Uniswap Faces Governance Crisis Over Unichain L2 Launch

• Uniswap community members criticize the move as lacking transparency and undermining governance, particularly over the allocation of $165.5 million for Unichain’s development and liquidity incentives.
• UNI token holders express frustration over Uniswap’s centralized revenue strategy, noting that $171 million in front-end fees collected over two years has not benefited them.

Uniswap Labs is facing fierce criticism after deciding to launch Unichain, a new Layer-2 (L2) network, without much consultation with the Uniswap DAO. The action has raised eyebrows among members of the community, who claim it demonstrates a lack of transparency and calls into question governance within the system.

Uniswap Governance Controversy & Community Backlash

The introduction of Unichain has fueled anger among UNI token holders and Uniswap governance participants. They feel left out of the decision-making process and believe that Uniswap Labs and the Uniswap Foundation have acted unilaterally to satisfy their own interests.

A chief area of debate is the $165.5 million in capital sanctioned by the Uniswap Foundation to be used for funding Unichain’s development and liquidity migration. Critics point out that as long as Uniswap Labs is still raking in significant revenues, UNI holders reap nothing.

DeFi analyst Ignas highlighted this issue, saying that Uniswap has collected some $171 million in front-end fees over the last two years, but token holders do not get any part of the revenue. In contrast to protocols like Aave, which has a fee-sharing mechanism in place to reward its users, Uniswap has chosen to centralize revenue. “In a shifting era where Aave proposes buying back $1M of AAVE per week and Maker $30M/month buy-backs, UNI holders are a milking cow with no value accrual to the token,” Ignas said.

Crypto commentator Duo Nine also denounced Uniswap’s investment strategy, saying that the money could be spent on buybacks rather than on acquiring Unichain. “They are better off buying UNI with that cash. Their flywheel won’t work if they don’t reward token holders,” he explained.

Liquidity Issues Amid Growing Market Influence

A further urgent issue linked to the Unichain launch is the potential disruption to the distribution of liquidity throughout the DeFi ecosystem, as mentioned in our previous article. The Uniswap DAO has set aside $21 million in order to drive Unichain’s total value locked (TVL) upwards from $8.2 million to $750 million. Fears have, however, been expressed that far from introducing new capital, such incentives could serve to redirect liquidity away from Ethereum and current L2 solutions.

Ignas warned against that approach, arguing that redirecting liquidity to Unichain might undermine Uniswap’s grip on Ethereum and open up space for rivals. “Incentivizing TVL on Unichain leads to LPs migrating from Ethereum and L2s, decreasing market share on ETH/L2s, and enabling competitors to emerge,” he said. That reallocation of liquidity might leave traders facing unhelpful trading conditions, including higher slippage and diminished efficiency throughout the wider DeFi ecosystem.

In spite of the scandal, the Uniswap Foundation reaffirmed its intent to build out Unichain and promote Uniswap v4. Yet, doubt remains as to whether these plans will improve the protocol’s long-term future.

Since the release of Unichain on February 11, sentiment around UNI has been nothing but diverse. The token has recorded ups and downs, with its price currently at $7.52 during the most recent session, trading up a humble 2% from the previous day’s trade.