Uniswap Labs asked holders of the $UNI token to authorize protocol fees for a portion of the Uniswap v4 pools for the next phase of the UNIfication burning program already running on 11 chains.
The company will hold a snapshot that will last five days, starting on July 7 and ending on July 12, with a binding vote on the chain to follow the week of July 13.
How will Uniswap add v4 to UNIfication?
Uniswap Labs a snapshot voting opened today, July 7, asks holders of the $UNI token to add v4 pools to its fee and burn that program already runs on 11 chainsnamely Ethereum, Arbitrum, Base, Celo, OP Mainnet, Soneium, X Layer, Worldchain, Zora, BNB Chain and Polygon.
Voting will last five days, until July 12, with on-chain voting beginning the week of July 13.
When traders use Uniswap, they pay fees, some of which goes to the protocol. To claim these rewards, a seeker must burn an equal value of $UNIand the burned tokens are shunted to Ethereum and sent to the `0xdead` address, gone forever.
With the $UNI burned and the total supply reduced, the token increases in value.
$UNI token holders enjoy this setup, but liquidity providers, the people who actually provide the capital pools that are traded against, do not. Because they provide the money that traders use, they lose some of their revenue when the fee switch is turned on.
Because v4 pools work differently, the v4 version is more difficult to add than older versions. They can change their fees block by block, so the proposal uses a new two-contract system. One contract calculates the fee, while the other contract collects it and sends it to the right place.
The snapshot would affect three types of v4 pools: pools without hooks, pools created through auctions, and pools that use aggregator hooks (pools that bring in money from outside). The fee is 25 times higher for aggregator hooks, allowing the protocol to charge more than the normal 10 basis points limit. On the Base network the fee is 3 basis points. On other networks this is 10.
Guillaume Lambert, who runs an options protocol called Panoptic, said taxing v4 could drive out liquidity providers. He added that they had nowhere left to go as v2 and v3 are also being taxed, and that could nullify the protocol. According to him, the v4 fee puts token holders above the LPs that keep the pools running.
Uniswap burned a record 186,000 $UNI on one day last month, above the daily high of 134,000 Cryptopolitan reported on June 5.
$UNI traded at $3.23 on July 7 with a market capitalization of around $2 billion, well below the May 2021 peak of $44.97. However, Uniswap continues to grow. It launched on Robinhood Chaina new layer 2 network, around July 1. Uniswap put v2, v3, v4 and UniswapX on it from day one and achieved more than $250 million in volume in less than a week.
Why is v4 different from older versions?
v2 and v3 pools have simple fixed fees, so Uniswap can set just one rate for each pool and collect fees the same way every time, but V4 has a “hook” system. Hooks allows developers to add additional features to pools, such as changing fees. A pool can have many different rate levels. It can even change its fee from one block to another.
However, the proposal includes the provision of a V4 Fee Controller to facilitate business operations. This rate control system consists of two parts. The first part is the V4FeePolicy contract, which determines the fee for each pool. It uses rules that Uniswap governance sets.
The second part is the V4FeeAdapter contract that ensures compliance. It can also change the fees for specific pools if necessary, and then it sends the fees to the TokenJar contract.
The system is set up in such a way that the board can change the rules later without having to rebuild everything. They can simply exchange the policy contract for a new contract.