"Fee Switch" Pilot Update & Vote

This is my first post on the governance forum, so hello Uniswap community :smiley: . There is a massive gorilla in the room which has not yet been mentioned on this thread, the business license of the v3 core contracts expires on April 1st 2023, which is less than 120 days from today. If the proposal to test the fee switch for 120 days were to pass 8 days from now when the voting happens, ~100 of the test days would be with the BUSL active, and ~20 days of fully open source v3 core.
My proposal is to set the start date of the 120 day test to be January 31st 2023. This test would have 60 days with no other range liquidity alternatives for LP’s to migrate to, and then 60 days with v3 core fully open sourced where there may be a competitive fork that draws LP’s.

Can you please explain what you mean by “actively opt-in”?

Are you referring to LPs going through some sort of KYC process?

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I think incentivizing LP’s by having to opt in through staking UNI is perhaps not the right direction.

Here is a thought on organization structure:

What if the collected fee’s from the fee switch are claimed by the users who are trading on Uniswap as a gas fee rebate? For example, User A makes a swap, it costs that user 3 dollars in gas. In the act of the swap, a small % of the accumulated (fee switch) fee’s is claimed/directed to the gas fee’s of the swap transaction (and it doesnt have to be 100% of the gas cost, can be 30% etc of the cost for more users). Better yet, if the claimed fee’s were auto swaped into UNI token in the process of rebating to the user. It further decentralises UNI distribution to the user’s of Uniswap.

This organizational structure would not see the protocol gaining revenues (more so of a community pool) since the fee’s would be used as a cost rebate to the user (the user is opting in to paying the tax on the gas rebate vs the protocol)?

This alternative use for the fee switch designates it as a public good to the user’s of the protocol, and benefits LP’s through increased user acqusition/volume.

Hey @will_leas - late January or early February.

Pains me to say it but Avantgarde will be voting No on this iteration.

While I appreciate the decoupling of the “does this change the product” question from the “what are we going to do with the fees” question, I think it’s impossible and ultimately irresponsible to ignore the other potential negative externalities in the name of experimentation.

Ultimately, turning on the fee switch will bring the protocol into the regulatory crosshairs and to do so without a plan for how we’ll answer when the various authorities come around asking questions is folly. Both @Porter’s post and the UF brief touch briefly on potential vectors of liability for various stakeholders and both indicate that work is ongoing to mitigate those liabilities. Let’s wait for the output of that work before moving forward.

This conversation - while it may not actually result in these fees getting turned on this time - has been super valuable in galvanizing the community around the idea that the fee switch should be turned on in some form or fashion. Kudos to @Leighton for getting it started and for the various people and teams who have gone deep into the data to figure out where this experiment should take place.


interesting idea :slight_smile:

When you say opt-in, is there a reason why the example idea only mentions LPs opting in? Do you not see this being available to any UNI holder that doesn’t provide liquidity?

Think that a DAO-linked legal entity to achieve tax compliance (first) and eventually registration is the way forward to enable DeFi as a real alternative market infrastructure and draw a line vs the CeFi mess.

Very interested in your work here for Uniswap and other protocols. If the timeline is Jan-Feb, probably worth to delay the vote again.

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It could be available broadly, that example just intended to show there could be boosted rewards for those that do both.

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Alana and Derek here with Variant. We’ve been following the fee switch discussion over the past few months, and wanted to provide an update on our perspective.

First, we’re still strongly intellectually aligned with the proposal: we think experimentation with protocol parameters, such as the fee switch, is good and needed. We commend @Leighton for putting forward the initial proposal and spurring what we consider to be a very productive discussion. We also appreciate that Leighton and @guil-lambert incorporated our feedback on potential testing pools in the final proposal. As previously mentioned, in the long run we believe the fee switch can not only drive fundamental value to the UNI token, but also be used as growth capital for the protocol to secure its position as the leading DEX in web3.

We also recognize that a number of valid legal and regulatory considerations have been raised throughout this process. Our view is that the best way to drive progress on these issues is to move forward with the proposed experimentation. Action begets action. These considerations were only raised because there was an initiative to push forward with the fee switch. Thus, we believe that approval of the fee switch experimentation will similarly catalyze deeper engagement on tax, legal, and other regulatory issues from Uniswap stakeholders. Delaying action, on the other hand, risks an endless cycle of further postponements.

Framed another way: high-growth projects often succeed by shipping and experimenting. This proposal embodies one way that Uniswap can continue to “ship”, which we believe is necessary for the protocol to continue innovating and to maintain its leading market position. As a result, we’re supportive of moving forward with the proposed fee switch experimentation.

Finally, to be clear, we agree that the tax and regulatory considerations raised by a16z and others are important. Specifically, we are aligned that the community needs to ultimately find and implement solutions to tax compliance, and will benefit from greater clarity on both legal entities for tax obligations as well as liabilities as they relate to token holders, regardless of whether the fee switch proposal is approved. As @devinwalsh mentioned, the Uniswap Foundation has already begun to engage the community on this front and we see an opportunity for further work that advances to actionable, open source implementation details for the community to act upon.

This post was authored by Alana Levin and Derek Walkush, investment partners at Variant. Variant is an investor in the UNI token. See disclosures.


One potential approach to avoid tax issues with the fees collected by the feeswitch is to burn the fees. By burning the fees, we can ensure that the fees are not subject to taxation, as they would no longer exist and therefore could not be considered taxable income for the purpose of this pilot. An alternative approach to avoid tax issues would be to donate funds accrued to a tax-exempt charity recognized by the IRS. This would allow the funds to be put to a better purpose and may potentially provide tax benefits.

This approach could provide a way for the Uniswap community to maintain the integrity and decentralization of the platform, while also addressing the optics of potential tax implications into launching a feeswitch “experiment”. However, it is important to note that the above approaches may also have drawbacks and limitations, and it should be carefully considered before being implemented.


We are very thankful for the robust discussion that has happened over the past two weeks. Although @guil-lambert and I have not responded to every comment, we have read them!

In the responses, two general positions have emerged. The first position has been best articulated by @alanalevin. This position acknowledges there are potential regulatory risks with the proposal but ultimately advocates moving forward now. Recognizing some uncertainty will never be settled and “action begets action”.

The alternative position advocated by @Porter and others is to further de-risk some specific regulatory issues before moving forward. The most prominent of these being the concern some delegates have that fees generated could be considered taxable income.

Outside of these regulatory concerns, @Jack_Longarzo also did a good job articulating some of the broader risks any misstep could have on the largest DeFi protocol. We believe this is a very important point.

Similarly to previous discussions, the simple posting and planning for the vote also generated a high level of engagement from new and existing stakeholders which we are very happy to see.

In reading the feedback and having conversations over the last 2 weeks our view is that this proposal can be meaningfully de-risked in a short amount time. That can happen by putting in place a legal entity structure to alleviate concerns some delegates have around potential tax implications for the pilot. Our understanding from talking to stakeholders is there will be a thoughtful proposal on options to create an entity to handle this in a few weeks. From there, an option can be chosen and proposal can proceed with that aspect de-risked and we will put forward a vote!

That will enable us to move forward with the pilot in a unified way. We also believe this will set a much stronger foundation so that if the pilot is successful, there can be a path to transition from a pilot to larger implementation aligned with protocol growth (see @Porter last paragraph for one possible way that could look).

We know additional waiting will be painful to many but we truly believe for the good of Uniswap and DeFi as a whole it is crucial for us to set the best possible example.


Difficult to convice LP, if it’s not clear how will these retained fee be utilize.

It’s wouldn’t work if you just take my money away, and nothing promised. Leave room for corruption and suspicious.

Suggest, first, to be more clearer on how the retained fee will be used.

One of the big question marks of the Fee Switch is market share impact. Eventually, it comes down to users attrition, or viewed from the opposite stance: Stickiness.

And because of the occurrence of triangular inter-pool trading within Uniswap pools, measuring and understanding stickiness is challenging.

Even though we could still imply it from the other pools (used for triangular spillovers) change in activity post-switch vs historical levels, it’s difficult to disentangle what share of that activity would be resulting from which pool among the three activated pools.

Stickiness (of trading and liquidity) is very pool-specific.

From our analysis ETH-DAI 0.05% and ETH-USDC 1% would not be too impacted by this side effect. The former a bit more than the latter due to whale behaviour.

However ETH-USDT 0.3% seems more prone, with JIT playing a role on liquidity and Curve on trading volume.

Overall outcome is clearly agent-driven so the experimentation will benefit from incorporating behavioural analysis through simulation.

Read our full analysis on our Medium post

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Unfortunate to see this being deferred to yet another vote. @Leighton writes:

“Our understanding from talking to stakeholders is there will be a thoughtful proposal on options to create an entity to handle this in a few weeks. From there, an option can be chosen and proposal can proceed with that aspect de-risked and we will put forward a vote!”

Any update on the entity creation? Can anyone create a proposal for entity creation? If so, I will be more than happy to do this.

The UF is working on an update here and should have a post with more details over the next few days!


Providing an update here. As @Leighton wrote back in December, the vote on the fee switch proposal would be delayed for a short period of time in order for some uncertainties to be addressed. Specifically, he cited community feedback to “[put] in place a legal entity structure to alleviate concerns some delegates have around potential tax implications for the pilot”.

Since then, the UF has been working with a set of advisors to put together a proposal which aims to address that uncertainty. To do that, we identified the requirements for an entity type for the DAO, assessed several entity types against that criteria, and selected an entity type which we believe will best serve the DAO’s needs. Right now, we are in the process of finalizing our proposal. This finalization will entail more detailed analyses of all known implications of our proposal for the DAO, as well as finalizing a process for implementation. That implementation process will, among other steps, entail time for community discussion as well as Q&A.

We are working out these details and hope to have the proposal posted on the forum in ~2-3 weeks.


Is there an ETA for this?

I will do a wild guesstimate: 2-4 weeks until a proposal is posted. Then discussion, q&a etc another 2-6 weeks. Then move to vote. Vote, another week. Then implementation and legal entity setup is in the hands of the UF. I imagine this process itself will take several months. I would say between 2-4 months. Once the entity is set up, fee switch pilot will be put to a vote. 1 week for voting. Then proposal will be implemented (not guaranteed). I would say this will again take a minimum of 2-3 months. So I think at least 6-10 months just for the fee switch pilot to be up and running (it has already been 6 months since the original proposal by Leighton). Then we have another long road ahead of us for the actual fee switch. Not to mention fees ever accruing to token holders (off-topic for this, I know).

As someone who decided to buy UNI in June 2022, when chatter of fee switch finally began to heat up again, the lack of urgency with which this process has moved forward has left me quite surprised. How can this process be improved?


any update ? I think UNI fee switch could be a catalyst for Uniswap ecosystem


honestly, this is disappointing

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  • After a thorough review of the risks associated with activating the fee switch, we believe that the best path forward may be to implement new mechanisms for distributing protocol fees to specific persons, for instance to those who have “opted-in” by taking some action to benefit the Protocol.
  • Given the extent of Uniswap’s decentralization (370k+ token holders, many anonymous and based around the globe), we do not feel comfortable recommending the creation of an alternative legal entity structure today, for the purposes of this proposal. This analysis was done with Uniswap DAO’s specific needs and makeup in mind; it is not a general assessment to be used for DAOs generally.
  • The UF has already allocated 25% of our total Grants budget (spread across Protocol R&D, Incentive Program R&D, and Protocol Development) to support this area of R&D, which includes, amongst other things, new designs for fee collection, distribution, and for innovative applications of the UNI token. We explore this below, and in more detail in a new forum post here.
  • We invite those interested in contributing to do the following:
    • For those beginning to explore ideas, or who would like the community to consider an idea, share your ideas in this forum post (a follow-up post to this comment)
    • For those who have an idea and are looking for support and financing to do the work, review the questions posed in this post, and apply for a grant here.

The Foundation has taken on this work as part of its broader mission to advance thinking around key aspects of decentralized finance. To the extent any community member might be affected by the issues discussed, they should consult with their own advisor.


In late December, @Leighton wrote that the vote on the fee switch proposal would be delayed in order to try and address some compliance uncertainties highlighted by the community.

In the time since, the Uniswap Foundation has engaged in discussions with a diverse set of advisors knowledgeable in this area to explore how the community might address these uncertainties. In this post, we update the community on our assessment. We also discuss an opportunity that was highlighted by this work, to conduct research into and then implement enhancements to the Protocol’s fee accrual and distribution mechanisms, and to the design of the UNI token itself.

UF Analysis

Current tax laws in the US do not provide clarity on how the fees from a smart contract protocol, that can be directed to a DAO, should be treated. Although legislation has been introduced to address the issue, it has not passed Congress or been signed into law. The Treasury Department and the Internal Revenue Service (the “IRS”) have not issued guidance (or made any kind of public statement) as to the tax treatment of DAOs generally.

The UF, amongst other options, explored whether any prevalent legal entity structures could adequately address the aforementioned uncertainties. After extensive review, and while acknowledging the advantages of many of the structures we reviewed, we found that none of the structures were compatible with the specific organizational structure and needs of the Uniswap DAO.

Specifically, we highlight the extent of the Uniswap DAO’s decentralization. The Uniswap DAO currently comprises more than 370,000 token holders located across a large and unknowable number of jurisdictions. Many token holders are anonymous. Governance participation is highly fluid, and spread across the globe. These factors make it virtually impossible to choose a legal entity structure which provides a practically feasible and long-term solution for the purpose of this proposal, without limiting or putting at risk one or more core underlying attributes of the Uniswap DAO.

We will also note that, even if the community were to hypothetically opt into a particular legal entity option, or set up a separate legal entity for this purpose, it is not clear to what extent that step would be effective in addressing the aforementioned uncertainties, as these structures are untested in the context of large DAOs like Uniswap’s.

That being said, we want to make clear that this determination was made with the Uniswap DAO’s specific needs and makeup in mind. This is not intended to be a general assessment to be used by other DAOs. Alternatively, traditional legal entity structures may be suitable for other DAOs and in other situations, as many DAOs have already chosen to adopt these traditional entity structures with success. For those reading this post who are interested in learning about these structures, we invite you to review Paradigm’s DAO Legal Entity Matrix, and A16z’s Legal Framework for Decentralized Autonomous Organizations Part I and Part II.

UF Recommendation & Way Forward

Following a holistic analysis, we do not feel comfortable recommending the creation of a traditional legal entity structure, if the proposal were to be approved right now.

As pointed out by others before, the community should remain cognizant that doing so means the compliance uncertainties in question would remain unanswered if the proposal were to be approved today. This may present potential risks to the DAO and its token holders, particularly in the current environment of heightened regulatory scrutiny.

With this background in mind, we encourage the community to consider other alternative options. We have considered, for instance, an alternative strategy which would involve setting aside a portion of fees to a separate “reserve” smart contract to cover potential legal costs and liabilities that the DAO may be exposed to in the future. However, this approach may not alleviate the aforementioned compliance concerns.

As we detail in this follow-up post, much of our research and many of our discussions over the past several weeks have led us to the conclusion that implementing a programmatic distribution of fees directly to persons, for instance to those who have “opted in” through taking some beneficial action for the Protocol, may be a superior path forward. This kind of mechanism would represent a significant mitigation of risk for the Uniswap DAO because tax obligations would rightfully be the responsibility of the individual in their respective jurisdiction, among other potential benefits. If properly designed, this mechanism could further incentivize productive behavior to support the Protocol.

In the same vein, we have had many discussions with stakeholders who are excited to research new methods for accruing fees to the DAO, and to innovate upon the applications of the UNI token to support the protocol. This is an exciting area for future exploration, and has the potential to support the future growth, decentralization, and sustainability of the Uniswap Protocol. Please read our more detailed follow up post for more information, and ways to contribute to the conversation.

For those interested in contributing:

  • If you would like to begin to explore an idea, or would like the community to consider an idea, share your ideas in this forum post
  • For those who have an idea and are looking for support and financing to do the work, apply for a grant here

The Uniswap Foundation supports a community of individuals and organizations dedicated to a more open, fair and decentralized financial system through education around and broader adoption of blockchain technologies and smart contract-based decentralized protocols.

This post does not constitute, and is not intended to constitute, any kind of legal advice, and readers are not to construe the contents of this brief as legal, business, tax, accounting, investment, or other advice. Each UNI token holder should consult its own advisers as to legal, business, tax, accounting, and other related matters concerning the proposal in light of such token holder’s particular circumstances.