Uniswap Faces Criticism after Launching Unichain Without DAO Approval

Uniswap Labs' decision to launch Unichain, an Ethereum Layer 2 blockchain, has sparked backlash from the Uniswap community.

On Oct. 21, Billy Gao, the head of governance at Stanford Crypto and a UNI token delegate, criticized Uniswap Labs for launching Unichain without seeking input from the decentralized autonomous organization (DAO) that governs Uniswap.

Uniswap Labs launched a testnet for Unichain on Oct. 11. UNI is up 4.4% in the past 24 hours, bucking the broader bearish trend prevailing across crypto markets.

In a thread on X, Gao voiced his frustration, noting that the launch caught many delegates off guard.

“We are disappointed that, as DAO delegates representing UNI token holders, we were not given a voice at any stage of the process—whether through forums, private discussions, or any other means,” he said. “We feel very left out of the loop.”

Gao highlighted that the community does not lack members with technical expertise, and therefore, discussions involving governance should not be bypassed.

“..Efficiency in decision-making should not be used as a reason to avoid these useful yet necessary conversations,” Gao argued. “We firmly believe that effective decision-making depends on open discussion, especially with us, the DAO delegates..”

‘Killed the Fee Switch’

One of the most contentious points surrounding the launch of Unichain was its impact on the DAO’s long-discussed "fee switch" proposal, which would allow UNI holders to capture a portion of Uniswap’s transaction fees.

Jay Yu, another Uniswap governance delegate, said that the Unichain launch “aligned equity bags” and “killed the fee switch,” suggesting that Uniswap Labs prioritized its financial interests over the decentralized governance process.

Other community members, such as Ignas, a DeFi analyst, echoed these concerns.

“DAO governance is a funny business,” Ignas said. “Decisions are often made by insiders, leading to voter apathy, as many feel their participation doesn't matter.”

In February, the Uniswap Foundation proposed an upgrade to Uniswap's governance framework, aiming to reward UNI token holders by enabling the collection of protocol fees. These fees would then be distributed pro-rata to token holders who had staked and delegated their UNI votes, with governance maintaining control over the core parameters surrounding the fees.

However, UNI holders rejected this governance proposal, which would have given the DAO authority to make changes to the fee mechanism. The vote closed on March 9, with 60% of voters in opposition. At the time, criticism was leveled at prominent entities within Uniswap governance, including a16z and founder Hayden Adams, for their hesitance to activate the fee switch.

“The whales that dominate Uniswap governance (a16z, Hayden, etc.) refuse to activate the fee switch because they don’t want to create a legal liability. The irony is that they’re still creating legal liability by using their massive voting power to kill every fee switch proposal,” wrote Chris Blec, a DeFi researcher.

Community members have long pushed for the fee switch to be activated since the UNI token was airdropped to early adopters in 2020.

Unichain on Optimism

Uniswap Labs’ decision to build Unichain on Optimism, a Layer 2 scaling solution for Ethereum, has also raised eyebrows.

Unichain is built on Optimism's OP Stack, providing interoperability with other networks within the Optimism Superchain ecosystem, such as Base, OP Mainnet, and Mode.

Gao questioned Uniswap's choice of Optimism over more established Layer 2 solutions like Arbitrum, which has a larger user base and higher transaction volume.

“..It seems to be low-hanging fruit for us to raise the question of why OP Stack was adopted with a target block time of 250ms where Arbitrum Orbit is 100ms out of the box with the largest L2 volume,” he said.

Pseudonymous DeFi researcher Santisa pointed out that “Uniswap Labs and their investors own a percentage of the $UNI supply, but they hold 100% of Labs’ equity.”

“People—even delegates, it seems—are quick to forget that Uniswap Labs and the Uniswap DAO are two different entities. Labs created Unichain, but it is up to the DAO to decide whether to integrate it,” the researcher tweeted.