What is Uniswap’s fee switch that has become so popular recently and what can it bring for the holders? Let’s find out in our latest cryptocurrency news.

The governance vote can give UNI token holders a piece of the transaction fees on the exchange and there has already been a long debate in the Defi community about the small piece of code in Uniswap and it is called the fee switch and can also have massive implications for the protocol and the holders of UNI. Right now, it costs 0.3% to trade tokens on the exchange, and of that small percentage, the entire amount goes to liquditiy providers for the speciifc trade. If this fee swtich is flipped on, 0.25% will go to LPs and the remaining .05% will go to the token holders for only holding the token.

It’s still unclear how they can capture the value but SushiSwap already allows users to earn .05% of the trades for holding a staked version of the altcoin. The reasoning is that the redirected funds will go to the decentralized funding mechansim that is used to support the contributors to the Uniswap ecosystem. This fee can be activated by a governance vote and if enough UNI holders want to flip the switch, they can easily do so.

Uniswap played host from $36.9 million to $130 million in daily volume and on average, it was $83 million per day. This means that if you take .05% of the $83 million, there will be $41,500 roughly distributed to UNI holders. No one can for sure not but it will make sense that the more UNI someone holds, the more they can earn from the distribution so for the holders, this seems quite enticing. These LPs might not be too happy to see the earnings drop so it is possible that a drop in earnings can cause them to pull the holdings from Uniswap and drain the liqudity.

Most clever folks are already hard at work trying to find the middle ground. The CEO of PoolTogether suggested that testing out the fee switch is needed to see how the LPs will react. He thinks that the switch can be turned on but in a limited testing capacity. The fee switch is a big decision and with UNI enjoying a stellar run in the past month, there might not be as big of an appetite to spook the bulls with the new tokenomics.

The analyst from IntoTheBlock Juan Pellicer confirmed that UNI has been performing better than other blue chip DEX like SUSHI, CRV, and BAL, and this overperformance compared to the competitors shows that UNI doesn’t need to accrue revenue. The provider’s margins are low already and removing some of the income with this fee switch could cause a liqudity loss for the protocol.