The largest decentralized exchange on Ethereum, Uniswap, is now planning to give its governance organization, Uniswap DAO, a legal cloak. Just yesterday, on August 11, the Uniswap Foundation (UF) threw a proposal to the community, suggesting that Uniswap DAO be registered as a DUNA in Wyoming (Decentralized Unincorporated Nonprofit Association) and then establish a new entity called DUNI.
If this proposal passes, Uniswap DAO will become the largest decentralized organization using this framework. This is not only a significant step for DAOs towards compliance but may also pave the way for the long-standing 'fee switch' issue. In plain terms, it allows DAOs to legally distribute part of the protocol revenue to token holders without worrying about legal pitfalls.
Let's first talk about this DUNA thing.
It essentially provides DAOs with a 'legal ID card' and a protective shield. The core of decentralized autonomous organizations is on-chain governance, where anyone can participate without permission. However, in the real world, this model lacks legal identity, akin to being undocumented. DAOs cannot sign contracts, hire lawyers, or open bank accounts, and if they go to court, they cannot appear as independent entities.
Wyoming is quite progressive; in 2021, it created the DAO LLC bill, allowing on-chain organizations to operate like limited liability companies. In March of this year, they launched the DUNA bill, specifically providing a simpler framework for nonprofit DAOs to gain legal recognition. This is a milestone in the global compliance history of DAOs.
For us ordinary investors, DUNA is like an ID card and insurance for DAOs: after registration, DAOs can sign contracts with law firms and auditing companies and even file taxes, relieving members from having to shoulder the legal or tax issues of the DAO. If something goes wrong, the risks are borne by the entity, not impacting individual wallets. Moreover, it makes operations smoother, allowing hiring, consulting, and fund management.
In simple terms, DUNA helps DAOs move from the gray area into the sunlight, preserving the essence of decentralization while providing multi-layered protections for real-world operations.
What are the specifics of the proposal? Establishing DUNI will bring a host of funding arrangements and management mechanisms. This includes using an equivalent of $16.5 million in UNI to pay historical tax debts (estimated to be less than $10 million), and then creating a legal defense budget. Additionally, $75,000 worth of UNI will go to the Wyoming company Cowrie, which will be responsible for tax reporting and financial statements. Cowrie's co-founder, David Kerr, also participated in drafting the DUNA bill. Uniswap Foundation will act as the execution agent for DUNI, managing document submissions, signing contracts, and hiring service providers. Cowrie will serve as the administrator, providing ongoing tax and financial services.
There is a key point: under the DUNA framework, organizations cannot arbitrarily distribute dividends to members unless it is a reasonable service fee or reimbursement. Therefore, even if the fee switch is implemented in the future, and money enters the DAO treasury, it cannot be directly distributed to token holders; it must go through governance voting and be used for public expenditures, research and development, or incentives.
The fee switch is a function reserved in the Uniswap protocol that can allocate a portion of the fees from liquidity providers (LPs) to the DAO treasury. For instance, currently, out of a 0.3% trading fee, about 0.05% might go to the DAO. According to DefiLlama data, last month, Uniswap users paid over $123 million in swap fees. If only 1/6 of this is allocated to the DAO, it would mean an additional $20.5 million each month, totaling over $240 million annually. This would significantly enhance UNI's governance and financial strength.
In the past few years, several proposals for the fee switch have failed due to compliance risks. The uncertainty of U.S. securities law means that directly distributing protocol revenue to token holders could be seen as a securities risk. The DUNA framework is a crucial step in solving this issue.
However, there is often a collision between the ideals of DAO governance and reality. Although the concept is decentralized, the actual operations of Uniswap are quite complex. Power concentration is a controversial point; U.S. Congressman Sean Casten has mentioned that the Uniswap Foundation can unilaterally influence governance direction, which may weaken the essence of decentralization. The foundation denies having excessive power, but major proposals are essentially initiated by them, and the success rate of community proposals is low.
There is also the influence of venture capital. In 2023, UF withdrew a proposal for the fee switch, stating that there were new issues raised by stakeholders. Dan Robinson from Paradigm accused this of being a concession to large VCs, with guesses pointing to a16z. a16z publicly praised DUNA as the 'oasis for DAOs,' which made some people worry whether legalizing it would strengthen capital powers.
Decentralization and efficiency must always strike a balance. In on-chain governance, fully decentralized decision-making is slow. Some projects, like LayerZero Foundation or Yuga Labs, concentrate some power to enhance execution. This DUNA proposal for Uniswap is also seeking such a balance.
Once the proposal was released, UNI surged nearly 8% in the short term, but then saw a slight decline. The market is quite optimistic about compliance and revenue reform. However, UNI is still at a low level; its historical peak was $44.97 in May 2021, and it has now dropped approximately 75.76%. On-chain data shows that Uniswap remains the DEX leader on networks like Ethereum, Polygon, Arbitrum, and Optimism, with monthly trading volumes stabilizing between $30 billion and $50 billion. However, the low value capture rate of protocol revenue remains a persistent issue for UNI's valuation.
In the long run, if the preliminary vote on August 18 passes, Uniswap DAO will become one of the first major DUNA organizations. This is not only an industry compliance milestone but may also change the value logic of UNI. The positive side is that compliance reduces risks, and the implementation of the fee switch brings stable income, supporting the price of UNI. However, challenges remain, as power concentration and capital influence could exacerbate community divisions.
I think this matter is an experiment for investors: How does a DAO mature? The outcome will not only impact Uniswap but also provide a sample for the entire DeFi sector.
Compliance is a trend, but the essence of decentralization must be preserved. If the fee switch is truly implemented, UNI may usher in a new round of increases.