When will Uniswap, DeFi’s leading decentralized exchange in terms of trading volume, start to make money for itself?

It’s a question that people have asked since Uniswap V2, the second iteration of the protocol, was launched in May 2020. V2 included code to capture .05% of trading volume, but that function, also known as the “fee switch”, has never been activated.

A governance post and subsequent proposal by Leighton Cusack, co-founder of PoolTogether, a no-loss savings protocol, has pushed the fee switch discussion back into the spotlight.

Positive Reaction

So far, the response from the Uniswap community has been overwhelmingly positive. In the first stage of Uniswap governance, UNI holders have voted “yes” with 3.5M UNI tokens with only 54 voting against as of July 20.

User monetsupply, who’s also a prominent governance delegate for lending protocol MakerDAO, accounted for 3.5M votes, with the remaining “yes” votes not large enough to make a dent in the final tally.

Phased Approach

Cusack outlines a somewhat cautious approach to the fee switch. His proposal targets Uniswap V3, which launched May 2021, and would redirect 10% of two major pools’ liquidity provider (LP) fees. The recipient of that cut is yet to be determined and is a major part of ironing out the fee switch’s details.

Cusack is proposing the switch be turned on for the USDC/ETH 0.05% pool and the USDC/USDT 0.01% pool. The move would redirect 10% of the trading fees generated by those pools.

The proposed pools are no small potatoes. At $261.1M in total value locked (TVL), the USDC/ETH 0.05% pool is Uniswap V3’s fourth largest as of July 20. With $5.1B in weekly volume, however, it’s actually Uniswap’s most active.

At $135.3M, the USDC/USDT .01% pool is Uniswap V3’s seventh largest in terms of TVL and the fourth largest in terms of weekly volume with $604M.

While many have assumed that turning on the fee switch would mean that UNI holders would receive the fees, as is the case with rival DEX Sushiswap, Cusack emphasized that turning on the switch and deciding where the funds would go are two separate decisions.

Wide Range Of Tokens

Getty Hill, the co-founder of GFX Labs, a company which has authored four of the fourteen successful Uniswap proposals including a particularly influential one which added the one basis point fee tier, supports turning the fee switch on.

According to Hill though, it gets complicated after that. “Turning [the fee switch] on is the easy part,” the GFX Labs co-founder told The Defiant. “Collecting the fees and exchanging them for UNI and USDC is the hard part. There is a lot of infrastructure that needs to get built out for it to be successful.”