Uniswap Foundation proposes a major upgrade to reward UNI token holders

Uniswap Foundation (UF), the non-profit organization behind the popular decentralized exchange Uniswap, has launched a proposal to upgrade the protocol's governance and fee mechanism. The proposal aims to incentivize UNI holders to delegate and stake tokens, while also rewarding them with a portion of the protocol's fees.

The proposal, titled “UF-01: Uniswap Protocol Governance and Fee Mechanism Upgrade,” went live for Snapshot voting on March 1, 2024. As of 11:00 (Vietnam time), this proposal leads with 10 million UNI (about 300 million dollars) with 100% agreeing to upgrade. Voting will be open until 2:30 on March 7.

What does the proposed upgrade bring?

As proposed, UF is looking to massively upgrade the governance of the Uniswap protocol to actively encourage delegation, engagement, and thoughtfulness. Specifically, UF proposes to upgrade the protocol so that their fee mechanism rewards UNI holders for delegating and staking tokens.

Currently, the Uniswap protocol charges 0.3% per transaction, which is distributed to liquidity providers (LPs), who provide tokens for trading pairs. The protocol also has a change that can be triggered by a governance vote, transferring 0.05% of fees to a treasury controlled by UNI holders.

UF proposes to enable this change and allocate the 0.05% fee to a new smart contract called Delegation Rewards Contract (DRC). DRC will distribute fee rewards to UNI holders who have delegated voting rights to other addresses and staked their tokens to DRC. DRC will also reward those who receive voting rights from stakers, based on their voting participation and compatibility with the majority.

UF argues that this upgrade will create a positive feedback loop for Uniswap governance, as it will encourage UNI holders to delegate and stake their tokens, rather than passively holding them or selling them. This will increase the voting power and security of the protocol as well as the value of UNI. UF also claims this upgrade will align the interests of UNI holders with LPs and protocol users, as they will all benefit from the growth and development of Uniswap.

Technical details

The proposal provides a detailed description of the technical changes required to implement the upgrade. The main components of the upgrade are:

– Fee Conversion Activation Contract (FSAC) will trigger fee conversion and transfer the 0.05% fee to DRC.

– The Delegated Reward Contract (DRC) will distribute fee rewards to stakers and delegates, based on a formula that takes into account the number of staked tokens, staking time, voting participation rate, and relatedness. voting conclusion.

– Delegated Rewards Interface (DRI) will provide a user-friendly interface for UNI holders to delegate, stake, claim and withdraw their tokens and rewards.

– Delegated Rewards Oracle (DRO) will provide DRC with necessary data on voting results and delegate participation.

The proposal also outlines the steps and timeline for implementing and testing the upgrade, as well as communication and education strategies to inform and engage UNI holders and the broader Uniswap community.

Next steps

The proposal states that assuming no major obstacles arise, a Snapshot vote on the proposal is conducted on March 1, 2024, and an on-chain vote will be conducted on March 8, 2024. March 2024. The Snapshot vote is a non-binding psychological signal of UNI holders, while the on-chain vote is a binding proposal execution.

This proposal requires 40 million UNI (about 10% of the total supply) and needs 66.67% of the votes to pass. If the proposal is approved, UF will deploy and test the upgrade, and aim to launch it by the end of March 2024.