Uniswap Labs' Decision to Launch Unichain Without Consulting the Uniswap DAO Sparks Controversy

Uniswap Labs' decision to launch Unichain, its Layer-2 (L2) network, without extensive consultation with the Uniswap DAO has sparked significant controversy

Uniswap Labs’ decision to launch Unichain, its Layer-2 (L2) network, without extensive consultation with the Uniswap DAO has sparked significant controversy within the DeFi community.

Critics argue that this move raises serious concerns about transparency, centralization, and the broader impact on Uniswap’s ecosystem.

Uniswap Labs and Uniswap Foundation Under Fire

The launch of Unichain has highlighted governance concerns for the Uniswap ecosystem. Community members and delegates expressed frustration over the lack of input from UNI token holders.

Notably, DeFi analyst Ignas pointed out that Uniswap Foundation recently approved a $165.5 million funding proposal to support Unichain’s development and incentivize liquidity migration. However, many believe this funding benefits Uniswap Labs and the Uniswap Foundation at the expense of UNI holders, who currently receive no revenue from the platform.

Reportedly, Uniswap Labs has generated an estimated $171 million in front-end fees over the past two years. Unlike competitors such as Aave (AAVE), which shares protocol revenues with token holders through a fee switch mechanism, Uniswap has centralized all earnings, further fueling discontent among UNI investors.

“In a shifting era where Aave proposes buying back $1M of AAVE per week and Maker $30/month buy-backs, UNI holders are a milking cow with now value accrual to the token…Aave and Maker have a more aligned relationship with token holders, and I don’t see why front-end fees couldn’t be shared with UNI holders.,” Ignas expressed.

Duo Nine, a crypto analyst, criticized this strategy, suggesting that Uniswap should use its funds to buy back UNI tokens rather than investing heavily in Unichain.

“They are better off buying UNI with that cash. Their flywheel won’t work if they don’t reward token holders. Creating an L2 seems like an unnecessary cost now,” the analyst remarked.

In response to concerns about how the expansion would be funded, Ignas speculated that Uniswap would sell UNI tokens to cover the costs. However, such a move could lead to further dilution and dissatisfaction among holders.

Liquidity Fragmentation: A Major Concern

Another key issue surrounding Unichain’s launch is the risk of liquidity fragmentation. Uniswap DAO has allocated $21 million to attract Total Value Locked (TVL) to Unichain, aiming to grow it from $8.2 million to $750 million.

However, many worry that these incentives will primarily lure liquidity providers (LPs) away from Ethereum and other Layer-2 (L2) networks rather than attracting new capital.

Ignas warned that shifting liquidity to Unichachain could weaken Uniswap’s market share on Ethereum, allowing competitors to gain ground.

“Incentivizing TVL on Unichain leads to LPs migrating from Ethereum and L2s, decreasing market share on ETH/L2s, and enabling competitors to emerge,” Ignas added.

This liquidity migration could lead to higher slippage and less favorable trading conditions across the broader DeFi ecosystem.

Despite concerns, the Uniswap Foundation remains committed to expanding Unichain’s adoption and incentivizing liquidity migration. BeInCrypto reported that the foundation intends to drive growth for Uniswap v4 and Unichain. However, skepticism remains over whether they will deliver long-term value to the protocol’s ecosystem.

However, since Unichain L2 launched on the mainnet on February 11, the Uniswap token price has been declining. As of this writing, UNI was trading for $7.52, up by a modest 2% since Thursday’s session opened.