USDUniswap Faces Governance Backlash Over Unichain L2 Launch and $165.5M Investment Plan
Uniswap Labs' Unichain Rollout Triggers Community Uproar
Uniswap Labs has come under fire for launching Unichain, its Layer-2 (L2) network, without prior consultation with the Uniswap DAO. The move has raised serious governance and transparency concerns, as UNI token holders were left entirely out of the decision-making process. Frustration has mounted among the community, with many arguing that despite holding UNI tokens, they have no meaningful control over key strategic initiatives.
DeFi analyst Ignas pointed to the Uniswap Foundation’s recent approval of a $165.5 million funding proposal, aimed at supporting Unichain’s development and incentivizing liquidity migration. Many UNI holders believe this funding disproportionately benefits Uniswap Labs and the Uniswap Foundation while offering no direct financial upside to them.
The frustration is compounded by Uniswap Labs' accumulation of approximately $171 million in front-end fees over the past two years—revenue that remains entirely out of reach for token holders. Unlike competitors like Aave and MakerDAO, which share protocol earnings with their communities, Uniswap continues to centralize its profits, fueling investor discontent.
"In a shifting era where Aave proposes buying back $1 million of AAVE per week and Maker $30 million/month buy-backs, UNI holders are a milking cow with no value accrual to the token," Ignas remarked.
Crypto analyst Duo Nine echoed these concerns, suggesting that Uniswap should focus on repurchasing UNI tokens instead of investing heavily in an L2. "They are better off buying UNI with that cash. Their flywheel won’t work if they don’t reward token holders. Creating an L2 seems like an unnecessary cost now," he stated.
There are also growing fears of potential dilution, as speculation mounts that Uniswap may sell UNI tokens to finance expansion costs. If confirmed, this strategy could further erode UNI’s value and exacerbate holder dissatisfaction.
Liquidity Fragmentation and Incentive Risks
Unichain’s launch introduces another challenge—liquidity fragmentation across multiple networks. The Uniswap DAO has committed $21 million to boost Unichain’s Total Value Locked (TVL), setting an ambitious target of $750 million from its current $8.2 million.
However, critics argue that this funding will merely shift liquidity from Ethereum and other L2 networks rather than attract new capital. Ignas warned that incentivizing liquidity migration to Unichain could ultimately weaken Uniswap’s market dominance on Ethereum, making room for competitors. "Incentivizing TVL on Unichain leads to LPs migrating from Ethereum and L2s, decreasing market share on ETH/L2s, and enabling competitors to emerge," he cautioned.
Liquidity fragmentation could lead to heightened slippage and unfavorable trading conditions across the broader DeFi ecosystem. Despite these concerns, the Uniswap Foundation remains committed to driving Unichain adoption and incentivizing liquidity migration, believing it to be a crucial step in maintaining Uniswap’s long-term competitiveness.
The Breakdown of Uniswap’s $165.5 Million Investment Plan
The Uniswap Foundation’s $165.5 million investment plan aims to address the underperformance of Uniswap v4 and Unichain. More than a month since its launch, Uniswap v4 has only $85 million in TVL, while Unichain remains stagnant at $8.2 million. The funding is divided into three major allocations:
- $95.4 million for grants to developers, core contributors, and validators.
- $25.1 million for operational expenses, including team expansion and governance tool development.
- $45 million for liquidity incentives, with $24 million earmarked for Uniswap v4 over six months and $21 million dedicated to Unichain over three months to boost its TVL.
While the proposal has cleared the initial temperature check phase, it continues to face harsh criticism from UNI holders. In contrast, Aave and MakerDAO are taking a different approach, prioritizing token buybacks to create direct value for their communities. Many UNI holders argue that Uniswap’s strategy does little to benefit them, as Uniswap Labs retains full control over the platform’s revenue streams.
Governance and Structural Issues Intensify Concerns
A major sticking point for the community remains Uniswap’s governance model. Uniswap Labs is responsible for protocol development, while the Uniswap Foundation oversees ecosystem growth, governance, and funding. Critics have highlighted several governance red flags, including excessive salaries for core team members, Gauntlet’s influence in executing liquidity incentives, and the establishment of a new centralized DAO legal structure (DUNA).
A minor governance representative for Uniswap cast a vote in favor of the proposal but acknowledged concerns about its alignment with UNI holders' interests. "Despite these concerns, I am a strong supporter of Uniswap and recognize its significant impact on DeFi. The current growth trajectory of Uniswap v4 and Unichain is bleak, so incentives are necessary to foster development," Ignas stated.
Moving forward, Uniswap DAO votes will need to address value capture mechanisms for UNI tokens to ensure holders benefit from protocol revenue.
UNI Token Struggles Amid Investor Frustration
Since Unichain’s mainnet launch on February 11, UNI’s price has been on a downward trajectory. At present, UNI is trading at $7.12, reflecting a modest 2.9% decrease since Thursday’s session opened.
The persistent lack of direct value accrual for UNI token holders remains a driving factor behind investor dissatisfaction. As competing DeFi protocols shift towards revenue-sharing models, pressure is mounting on Uniswap to address its governance and economic structure to retain investor confidence.
This article has been refined and enhanced by ChatGPT.
