Uniswap's UNI Gains 20% as Token Reward Proposal Inches Closer to Approval

Uniswap's reward sharing mechanism, if approved, could inspire other DeFi protocols to follow suit.

AccessTimeIconMar 6, 2024 at 5:44 p.m. UTC
Updated Mar 8, 2024 at 10:47 p.m. UTC
  • Uniswap's UNI gained 20% as a governance proposal to distribute protocol revenues among token holders gets overwhelming support in a temperature check before voting.
  • The initiative, if approved, could pay out between $62 million and $156 million to UNI owners in annual dividends, one observer estimated.
  • Uniswap's reward scheme could inspire other Defi protocols, but may attract regulatory scrutiny.

Decentralized exchange Uniswap's governance token (UNI) defied the broader crypto correction and surged to a new 26-month high price on Wednesday as the proposal to reward token holders from protocol revenues was inching closer to become a reality.

A so-called "temperature check" to gauge the community's sentiment about the governance upgrade shows virtually universal support for the proposal in a Snapshot voting concluded on Wednesday. Uniswap is led by a decentralized autonomous organization (DAO), where UNI token holders vote on decisions with their holdings using blockchain.

The temperature check is the last step before the on-chain vote about activating the proposal, scheduled to commence on March 8.

UNI advanced over 20% in the past 24 hours, hitting $17 for the first time since Jan. 2022 before slightly retreating to $15.7. The token outperformed bitcoin's (BTC) 3% recovery after yesterday's plunge and the broad-market, altcoin-heavy CoinDesk 20 Index's (CD20) 1% decline during the same period.

The rally is driven by investors revaluing UNI in light of the major governance overhaul initiative, which laid out a scheme to reward UNI holders who staked and delegated their tokens, distributing a part of the protocol's income earned from exchange fees.

Based on Uniswap's protocol earnings, the upgrade could pay out between $62 million and $156 million to UNI owners in annual dividends, Colin Wu estimated.

UNI skyrocketed 60% immediately after the proposal submission on Feb. 23, and has more than doubled in price since then, the CoinDesk Uniswap Price Index (UNX) shows.

Uniswap's example could inspire other decentralized finance (DeFi) protocols to follow suit. Frax Finance already revealed plans to propose a revenue sharing mechanism similar to Uniswap's.

Digital asset manager 21Shares, however, noted that token rewards schemes may attract scrutiny from regulators.

"It could classify certain assets as a security due to potentially meeting the prongs of the Howey test," 21Shares analysts noted.

UPDATE (March 6, 19:03 UTC): Updates story reflecting that the Snapshot voting concluded.

Edited by Stephen Alpher.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.