Discount Auction: Market makers bid for discounts; proceeds are burned as UNI, balancing interests

Treasury Burn: One-time burn of 100 million UNI (16% of circulating supply), immediately improving supply-demand

The synergy of these three mechanisms aims to create sustained buying pressure and reduce supply. The Protocol Fee Switch provides a steady stream of burns, the discount auction system attracts market makers to participate and contribute additional burns, and the treasury burn offers an immediate supply shock. This multi-layered tokenomics design is relatively rare in DeFi, demonstrating the Uniswap team’s commitment to increasing token value.

Unichain Revenue Reinforces Burn Dynamics

(Source: Uniswap)

Fees generated by Uniswap’s Ethereum Layer-2 solution, Unichain (which has produced $7.5 million in annualized fees over nine months), will also be directed into the same UNI burn mechanism. This is an often-overlooked but crucial part of the UNIfication proposal. Unichain is a dedicated Layer-2 solution launched by Uniswap, designed to offer faster and cheaper transactions.

While $7.5 million in annualized fees may seem modest, considering Unichain’s recent launch of nine months, this indicates strong growth potential. As Ethereum gas fees remain high, more users and liquidity are migrating to Layer-2 solutions. If Unichain can attract more trading volume, its fee revenue could grow exponentially.

Including Unichain fees in the burn mechanism means all of Uniswap’s revenue streams will support UNI’s value. This unified value capture mechanism is uncommon across multi-chain ecosystems. Many projects, after launching Layer-2 or side chains, issue separate tokens for these chains, diluting the value of the native token. Uniswap’s approach to direct revenue burning of UNI shows its commitment to maximizing the token’s value.

Long-term, if Unichain reaches a scale comparable to Arbitrum or Optimism (both generating annualized fees exceeding hundreds of millions of dollars), the burns from Unichain could surpass those from the mainnet protocol fees. This provides multiple growth narratives for UNI: not only as the governance token of the largest DEX but also as a value capture tool for a rapidly growing Layer-2 ecosystem.

Market Performance and Return to Blue-Chip Status

(Source: CoinGecko)

Boosted by this news, UNI’s price soared about 38.5%, reaching $9.70, providing a much-needed uplift after lagging behind Bitcoin, BNB, Solana, and other blue-chip tokens during this cycle. Following the announcement, UNI’s market cap broke $6 billion, making it the 34th largest cryptocurrency.

This rally is significant not just for the percentage gain but also for reversing UNI’s long-term underperformance. In the 2024-2025 crypto bull market, Bitcoin hit new all-time highs, and tokens like Ethereum and Solana performed strongly, but governance tokens like UNI remained relatively subdued. Many investors questioned the value capture ability of governance tokens, viewing them as mere voting rights without substantial income rights, thus less attractive than holding underlying platform tokens.

The UNIfication proposal directly addresses these concerns. By converting protocol revenue into token burns, Uniswap effectively implements a buyback mechanism for UNI. In traditional finance, share buybacks are seen as an effective way to return value to shareholders. Token burns serve a similar purpose in crypto, reducing supply to increase the relative value of each token.

Uniswap, as the largest decentralized exchange (DEX), has processed approximately $4 trillion in trading volume since its launch in November 2018—far exceeding all other DEXs combined, demonstrating its dominance in decentralized trading. However, this dominance has not always been fully reflected in UNI’s price, as protocol success was not directly linked to token holder benefits.

The UNIfication proposal establishes this link. Now, every trade on Uniswap results in protocol fees being extracted and used to burn UNI. Higher trading volume accelerates burns, increasing token scarcity. This direct value transfer mechanism could attract more investors to see UNI as a store of value rather than just a governance token.

Growth Budget and Ecosystem Expansion

The Uniswap Foundation states that grants to improve protocol development and support DeFi builders will remain a priority. The foundation plans to establish a growth budget, including the distribution of 20 million UNI tokens. The UNIfication proposal also introduces a Uniswap growth budget to fund industry builders to further develop the protocol and ecosystem each quarter.

This growth budget reflects Uniswap’s strategy to enhance token value while continuing ecosystem expansion. Distributing 20 million UNI may seem at odds with burning 100 million, but both are complementary. Burns create scarcity in circulating supply, while the growth budget invests in future protocol development. Together, they aim to boost long-term UNI value.

Potential uses for the growth budget include funding new liquidity pools, supporting cross-chain bridge development, improving user interfaces, and integrating with other DeFi protocols. These investments will increase Uniswap’s competitiveness and usage, generating more protocol fees and stronger burn momentum. From this perspective, the growth budget is a strategic investment with the potential for higher long-term token value.

The Uniswap Foundation states: “We believe this proposal will position Uniswap as the default decentralized exchange for tokenized value.” This is an ambitious goal. As real-world asset (RWA) tokenization accelerates—covering stocks, bonds, real estate—being traded on blockchain, Uniswap could become a primary marketplace for these assets. This could significantly increase trading volume and fee revenue beyond current levels.