UNI Holders Slam Lack of Rev Share as Uniswap Sees Record Volumes

Uniswap, the second-largest decentralized crypto exchange (DEX) by trading volume, is nearing $1 trillion in yearly volumes, but holders of the platform’s token say that the success is not being shared with them. UNI holders took to X this week to call out that Uniswap’s soaring metrics have not provided them with payouts, revenue share, or some other structural benefits.

The uproar on X started after Uniswap founder Hayden Adams published a post on Sunday, Sept. 21, boasting about the platform’s metrics and saying “Always funny to see people bear post Uniswap,” adding further that the protocol’s volumes “are at all time high” exceeding $1 trillion per year for the first time.

Data from Token Terminal shows that Uniswap is nearing the $1 trillion mark for yearly volume, next only to PancakeSwap, which has already surpassed $1.1 trillion in the past year.

Adams’ post sparked an immediate reaction in the crypto community, which wasn’t pleased with how things are unfolding for UNI holders. Arca chief investment officer Jeff Dorman fired back at the Uniswap founder, saying in an X post that UNI has become a “complete nonsense token in today’s market & changing regulatory environment.”

“Everything you and your VCs stand for is irrelevant. Turn on revenues & buybacks, or don’t bother having a token,” Dorman added in the X post.

Crypto investor Mike Dudas also responded to Adams’ post yesterday, saying “reasonable to ask why there is no value accrual to the UNI token 5 years post-TGE[.] nearly every other major defi primitive has figured this out by now[.]”

As of press time, Uniswap (UNI) is trading at $8.13, down 81.7% from May 2021, when it reached an all-time high at $44.92, according to The Defiant’s price tracking page.

While the argument that the DEX’s high volumes and revenue don’t directly benefit UNI holders was repeated by several prominent commentators, some also pointed out issues with the volumes themselves.

Pseudonymous DeFi analyst jpn memelord wrote in a Monday X post that roughly 5% of Q3’s $270 billion in Uniswap trading volume across all chains came from a “honeypot network” — a malicious smart contract that creates tokens that are unsellable — operating on Uniswap on Base.

“The bots don't even pay the front end fee to Uniswap Labs, this is just volume for volume's sake (or potentially money laundering),” the analyst added.

Third Parties Get It All

Launched in September 2020, the UNI token mainly functions as a governance tool, letting holders vote on fee structures, but so far none of those mechanisms have delivered real economic gains to token holders.

In commentary to The Defiant, Hector Torres, managing partner of Torres Legal, explained that Uniswap has “deliberately kept UNI strictly as a governance token,” for regulatory reasons. Torres told The Defiant:

“Activating revenue-sharing would almost certainly bring it under U.S. securities regulation, which would open the door to enforcement risk. For now, the protocol seems intent on keeping that risk at arm’s length... even if it leaves token holders frustrated while volumes hit record highs."

Analysts from The DeFi Report pointed out in a research note earlier this year that over 99% of the value created by Uniswap has gone to third parties like liquidity providers, MEV bots, and Ethereum validators. Since May 2020, Uniswap has paid over $4.5 billion in trading fees to liquidity providers, Token Terminal data shows.

However, Uniswap Labs, the developer of the Uniswap protocol, wasn’t left behind. The DeFi Report notes that the team activated a fee for users trading on Uniswap via the web interface

The report states that the interface fee generated Uniswap Labs $50 million in the first six months of its activation.

In total, all-time fees captured by Uniswap Labs have surpassed $127 million by press time, Token Terminal data shows. The DeFi Report analysts also note that UNI holders and investors “have not received any fee revenue to date.”

Alexander Cutler, co-founder of Aerodrome Finance, suggested in commentary for The Defiant that one of the options for Uniswap is to “redirect a portion of frontend fees, which currently go to Uniswap Labs,” noting though that the “existential challenge is that any value redirected to one group, such as tokenholders, comes at the expense of another, like investors or LPs.”

Cutler argued that the current dissatisfaction among UNI holders is due to the fact that the platform was not designed around a native token.

Now, with Uniswap stuck figuring out what to do with UNI, Cutler thinks the protocol risks damaging its reputation as one of the leading DEXs.

“Yes. Redirecting value to tokenholders now risks driving funding or liquidity out of the system. The only real fix for this kind of misalignment is to send 100% of protocol revenue to tokenholders, but Uniswap wasn’t designed to do that,” Cutler told The Defiant.

Uniswap did not immediately reply to The Defiant’s request for comments on the platform’s plans for UNI’s tokenomics.

Focus on Unichain

Technically, the Uniswap Foundation tried to address this issue in early 2024 by letting UNI holders stake their tokens to earn a share of protocol fees.

A Snapshot vote in March showed support, but the plan was put on hold after the U.S. Securities and Exchange Commission (SEC) issued a Wells Notice to Uniswap Labs, alleging it operated as an unregistered securities exchange and that UNI might be considered an unregistered security. Even though the SEC dropped its charges in February of this year, the regulatory uncertainty left the initiative stalled.

The DeFi Report analysts suggested that Uniswap’s launch of Unichain, a Layer 2 protocol on the Optimism Superchain, could eventually allow UNI holders to capture some of the protocol’s economic upside by staking tokens with validators to earn settlement fees and MEV revenue, without taking fees from liquidity providers.

But, as of press time, that potential hasn’t materialized, with data from DefiLlama showing total value locked (TVL) in Unichain has steadily fallen since late July and now sits around April levels of around $360 million.

Disclaimer: This article has been updated to include comments from Hector Torres and Alexander Cutler on UNI's tokenomics. A correction was also made to say that 5% of all Q3 Uniswap trading volume across chains (not just of Uniswap volumes on Base) can be attributed to a honeypot network.