The Uniswap decentralized exchange has undergone its most significant transformation in seven years, with the UNI governance community overwhelmingly passing the landmark "UNIfication" proposal on December 25, 2025. The vote concluded with 125,342,017 UNI tokens in favor and only 742 against, representing a 99.9% approval rate and far exceeding the 40 million token quorum required. Uniswap founder Hayden Adams confirmed the results on December 26, stating the protocol can now become "the primary place tokens are traded."
The centerpiece of the proposal is a one-time burn of 100 million UNI tokens from the protocol's treasury, valued at approximately $590-600 million at current prices. This retroactive burn accounts for fees that could have been collected if the protocol fee switch had been active since Uniswap's 2018 launch. The burn will execute after a mandatory two-day governance timelock period, reducing the circulating supply from about 630 million to 530 million UNI tokens.
Beyond the initial burn, UNIfication activates Uniswap's long-discussed protocol fee switch, fundamentally altering the exchange's economic model. Previously, all trading fees went directly to liquidity providers. Under the new system, a portion of these fees will be redirected to the protocol itself to fund ongoing UNI token burns. The fee switch will initially activate on Uniswap v2 and select v3 pools, covering 80-95% of liquidity provider fees on Ethereum mainnet.
For v2 pools, liquidity providers will receive 0.25% of trading fees while the protocol captures 0.05% for token burns. For v3 pools, the protocol's share varies: one-quarter of LP fees for 0.01% and 0.05% pools, and one-sixth for 0.30% and 1% pools. With Uniswap processing approximately $2 billion in daily trading volume, analysts estimate the fee switch could generate around $130 million annually for token burns. Additionally, net sequencer fees from Unichain—Uniswap's Layer 2 network processing about $100 billion in annualized DEX volume—will flow into the same burn mechanism, creating what developers call a "deflationary loop."
The proposal also introduces Protocol Fee Discount Auctions (PFDA), allowing traders to bid for temporary exemptions from protocol fees, with winning bids used to burn additional UNI tokens. This system aims to capture value that would otherwise go to MEV searchers or validators.
Significant organizational changes accompany the economic overhaul. The proposal consolidates operations between Uniswap Labs and the Uniswap Foundation, with most Foundation team members transitioning to Uniswap Labs. The Foundation will deploy its remaining $100 million grants budget before closing operations. Uniswap Labs will remove all fees from its interface, wallet, and API services to drive more volume to the protocol. Governance also approved an annual growth budget of 20 million UNI tokens, distributed through a vesting contract starting in 2026.
The proposal arrives after years of regulatory uncertainty, including SEC scrutiny under former Chair Gary Gensler that delayed the fee switch's activation. The proposal notes the regulatory climate has changed and DeFi has reached an "inflection point of becoming mainstream." Market response has been positive, with UNI gaining 2.5-3% in the 24 hours following approval, trading around $5.90-$6.02 on December 26-27. The token had climbed more than 17% in the preceding week in anticipation of the proposal's passage.
UNIfication transforms UNI from a pure governance token into a value-accruing asset directly tied to protocol performance, making Uniswap one of the few major DeFi protocols linking token supply to actual economic activity. The protocol has processed over $4 trillion in total volume since 2018 and remains the dominant decentralized exchange across more than 39 blockchain networks. The coming months will test whether the deflationary mechanism can sustain itself while maintaining the liquidity that made Uniswap successful, as liquidity providers must earn sufficient returns despite reduced fee shares.
