Uniswap’s New 0.15% Swap Fees: What It Means for the “D” in DeFi
By Tobi Oluyede October 24, 2023
- Uniswap, a popular decentralized exchange (DEX) platform, announced a 0.15% fee on swaps conducted through its main interface, causing controversy and confusion
- The announcement, made on October 16, triggered a social media uproar and raised questions about the company's decentralized governance model
- The fee applies to specific trading pairs and tokens and is separate from the protocol fees controlled by UNI governance token holders
- Despite the initial backlash, only a small percentage of swaps have been subject to the interface fee since its implementation
Starting October 17, the popular Decentralized Exchange (DEX) platform Uniswap began charging a 0.15% fee on swaps done through the main interface, namely the "web app and wallet."
It didn't take long for sparks to fly.
The news triggered a social media meltdown, leading to misunderstanding and FUD within the crypto community. Jittery UNI holders were left unsure (perhaps even critical) about their positions, leaving them unsure whether to hold onto their UNI tokens or fold.
A Low Fee by Industry Standards
The announcement was made in an X tweet on Oct. 16. Uniswap founder Hayden Adams lauded crypto's immense positive impact in shaping freedom and access to value, citing Uniswap Labs' contribution to the public good.
The fresh 0.15% fee is separate from the protocol fees switch, which is controlled by UNI governance token holders. The latter was introduced to fund Uniswap Labs' internal operations. According to Adams, the fee is quite low by industry standards, enabling continued research and development.
Conditions ( read FAQ ):
- The new interface fees affect swaps in trading pairs from the following tokens: ETH, USDC, WETH, USDT, DAI, WBTC, agEUR, GUSD, LUSD, EUROC or XSGD
- Fees apply only when tokens are traded through Uniswap frontend on mainnet and supported layer 2 networks
- Swap fees are only collected when input and output tokens are on the list
- Stablecoin swaps and ETH-WETH wraps are excluded.
Post-announcement, there was a stir in the crypto community, which could have happened for several reasons.
There was no community involvement in the decision. Despite Uniswap's decentralized governance model, there was no proposal put forward for review by $UNI holders.
Uniswap Interface Fee Projection YTD Source: Blockworks Research
In practice, for every $100 transaction, Uniswap Labs will receive 15 cents. Based on transaction data, Uniswap Labs would have earned ~$33 million from swaps if the interface fees had been enabled in January 2023. In comparison, $UNI token holders get zero fees, though they can propose a fee switch for a percentage of protocol fees.
Free and Decentralized?
Uniswap, an early proponent of the decentralized finance (DeFi) movement, has long been applauded for its pioneering business model: Free, decentralized crypto swaps for all. Simple as that. The model allowed the DEX platform to focus on scaling crypto user adoption and refining its product.
Currently, Uniswap governance participants only get to have a say in the decision-making process. Or at least that was the message during DeFi summer. Protocol governance tokens are meant to do just that: Govern protocols.
The strategy has worked so far, as Uniswap remains DeFi's top dog (or more aptly, unicorn). The feeless trading experience, coupled with a robust UX, has attracted teeming traders and DeFi-ers in their numbers.
By the Numbers
Earlier this year, Uniswap made headlines when it passed the 30 million mark for active users.
Uniswap's Monthly Active Users Source: ( Dune Analytics )
As of July 2023, the total monthly active users (MAU) neared 500,000 unique addresses (with a record high of ~1.05 MAU in May 2021). So far since Oct. 17, only about 10% of swaps paid the interface fee, with around 90% of swaps left unaffected. Verdict: no major impact
Granted, charging fees on crypto platforms is the rule, not the exception. While Uniswap is probably not a fan favorite as it is, Uniswap Labs' drive towards profitability is a smart business decision that could pay off when the bulls start to toot horns.
In Uniswap's defense, they've been hard at work, launching novel products like Uniswap V4, UniswapX, and a mobile wallet. Development is costly, so it's understandable. But, more utility for $UNI might be good for the protocol. Although Uniswap adding swap fees could potentially be bad for adoption, it is good for business.