[Governance Proposal] Uniswap Unleashed: Unichain and Uniswap v4 Liquidity Incentives

[devinwalsh]

Onchain vote here: 
https://www.tally.xyz/gov/uniswap/proposal/82
https://vote.uniswapfoundation.org/proposals/82

Voting closes 4 am EST on March 19 2025

*March 13: To calculate the amount of UNI we requested, we used the open price - $5.93 - on the day the proposal was posted, March 11, 2025.

An analysis of the onchain impact of this proposal can be found in the actions tab of our seatbelt repo: https://github.com/uniswapfoundation/governance-seatbelt/actions/runs/13834152988. If you log in to Github, you can download the Uniswap artifact at the bottom of that page and review the reports.*

Snapshot here: https://snapshot.box/#/s:uniswapgovernance.eth/proposal/0xe7fb39bd6f16b65d0847cdd6ab6ecef3a6c1e89bd523cf895f3d806c4bb4b1cf

Voting closes March 2, 2025

Proposal to Fund Unichain and v4 Liquidity Incentive Programs

Proposed by the Uniswap Foundation, with contributions from Gauntlet

[Feb 19 note: this proposal is being made alongside another to fund UF Grants + Operations, here, and outlines a strategy addressing questions in the comments below about builder support, demand creation to sustain liquidity, etc.]

TL;DR

The Uniswap community is entering 2025 with the momentum of three positive catalysts: a more collaborative regulatory environment, the launch of Uniswap v4, and the debut of Unichain. As we look to the months and years ahead, we see the potential for Uniswap Protocol and Unichain to cement themselves as foundational infrastructure for digital value transfer.

Achieving this vision will require more than just technological innovation; for the Protocol to become the world’s infrastructure for digital value transfer, we must take action. To that end, we propose funding liquidity campaigns, managed by our long-standing collaborators at Gauntlet, to kickstart sustainable growth for both Unichain and Uniswap v4.

• Proposal: Fund two separate liquidity incentive programs to attract initial LPs, swappers, and developers to Uniswap v4 and Unichain. Through the use of Aera, Uniswap Governance would retain control of funds at all times, and be able to recall unused funds, if delegates made the call to do that. If the initial campaigns are successful, we would return to request subsequent funds, though we do not foresee campaigns lasting longer than a year.
• Rationale: Both v4 and Unichain rely on swift, substantial liquidity migration to attract an initial user base, which will be augmented and sustained through additional developer focused growth campaigns. The UF and Gauntlet have engaged in a multi-year engagement focused on developing and executing effective liquidity incentive campaigns, the result of which is the basis for this proposal.
• Success Criteria:
  • For the v4 campaign, migration of TVL to v4 on Mainnet, Arbitrum, and Base
  • For the Unichain campaign, achievement of TVL and swap volume metrics in pursuit of becoming a top 5 chain revenue chain by EOY
• Execution & Reporting: In collaboration between the Uniswap Foundation and Gauntlet, deploy incentives in 2-week tranches, with monthly reporting and a final campaign retrospective, while Uniswap Governance maintains the ability to claw back the remaining allocated funds (“control”).

Motivation

One of our long term goals is for the Uniswap Protocol to provide the most capital efficiency for users across active EVM chains. We will achieve this by cultivating our DeFi developer community, and aligning our Core Contributors with the success of the Protocol, to drive continued innovation.

Unichain and Uniswap v4 are central to this strategy. To build up an initial supply of liquidity infrastructure to kickstart a flywheel of growth, we are excited to propose a set of incentive campaigns. A strong base of liquidity serves to attract not only swappers, but also hook developers, and DeFi protocol developers.

These incentives are not meant to be perpetual. Alongside them we are running campaigns in parallel to grow developer activity, acting to sustain demand for liquidity after the incentives end. We do not anticipate a need for liquidity campaigns to proceed longer than a year.

Importantly, these campaigns will lead to other benefits for the Uniswap community. For example, 65% of Unichain net chain revenue is set to be earned by UVN validators and stakers, once the UVN launches.

Context

Liquidity is highly valuable to AMMs and L2s, and serve as the foundation upon which network effects are created by swappers, integrators, and developers. Over the last year a highly competitive market for liquidity has developed. We have taken that into account in our decision to craft these campaigns.

To put into perspective the size of campaigns run by other AMMs and chains,

• Aerodrome mints roughly $40-$50M of new AERO per month to incentivize their LPs (Avg $ value calculated based on AERO price at the time of emission for last six months worth of emissions)
• ZkSync Ignite approved $42M in ZK liquidity incentives over 9 months (Calculated using ZK price at time of vote execution)
• Arbitrum has allocated 154.9M ARB on ecosystem incentives since March 2023 (approximately $206m at time of vote execution).
• Optimism approved 42 million OP worth of token incentives in its first six months via the Governance Fund.

While the size of a campaign does not necessarily equate to its long term success (in fact, some very large campaigns have proven to be relatively ineffective at leading to sustained TVL), these numbers are indicative of the kind of competition for liquidity that Unichain and Uniswap v4 face as they begin to grow.

We again note that in order to ensure our campaigns retain liquidity, we are undergoing a number of programs to grow organic demand to meet and sustain liquidity over time.

Program Goals and KPIs

v4

Over the next six months, the UF is targeting a notional migration of $32.8B rolling 30-day volume to v4 on target chains (this number is subject to change due to major shifts in macro conditions). Migration will be incentivized by offering LPs on v4 a higher yield than they would receive on v3 by incentivizing certain liquidity pools. To determine the budget to meet this goal, Gauntlet identified top-volume pools on each network and calculated the additional yield required to make migration a financially attractive option. Based on those calculations, a $24m budget is a conservative estimate for a 6-month timeframe and accounts for various degrees of organic demand for v4.

The campaign will be adjusted every two weeks based on market conditions. These adjustments will include choosing which pools receive what amount of incentives. The pools currently receiving incentives will be viewable on the Merkl website, and the program’s results will be viewable on a public dashboard maintained by Gauntlet within approximately one month of the program’s launch.

Unichain

Over the next three months, the UF is targeting to hit $750M in TVL for Unichain, and $11B in cumulative Unichain swap volume (these numbers are subject to change due to major shifts in macro conditions).

To determine the budget required, Gauntlet conducted a competitive analysis, benchmarking the volume and TVL growth trajectories of leading L2s to inform their targets. Using those targets, they backed out a projected incentive spend based on their results running prior liquidity incentivization programs. This data-driven approach ensures Unichain’s incentive program is both competitive and sustainable, optimizing for market share capture while maintaining long-term ecosystem growth.

The Unichain campaign will be run in the same manner as the v4 campaign, and target the chain’s v4 deployment. The campaign will be adjusted every two weeks based on market conditions. These adjustments will include choosing which pools receive what amount of incentives. Furthermore, adjustments to the Unichain campaign will take into account and adapt to non-DEX DeFi activity to increase organic demand for liquidity (undertaken by the UF and others building on Unichain). The pools currently receiving incentives will be viewable on the Merkl website, and the program’s results will be viewable on a public dashboard maintained by Gauntlet within approximately one month of the program’s launch.

To achieve the above goals, we anticipate requesting approximately $60m worth of incentives over Unichain’s first year (including this first request of $21m). Each subsequent request will include a discussion of the program’s results thus far and a rationale for the subsequent amount requested. In other words, over the year we may learn that to achieve our results we may require cumulatively more or less than the currently projected $60M. We will continue to keep delegates updated on our learnings and expectations.

Next steps

The governance process for this proposal is running alongside a proposal to fund the UF’s grants and ops budget. The two are running independently, though the onchain vote for this proposal will be contingent on the success of UF’s funding proposal. For this proposal:

• Feb 13: Fund Liquidity Incentives for v4 and Unichain proposal posted in forum
• Feb 20: Snapshot vote begins
• Early March: Onchain vote begins

About the Uniswap Foundation
Founded in 2022, the Uniswap Foundation, in pursuit of a more fair and open financial system, is dedicated to driving the growth, sustainability and decentralization of the Uniswap and broader DeFi community.

The Uniswap Foundation works to advance DeFi by providing critical support for protocol innovation and security, developer success, and governance empowerment. In 2024, Foundation initiatives have onboarded over 800 new DeFi developers, and resourced the industry-leading work of more than 100 grantees.

About Gauntlet
Gauntlet is the leading model provider in crypto, building optimization strategies for tokens, protocols, and chains. Gauntlet equips investors, builders, and token issuers with data-driven strategies to confidently allocate funds onchain by leveraging the most trusted crypto-economic research and analysis. Gauntlet’s models safeguard over $35 billion in digital assets across the crypto ecosystem, driving capital efficiency and mitigating risk.

APPENDIX

Strategic Approach

Though similar in operational execution, the strategic approach differs for these two campaigns. The v4 campaign will focus solely on driving volume to the AMM on each chain; the Unichain campaign will strategically deploy AMM incentives to bolster broader DeFi activity across the chain as well as within the AMM itself.

v4

Our Uniswap v4 incentives program aims to attract and retain liquidity from Uniswap v3 by offering superior swap efficiency and higher yields for liquidity providers (LPs). In the short term, this proposal incentivizes the migration of ~$32.8B rolling 30-day volume to v4 on target chains.

Based on migration percentage objectives, the program adopts a more specialized incentive distribution, prioritizing pools and asset classes that support the most significant order flow on v3.

A back-loaded incentive approach is recommended. Following an initial, lower spend discovery phase, a scaled-up, higher spend phase is anticipated to be necessary. This ensures:

• Focus on Core Order Flow Migration: Targeting blue-chip pools prioritizes the most order flow to migrate to v4 the fastest.
• Organic Demand Signal Capture: Phasing and scaling up in the campaign’s second half allows for live data ingestion and better modeling for non-blue chip order flow migration, which historically is less predictable.
• North Star Optimization: By utilizing volume as the North Star metric, pool selection is simplified, and migration success criteria are more straightforward. Decisions about which v4 instances to incentivize are based on volume driven and ongoing changes in volume from rewards deployed.

Unichain

Based on volume and TVL objectives, the program adopts a more balanced incentive distribution that prioritizes a broad range of pools without concentrating spend on the most significant pools by order flow. This strategy enables Gauntlet to maintain the flexibility to incentivize pools that may be useful to grow the TVL of other protocols that are deploying on Uniswap.

A front-loaded incentive approach is recommended to encourage rapid liquidity migration and early network effects. By aligning incentives with pools that offer high liquidity and trading activity, Unichain can optimize its deployment of resources. The program aims to establish a robust foundation for long-term sustainability and a competitive edge in DeFi by encouraging diversified liquidity and continuous ecosystem growth. This ensures:

• Diverse liquidity coverage: Encourages sustainable growth across key categories (Blue Chip, BTC Fi, Ecosystem Tokens, LST/LRT, and Stables) to enable diverse Defi activity growth for organic demand momentum for the initial growth phase of Unichain.
• Competitive edge: Aligns Unichain’s incentives with best practices and is informed by current market drivers to compete with Aerodrome and Velodrome while still front-loading rewards to foster early adoption.
• Higher ROI via Early Stickiness Signal Capture: Optimizes for efficient spending and early stickiness signal capture.

Program Structure

Pending a successful Uniswap Governance vote, the incentives budget will be deposited in an Aera vault over which Uniswap Governance will maintain control, meaning that at any point Governance can vote to recall the unspent funds. Gauntlet will deploy the incentives from the vault per their strategy as described above. The UF and Gauntlet will cover all tooling and services through an existing contract. This includes:

• Custom smart contract and audit work to enable the onchain deployment of incentives.
• Custom data pipeline development to track live v4 and Unichain data to inform campaign models.
• Custom, publicly-available dashboard to track campaign KPIs live with 24h data freshness.
• 2-week incentive deployment tranches to balance incentive deployment with dynamic program adjustments.
• A Merkl and Aera integration enables a vault structure that can deploy the 2-week incentive tranches while enabling the DAO to retain full control of the funds prior to their deployment in a tranche. This structure is configured such that:
  • Uniswap Governance owns the Vault, appoints and revokes roles, retains ownership and control of all funds, and can withdraw unspent funds at any time, per Governance vote.
  • Gauntlet serves as the vault’s guardian, with limited permissions approved by the vault owner. The Guardian enables the seamless implementation of the campaign strategy via allocations, the whitelisting of LP pools as new pools are added to the protocols, and the proposal of 2-week incentive tranches to start and end.
  • Aera automates the vault owner’s acceptance and initiation of the 2-week incentive tranche using the Merkl Distributor contract on Mainnet, removing the reliance on frequent DAO votes and reducing the DAO’s operational costs. The vault owner, in this case Uniswap Governance, may revoke the permission at any time.
  • This post will be updated in the upcoming weeks with exact instructions and details for interacting with the campaigns’ vaults. Any updates will be communicated broadly on the UF’s Twitter as well as other delegate-facing channels.

About Aera

Aera is a solution for optimizing DAO and protocol funds autonomously and on-chain.
Aera has been audited by Spearbit, which can be seen in our docs. Additional modules have been audited by OpenZeppelin. There is an ongoing bug bounty with Immunefi. Aera was built and incubated by the Gauntlet team and has since spun out as a separate entity and team.

Relevant case studies and blog posts include:

• Improving Grant Efficiency with Arbitrum
• Liquidity Bootstrapping
• Aera Security Framework

[jpnmemelord]

There needs to be some filtering applied to the volume KPI.

Volume is trivially botted on L2’s due to the low gas cost and at least one entity or group is activly deploying tokens to Unichain, botting their volume, and then rugpulling.

These scams have been active on Base for months, and are now active on Unichain.

They already account for well over $100M in volume and could, in theory, meet the volume achievements by themselves without contributing to the Unichain ecosystem, users, the foundation, or the Uniswap Labs in any meaningful way.

The volume KPI should either:

1. Exclude these rugpulls
2. Focus only on core pools (WETH/USDC, USDC/DAI, WBTC/USDC, USDC/USDT, etc.)

This feedback is intended to improve the KPI and to better evaluate the effectivness of incentives.

[UreNotInD]

I don’t support this proposal.

On an high level

• This is an old playbook that many have already done - the Arbitrum, ZkSync and Aerodrome are examples of very expensive incentives campaigns with no fruits
• Fluid, the most serious competitor currently, is gaining market shares with 0 incentives. What’s the plan to compete for them?
• Base, the most popular L2, has managed to get marketshare with no user incentives
• What’s the plan to retain liquidity providers after the incentives?

Some additional clarifications would be important

• How is the expected TVL derived? What is the metodology for the forecast?
• Since this operation is really about renting liquidity, what is the expected cost for unit of TVL?
• What would be the criteria for pool selection?
• Incentivizing hooks is very generic. Hooks can have arbitrary logic on top of pools. I doubt that a mechanism like Merkl would be effective for all use cases
• What was the process in selecting these partners (Aera / Gauntlet)?
• How this is positive for tokens holders?

Lastly, I’d like to say that none of this addresses structural problems that could help Unichain growth:

• Interoperability across superchain
• Developing unique use cases for defi
• Improving native asset issuance on the chain (RWA, memes, AI coins). Native assets are the stickiest (see Base)
• attracting and funding more builders

[seedpha5e]

This is extremely important. It’s impossible to take the proposal seriously if it fails to include these filtration measures.

[jpnmemelord]

The volume KPI also seems very low considering what Hayden Tweeted about after day 1:

“Since launch yesterday, @unichain has processed over $150m in dex volume” -@haydenzadams

If volume were to maintain at $150M/day, after 30 days there would be $4.5B in volume, 60 days there would be $9.0B, and 90 days there would be $13.5B. This would seemingly meet the KPI targets without incentives and without needing any additional growth.

The methodology for these targets needs to be shown. As is, funding should not be required to meet the targets simply with maintaining the day 1 trajectory. Either that, or the targets need adjusted to justify the funding requested.

[Dakotah]

The proposed liquidity incentives for Uniswap v4 and Unichain are a great step in attracting initial liquidity, but how do we maximize the chance these incentives also contribute to long-term stickiness?

Given that hook adoption is a key part of UF’s v4 long-term growth strategy, it makes sense to allocate some of the incentives to hook-enabled liquidity pools, especially if we think the yields will be higher even after incentives are gone.

For example, hooks like Bunni’s rehypothecation feature that are built on Uni v4 rails allow idle liquidity to earn extra yield while still providing depth for trades. This means a majority of pairs with base assets like WETH, USDC, DAI, WBTC, and USDT will have a higher baseline APY even after incentives dry up.

Additionally, Bunni has just launched a referral program, where 50% of protocol fees initially go to referrers. This means that anything UF can bring in as additional liquidity can earn back 5% of swap fees generated by every dollar of liquidity they refer. This kickback structure helps reduce the net cost of liquidity incentives. We can even stack kickbacks focusing incentives on Bunni rehypothecation partners willing to conduct a similar program since they are in line to see an increased TVL and increased protocol fees as well.

If one of the goals is to increase the percentage of Uniswap v4 order flow coming from hooks, I think it makes sense to direct some incentives toward these strategies early on to ensure they gain traction.

[Doo_StableLab]

Many of the participants have asked many questions but on logistics level, what’s the rationale for having both proposals together rather than having it separate proposals?

[alicecorsini]

Thanks for putting together this proposal and appreciate @Gauntlet’s background research on optimising UNI incentive strategies. Some thoughts below:

What is the anticipated drop in liquidity and/or trading volumes once incentives end?

A critical challenge that extends across the entire industry is user and liquidity retention. While incentives are effective in bootstrapping initial liquidity (Unichain) and migrating liquidity (Uniswap v4), due to their nature, they cause a temporary boost in activity, that is deemed to decrease once the incentives are over.
The recent retrospective from Forse Analytics on UNI incentives on Uniswap v3 on Base highlights this issue, showing difficulties in retaining users, liquidity, and volumes post-incentives.

@Matt_StableLab

One of the main concerns was whether LPs simply moved to Uniswap’s biggest competitor on Base, Aerodrome. The data suggests a more nuanced picture:

• 27.8% of Uniswap’s incentivized LPs provided liquidity on Aerodrome post-incentives
  • Of those, 84.5% fully left Uniswap
• However, most users who left Uniswap (~64.8%) didn’t move to Aerodrome either, indicating broader retention challenges beyond direct competition

This suggests that user attrition is not just about LPs chasing better incentives elsewhere—there are underlying factors affecting retention that need deeper exploration.

As @Matt_StableLab noted, while some LPs moved to Aerodrome, a larger portion simply exited rather than switching to a direct competitor. This suggests broader structural challenges in retaining users and liquidity.

A clearer sense of potential post-incentive trends would help in setting expectations around the long-term impact of the program.

Also, brainstorming ways to improve retention seems like a worthwhile effort alongside deploying incentives. Highlight on alongside - this incentives program remains an effective strategy for the first step of the funnel.

Finally, as a side note, ecosystems like Arbitrum and Optimism provide their own incentives, as mentioned. Is there a plan to align Uniswap v4 with these programs and benefit from them?

[alphagrowth]

Uniswap is entering a pivotal growth phase with Uniswap v4 and Unichain, and the Uniswap Unleashed liquidity incentives can be a game-changer.

To fully realize this opportunity, we recommend the distribution strategy should be robust by working with multiple partners. Engaging multiple incentive distribution partners offers Uniswap a strategic advantage: it broadens the LP base, encourages experimentation to find what works best, maximizes volume and TVL for each incentive dollar, and safeguards the campaign against failures or inefficiencies.

In practice, Uniswap Unleashed could allocate portions of the incentive budget to different platforms or partners, each with clear KPIs and reporting. Regular assessments (monthly or per tranche) would identify which channels are delivering the highest retained liquidity, the lowest cost per $1 of volume, and other relevant metrics. The program can then iteratively refocus on the top performers, as well as introduce new partners for continual improvement.

In conclusion, the Uniswap community should embrace a diversified distribution strategy for the Unleashed proposal. It’s important to ensure that the significant funds devoted to incentives are utilized in the smartest way possible – driving maximum long-term growth for Uniswap while safeguarding the treasury’s efficiency.

[bauti.eth]

I appreciate the effort invested in this proposal. However, I have several concerns regarding its structure and content that I believe should be addressed.

Proposal Structure

The current proposal encompasses multiple initiatives, making it appear bloated and potentially difficult to assess effectively. Breaking it into separate, focused proposals would allow for more thorough evaluation and discussion of each component.

Content Concerns

1. KPI Metrics Are Too Lax and Easily Manipulated
   As highlighted by other community members, the proposed Key Performance Indicators (KPIs) lack ambition and are susceptible to manipulation. For instance, without robust mechanisms to filter out redundant volume, the metrics may not accurately reflect genuine user engagement. Uniswap, as a leading decentralized exchange, should set more stringent and meaningful targets that align with its prominent position in the market.

2. Effectiveness of Liquidity Provider (LP) Incentives
   While LP incentives can attract initial liquidity, they often act as short-term subsidies. Historical data indicates that liquidity tends to diminish once incentives cease, as seen in previous Merkl liquidity mining programs where liquidity was not retained post-incentives. Additionally, protocols like Aerodrome, which employ inflationary token models, should not be used as an example to follow. They risk devaluing their tokens over time unless they achieve continuous and substantial volume growth—a challenging feat. Moreover, concentrated liquidity DEXs require sophisticated LPs who may exploit these incentives for yield farming, only to exit when more lucrative opportunities arise. This dynamic can leave less experienced retail LPs at a disadvantage, capturing minimal rewards. It’s also worth questioning whether Uniswap, given its market leadership, truly needs to subsidize liquidity.

3. Limited Distribution Channels
   The proposal predominantly benefits a few external actors, specifically Gauntlet and Merkle, which raises concerns about potential conflicts of interest. To foster a more inclusive and transparent approach, it would be prudent to open the campaign to a broader range of external participants.

Conclusion

Rather than allocating substantial funds toward LP incentives with questionable long-term benefits, it would be more advantageous to invest in developing the hook ecosystem. This strategy could drive sustainable growth and innovation within the Uniswap protocol.

[pepo]

I do not support this proposal in its current form.

While I believe that incentives on Uniswap V4 are essential to facilitate migration and to explore innovative growth mechanisms at the hook level, the DAO should not be used to incentivize the usage of an external product from a non-collaborative third party (Uniswap Labs).

Furthermore, I do not believe that Aera should be a mandated partner for this proposal. We should instead establish processes to select the most qualified party based on proven track records rather than enforcing the involvement of an entity with limited public experience.

I have also shared further context on this proposal on Twitter to draw attention to what is happening around here: https://x.com/0xPEPO/status/1891870091609841792

We are here to grow the protocol—and the protocol extends far beyond any single organization or personal interest.

[Userisky]

Using Merkl and Gauntlet should be a non-starter. The Uniswap Foundation has done a great job getting the ball rolling with Uniswap v4 Hook Cohorts.

Why not leverage these cohorts for incentive distributions? Reward top hook developers and v4 front-end interface creators with incentives that drive boosted yield, v4 liquidity lockers a la Velodrome, user trading incentives, and router incentives. These UNI incentives could be in addition to future token incentives for those v4 projects.

Build on the early successes of the Uniswap Foundation. If v4 hook developers see that there’s $100 million in user incentive support for innovative hooks, startups, and front-ends, it will drive more applications to the Uniswap Hook Incubator. If you’re going to emulate Aerodrome, at least tweak their model to foster innovation and decentralization, rather than simply supporting inflationary tokenomics.

[sogipec]

Thanks for the proposal and the thoughtful comments!
Pablo from Merkl here!

While the Gauntlet team is on the lead for this proposal, I just want to address some points raised on Merkl and provide explanations about what Merkl is more specifically and how it can work for such a program.

• There was a comment on the possibility for Merkl to be effective for all use cases and hooks possible for UniV4. Most likely, Merkl won’t be as efficient for all existing hook types. But, Merkl is based on an offchain mechanism to compute reward distribution and so it can easily be adapted to factor in the logic associated to a given hook. Going further, Merkl is probably the only reward mechanism that can provide enough granularity to take into account the specificities of every hook and pool on UniswapV4. Let’s say there is a hook with an arbitrary logic, this hook might not come with a dedicated incentive logic. Having to tweak the behavior of a given hook just to account for the fact that it should be able to distribute incentives might not be super efficient as well, or less efficient than handling the rewards logic independently offchain.
• There were also some comments on the reliability of the incentives and whether non mercenary capital will remain. These are obviously valid concerns and I just want to point out that Merkl is an infrastructure provider specialized in the distribution of incentives. Our mission is to build the tools to let everyone build expressive and powerful reward programs with little to no development effort involved. While we can offer tools to make these programs more efficient through a higher retention, our #1 mission is to empower the Uniswap DAO (and any other DAO) with what they need to implement programs that will be efficient from their perspective.
  That being said, we do have some ideas on settings Uniswap could use to improve retention and efficiency of such programs. From our experience, the best is to structure these programs not as one off programs but as permanent solutions. I’m not saying millions in tokens rewards should be issued in perpetuity, just that more sustainable distribution mechanisms (leveraging protocol revenue - if fee switch is activated) could be put in place to direct incentives towards pools with a high ROI once initial network effects have been attained. In permanent systems, the most credible way to increase the ROI and retention overall is to have a form of slashing system or penalties for users/addresses moving to other protocols. It’s of course easier said than done, but given the success of programs like Merit by Aave, I think it could be interesting to explore in this iteration or in a future iteration systems like this providing credible guarantees that you’re better off long-term remaining in a protocol rather than farming elsewhere
• On the idea to leveraging existing hook cohorts, i do agree that one of this program’s primary objectives should be to incentivize hook developers and appropriately reward the most efficient hooks. As explained above, Merkl is hook agnostic, so we can be used to facilitate incentives on top of any hook type, without any requirement on their side (they can focus on building great hooks when Merkl can make sure that their LPs are well incentivized). We could for this maybe think of a feedback loop mechanism where hooks with a greater ROI get more rewards: everyone gets a chance and the program can be used for some form of discovery but if a hook works better governance can double down on this. This is for me a nice alignment of incentives, which if well calibrated will drive more applications to the Hook incubator.
• When it comes to router incentives, I think it’s a great thing to explore as well. The main metric to achieve for DEXes is volume and LP incentives are used as a proxy to achieve greater volume. Incentivizing volume directly sounds like a more direct way to grow liquidity. Several remarks on this:
  • routing/trading incentives are easy to game (at least easier to game than usual liquidity incentives) where you need to put liquidity for some amount of time: if not well done it’s easy to recycle capital to cannibalize all the incentives, and anti-sybil systems are also hard to implement for this (and not perfect)
  • for these routing incentives, budgets are more efficiently handled in the underlying tokens of the pools rather than in UNI or in gov tokens in general. Aggregators lack the skills and expertise to manage an inventory in UNI tokens and as it stands can hardly optimize their routes because they can anticipate that they’ll get UNI rewards retroactively.
  • we’re actively working with Merkl on a system that will allow for DEXes to pay for non toxic order flow (basically reduce fees on some pools)

On a side note, I think that the lowest hanging fruit for the efficiency of this program would be to have Uniswap Labs frontend integrate reward data in their frontend. Such campaigns are in the end marketing campaigns, and making the most of all available distribution channels is for me a must, especially given the budgets involved.
I understand that Uniswap Labs is not the foundation and that there may be some legal considerations with displaying APRs, but there may be a way to display this in a way that limits Uniswap Labs liability.

[SEEDGov]

We would like to know what the selection process was for the partners/vendors and if you can tell us how much and how Aero and Gauntlet charge for the services they provide.

Have you analysed and budgeted for whether there are other service providers in the market that can provide similar services and what their costs are?

We know that they are not service providers to the DAO directly, but since funds are required to the DAO to cover, among other things, the payment of these providers, it indirectly involves the DAO how the selection process has been carried out and the amounts and method of payment for their services. This is where our proposal for a Tendering Process becomes particularly relevant. We believe it is increasingly necessary, as it can help make the selection of service providers more efficient and reduce costs.

[Dakotah]

Yep, hooks like Bunni v2 already offer flexible and permissionless incentive deployments.

Rush Pools – Fixed APR, high-impact boosts.
Recur Pools – Long-term incentives, compounding rewards.

https://x.com/bunni_xyz/status/1890100930957464014

[Userisky]

Correct me if I’m wrong, but to access the UNI incentives, one has to visit the Merkl website, right? If Uniswap wants to capture some of the liquidity adoption and excitement that came with “Summer DeFi Uniswap V2,” the incentives should be integrated into the UIs of various hook startups. This would make them claimable directly within the frontends of those startups. Additionally, it would allow each hook startup to tailor its strategy and UNI incentive integrations. For example, Bunni could boost its current incentives with a similar UNI incentive boost.

As for your comment about Uniswap Labs simply displaying the APRs, I believe the Uniswap DAO should be encouraging alternative frontends that implement hooks, not subsidizing Uniswap Labs, which is already profitable from its users.

Why is @devinwalsh / Uniswap Foundation centralizing features and entrenching third-party providers?

Here’s a simplified version of the proposal:

Ask: $100 million in UNI

Deliverable: Hire a small team of hook engineer/UI developers to help external hook teams execute their business and startup plans. The majority of the UNI should be used as incentives to attract hook teams for UI frontend built initiatives like liquidity lockers, routing rebates, and hook quests.

If you want liquidity, focus on user and builder acquisition, not just liquidity for its own sake. Uniswap V2 was successful because it prioritized user acquisition and encouraged builder innovation, which paved the way for the next big thing in DeFi.

[sogipec]

Thanks for your answer here!

One doesn’t necessarily have to visit the Merkl website. Merkl provides API endpoints to make it easy to integrate Merkl APRs, claiming and everything related to incentives in a whitelabel way (you can check typically Aave on ZKSync).
I personally don’t care about whether people view opportunities from the Merkl frontend or in the frontend that integrate it.

Overall, I think we agree on the overall objective: get as many hook teams build unique stuff on UniV4 (or at least things that are innovative and that couldn’t be done on UniV3). My point is just that the jobs of building hooks and launching initatives like routing rebates, hook quests or even liquidity incentives (which is important but I agree not a panacea) are very different, and you’re better off putting a system that can optimize for both:

• incentivizing hook builders to be laser focused on developing great hooks + maximize builder innovation
• while delegating the complex job (at least more complex than it seems) of building reward systems to create network effects around these hooks.

[drllau_LexDAO]

@Userisky

Deliverable: Hire a small team of hook engineer/UI developers to help external hook teams execute their business and startup plans. The majority of the UNI should be used as incentives to attract hook teams for UI frontend built initiatives like liquidity lockers, routing rebates, and hook quests.

@sogipec

Overall, I think we agree on the overall objective: get as many hook teams build unique stuff on UniV4 (or at least things that are innovative and that couldn’t be done on UniV3). My point is just that the jobs of building hooks and launching initatives like routing rebates, hook quests or even liquidity incentives (which is important but I agree not a panacea) are very different, and you’re better off putting a system that can optimize for both:

Alternative Funding

What if (future) treasury has “loans” rather than outright cash grants? At the end of term can:

1. for public-good hooks forgive the “loan” (no repayment)
2. for activity which Is clearly for-profit and benefited from seed-funding convert into equity and stuff into stability fund

3. items which fall into pool-goods = rivalrous but not excludable could be low-interest loans because the natural business structure is a mission-driven non-profit eligible for PRI

The point being is that at the start, you can’t always figure if something innovative is going to be public, non-profit or investable so preserving all 3 options until use-cases emerge allows for more careful capital retention. Also an activity conducted in a foreign country furthers an exempt purpose if the same activity would further an exempt purpose if conducted in the United States.

IRS typical examples of program-related investments:

• Low-interest or interest-free loans to needy students,
• High-risk investments in nonprofit low-income housing projects,
• Low-interest loans to small businesses owned by members of economically disadvantaged groups, where commercial funds at reasonable interest rates are not readily available,
• Investments in businesses in low-income areas (both domestic and foreign) under a plan to improve the economy of the area by providing employment or training for unemployed residents, and
• Investments in nonprofit organizations combating community deterioration.

[0xkeyrock.eth]

Firstly, Gauntlet’s report should be shared in the forum. As previous comments noted, a significant amount was spent on this report, yet the context provided in the forum for such large incentives being justified is extremely superficial. For example - Aerodrome has high incentives due to the fact that 100% of fees are redistributed to veHolders. Therefore, this is not an accurate comparison for everyone that understands DeFi. Secondly, zkSync’s $5m monthly emissions boosted TVL from $100M to $266M; given this, I would like to see Gauntlet’s methodology that assumes $7m/month for Unichain can lead to 750m TVL? And how much will remain sticky? This just comes across as presenting big numbers to create an urgency that large incentives are required for growth. This is not the case; projects like Fluid are growing extremely well without relying on incentives. To be honest, it’s ridiculous to expect delegates to make an informed decision to allocate such a large amount of funds with so little context.

Since the report was not shared here - let us share our own analysis and benchmark the success of 2024 Uniswap incentive programs for new chain deployments:

Scroll Campaign Results: 18th project by TVL, 7th DEX by TVL, 490k TVL

Linea Campaign Results: 35th project by TVL, 12th DEX by TVL, 130k TVL

Manta Campaign Results: 36th Project by TVL, 10th DEX by TVL, 3.6k TVL

Taiko Campaign Results: 10th Project by TVL, 7th DEX by TVL, 187k TVL

ZKsync Campaign Results: 13th Project by TVL, 6th DEX by TVL, 6.46m TVL

MoonBeam Campaign Results: 13th Project by TVL, 5th DEX by TVL, 22k TVL

Mantle Campaign Results: 31st Project by TVL, 13th DEX by TVL, 2.6k TVL

Sei Campaign Results: 14th Project by TVL, 6th DEX by TVL, 718k TVL

Gnosis Campaign Results: 7th Project by TVL, 2nd DEX by TVL, 8.64m TVL

Polygon zkEVM Campaign Results: 31st Project by TVL, 13th DEX by TVL, 2.6k TVL

Have these deployments been successful in creating a flywheel effect? None of these deployments have over $1m TVL, and barely any have cracked the top DEXes on their chain. Most of these deployments are completely dead and the only volume comes from arbitragers fixing the stale prices.

From a business perspective, Uniswap has spent $2.75M on these deployments (excluding matched amounts from protocols) while the annualized fees from these deployments are $310K. Even if a fee switch were applied to reclaim fees—assuming a 15% share—that would yield roughly $46,500 per year for the DAO, equating to a 1.7% return and taking 59 years to break even.

To @Gauntlet and everyone voting yes on this proposal (and also @Matt_StableLab @Doo_StableLab , whose team were paid $60K for an incentives dashboard in October that remains undelivered): Can these incentives be considered successful? If yes on what metric, if no what is the evidence that Unichain will differ from these deployments?

Mercinary capital is notoriously chain and protocol-agnostic, chasing the best rewards. While such capital can temporarily inflate TVL and metrics, it evaporates once incentives drop. Incentives only have value when paired with a superior product that drives lasting user engagement. Evaluating Unichain, at $10M TVL, we see little inherent market demand for this Layer 2. Subsidising activity with incentives might temporarily boost activity, but will demand persist? Historical examples like MODE (TVL dropping from 575M to 19M), Manta (667M to 46M), and Blast (2.27B to 233M) offer little optimism that Unichain will fare any differently.

We are not opposed to incentives—they are necessary for projects of this scale. However, they must be planned carefully and backed by solid evidence. Instead of replicating outdated growth tactics, why not allocate a budget to incentivize v4 hook pools with unique architectures on a case-by-case basis, rewarding both LPs and the hook creators? This approach would drive innovation and highlight the superior customizability of v4 pools.

We must move beyond inflating numbers with massive incentives and focus on funding sustainable solutions that drive real, long-term engagement – We need to make Uniswap great again.

[devinwalsh]

Thank you to everyone who has engaged with this proposal thus far. We have read through your comments and questions, and are sharing our thoughts and responses below.

First, to reiterate our recent comment in our Uniswap Unleashed Proposal – this proposal is about shoring up the Uniswap ecosystem’s long term competitive advantage – both its growth and sustainability.

1. From a growth perspective, we are kickstarting network effects for both Uniswap v4 and Unichain – providing a better experience to developers and their end users. In today’s market, technological innovation alone isn’t enough to drive growth; strategic investment into building network effects is essential.
2. From a sustainability perspective, both of these programs may lead to opportunities for the community to generate revenue for itself in order to pursue future growth opportunities.

Liquidity incentives as an approach to growth

We agree that there have been many wasteful, ineffective liquidity mining programs run across other chains and protocols in the past.

These campaigns are built differently – with a focus on driving sustained engagement. Specifically, the campaigns we propose:

1. Use a dynamic strategy that adjusts regularly to market conditions. As one example, Gauntlet will regularly adjust pool incentives to determine the elasticity of demand – information we may use to ensure we are growing activity cost effectively.
2. Support concurrent demand generation efforts, including holistic builder and protocol support on v4 and Unichain. In our Uniswap Unleashed Proposal, we refer to both Unichain and v4 as platforms where a supply of liquidity is consumed by demand in the form of new hooks and DeFi protocols. We plan to grow the demand side using our grants budget while the supply side is kickstarted through these liquidity incentives. Our goal is to reach a stable state where demand exceeds supply, creating an attractive opportunity for both liquidity providers and users of Unichain’s DeFi ecosystem.

We do not aim to replicate Aerodrome’s approach – we call out their and others’ incentive campaign expenditures to underscore the competition for liquidity today. Action is required to kickstart our platforms’ flywheels.

Governance control and transparency

That being said, Governance will have transparency and maintain ultimate control through the proposed campaigns. To be specific,

1. Governance will maintain control of the funds throughout the campaigns. If delegates are unhappy with the progression of a given campaign, they may recall unused funds.
2. The campaigns are tranched. For Unichain specifically, we are only requesting a portion of funds upfront, so we are able to gain confidence in the campaign’s efficacy prior to returning to Governance for more.
3. Transparent dashboards will be made available one month after the campaigns have launched for the community to monitor the progress of the campaigns.

Gauntlet selection processes

Gauntlet has undergone more scrutiny than our typical grantee, having undergone our diligence process twice.

1. In early 2023, the UF was selecting an advisor for incentives analysis. In order to select a provider, we provided a similar prompt to three potential grantees. We assessed the final results on analytical rigor, comprehensiveness, and ability to drive execution post-analysis. Gauntlet’s output exceeded the output of others.
2. In Q3 2024, the UF evaluated a set of candidates to determine who would be best equipped to partner with the UF on incentive campaigns for Uniswap v4 and Unichain. Here, we assessed the candidates’ track record, relevant experience, and capabilities of achieving our desired outcomes. Based on our analysis, we determined Gauntlet was best suited to take on the task at hand. At this point in time, we also took the opportunity to renegotiate our contract, and are currently set to pay on a per-campaign basis, with locked in rates through 2027.

As with all grantees, we reserve the right in our contract to terminate the grant early if we are dissatisfied with the impact of a grant. We have done this with other grants before, and will do this in the future for all grants which fail to meet expectations.

Aera selection processes

In the lead up to Unichain and v4 launch, we worked with Gauntlet to plan campaign strategy and operations. From an operational perspective, we sought a solution which:

• Eliminates the need for a manually-operated third party-operated multisig, which adds complexity and risk
• Enables governance to retain control of incentive funds up until the moment they are distributed
• Limits the potential uses of funds to specified function signatures, including those required to interact with the Merkl distributor contracts
• Enables bi-weekly adjustments to campaign strategy in a streamlined, dynamic manner

We surveyed the options:

1. Manual execution. It is possible to execute these campaigns manually - however for a campaign of this scope, we believe a more programmatic solution can significantly reduce risk and inefficiency.
2. Alternative decentralized asset management solutions. The alternatives we explored would all require some level of customization to fulfill our criteria. This customization would generally require audits and add additional complexity without added benefits.

Aera works for our use case out of the box, and after our due diligence, we determined it would be best suited for our needs here. We are not paying any fees for the use of Aera.

On the use of one vs. multiple incentive distribution providers

We believe using a singular provider best enables our ability to achieve the stated TVL and volume targets, as a solo provider:

• Ties accountability for achieving the benchmarks to one party. Spreading accountability across multiple parties reduces our ability to hold any single party accountable to achieve the stated impact metrics. As a reminder, Gauntlet will publish a Dashboard with live campaign data one month after launch for the community’s review
• Minimizes coordination costs and operational complexity for a task that has a fair degree of each
• It enables the creation of a single, comprehensive strategy, which we can iterate upon over time based on our learnings more easily than with multiple concurrent strategies

We do recognize there are many ways to deploy incentives, and that there are many talented teams that do so. We are already experimenting with other forms of incentives. For instance, we are using Conditional Funding Markets to fund grants that allow lending protocols to design their own incentivization programs. We expect to do more of these experiments in the future, are open to suggestions as to what those might look like, and would look forward to working with other talented organizations in our ecosystem to execute them.