UNI soared over 60% in one night! What is the content of Uniswap's proposal to restart the UNI staking and profit-sharing program?

The governance token UNI of the leading Ethereum DEX Uniswap saw a surge of over 60% on the evening of 2/23, rising from the $7 level to a peak of $12.6, maintaining at $12 before the deadline. Around 10 p.m., the Uniswap Foundation released a governance proposal regarding staking revenue sharing, with most of the community attributing the surge to this news.

What is the Uniswap Staking Rewards Proposal?

The governance lead of the Uniswap Foundation, Erin Koen, has initiated a new proposal advocating for UNI token holders to stake and delegate their tokens in order to receive fee-sharing rewards. The proposal suggests that WETH will likely be used as the code for these rewards. This discussion will be open for at least seven days, encouraging the community to audit the proposed upgrades.

What is the Motivation Behind the Uniswap Staking Rewards Proposal? Enhancing Governance Participation

Uniswap has previously been open to sharing fees with UNI token holders, but similar proposals have not been approved by the community in the past due to concerns such as potentially harming the rights of Liquidity Providers (LPs).

The key motivation behind Erin Koen's proposal is to promote governance by incentivizing UNI holders to increase their participation in governance decisions.

He pointed out that free-riding and apathy still pose risks to the sustainability of the Uniswap protocol, with less than 10% of circulating UNI being used for voting on specific proposals. While the current governance is conducted through delegation and voting, as of February 1, 2024, 14 out of the top 30 delegates did not vote on the past 10 proposals, and only 7 delegates have ever proposed a vote.

The founder of Uniswap has previously debated with the community of the stablecoin exchange protocol Curve about the "Uselessness of UNI": Uniswap's founder referred to the veToken model as a short-term money game and was asked about the functionality of UNI.

In fact, governance of DeFi protocols is mostly concentrated in the hands of large whales, where proposals are often decided by a few venture capital firms and high-net-worth investors. More complex governance proposals related to technology, economic values, etc., fail to attract the interest of ordinary token holders, resulting in low participation rates in most DeFi protocol proposals.

Erin Koen hopes that by combining delegation voting with protocol fee-sharing, it will encourage thoughtful and active delegation, leading to more informed choices of governance representatives.

A16z's approach to managing a large amount of governance rights: A16z: This is how we delegate DeFi governance rights.

Mixed Community Reactions to Uniswap, Regulatory Risks Remain

As in the past, some still believe that redistributing benefits from Liquidity Providers (LPs) to token holders is not fair. Others question why one should pay for people to vote.

However, overall, the responses to this proposal in the comments section are mostly supportive.

UNI Rewards Could Bring Securities Risks to Uniswap

Uniswap Labs, the development company behind Uniswap, is a purely American company that has previously complied with regulatory adjustments in the United States.

UNI, governed by the community, allowing for fee-sharing, could potentially be considered a security; the broad definition of securities by the U.S. SEC might view it as an unregistered security, posing instability for Uniswap, which has been a topic of discussion in the past.

What are the internal and external risks of the UNI Rewards Proposal? Is the Uniswap proposal challenging SEC regulations?