The Uniswap Foundation’s governance lead, Erin Koen, has submitted a proposal for a protocol governance system upgrade.

“The UF is proposing a large-scale upgrade to Uniswap protocol governance to incentivise active, engaged, and thoughtful delegation. Specifically, we propose to upgrade the protocol such that its fee mechanism rewards UNI token holders that have delegated and staked their tokens.”

The UF claims it has improved delegates’ experience over the past year, providing them with more opportunities and information. However, the current situation is not that impressive: less than 10% of circulating UNI is used to vote and a large part of the existing delegation is outdated and not working correctly. This upgrade aims to incentivise further thoughtful and active delegation. The authors believe that if the proposal is accepted, the network will see an inflow of delegation attracted by the new mechanism of fees. 

The proposal suggests deploying two smart contracts, one of which will enable the permissionless and programmatic collection of protocol fees for further distribution among stakers. At the same time, another contract will manage delegation and further distribution of those fees, also requiring those who stake to delegate their tokens. The governance mechanism, meanwhile, will continue to control the core parameters of the fees (e.g. their magnitude).

Following the announcement of the upgrade, UNI token price soared, gaining around 70% to reach $12.62. Trading volume has risen twenty-fold, reaching $2.9 billion on February 24. At the time of writing, Uniswap was trading at $11.99

One day previously, Uniswap had introduced 'uni.eth' Web3 usernames powered by ENS to replace 0x addresses. We have also recently Observed GoDaddy partnering with the blockchain naming standard Ethereum Name Service, allowing users to connect DNS domains to Web3-based ENS domains more easily. The ENS standard seems to be expanding rapidly across the industry and beyond.

UNI price has been on the decline since 2021. It is primarily used for governing the protocol and generally doesn't receive any rewards from it. Both companies overseeing the protocol, the for-profit Uniswap Labs and the non-profit Uniswap Foundation, have been deficient ever since. 

Last year, we observed that Uniswap Labs introduced a 0.15% fee on selected tokens in addition to the fee taken by Uniswap liquidity providers. The move sparked debate among users and a 5% drop in the value of the UNI token. The aim was to generate revenues for the entity, which used to incur tens of millions of dollars in annual expenses. This goal was reportedly met, as Uniswap Labs’ annualised revenue could reach $15.2 million based on the revenue generated within the first month. But while Uniswap Labs 'turned on' fees for itself, it was too wary of the SEC to do the same for the whole protocol.

The new fee system is a major change to the Uniswap network and a powerful tool for increasing user attention and encouraging the participation needed for the healthy and stable development of the ecosystem. We will Observe whether the price surge was temporary or not and how the results of the vote for this proposal impact the situation. The on-chain vote will be posted on March 8, stay tuned.

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