The great realignment

Uniswap is probably the best known DeFi protocol. It’s the largest Decentralized Exchange (DEX) by volume. Uniswap introduced the Automated Market Maker (AMM) model, which transformed DeFi by allowing anyone to create a new market, instantly, permissionlessly and without needing an exchange or market maker.

For most of crypto’s history, Uniswap has also embodied the tension between token and equity. The protocol currently processes $1.8trn of annualized trading volume, and generates $2.8bln of annualized fees, yet for years the UNI token captured none of it as all trading fees were used to reward liquidity providers. In the meantime, the Uniswap trading interface, wallet, and API all charged small fees, but those fees went to Uniswap Labs, the venture-backed private company that built and maintained them. The token, in economic terms at least, remained a bystander. In other words, equity holders captured the upside of protocol adoption, while token holders captured little beyond voting rights.

That is, however, now changing. The new Uniswap proposal effectively merges everything into a single structure, switches on protocol fees (a portion of the trading fees used to reward liquidity providers will now be captured by the protocol itself), and redirects all forms of monetization to the UNI token via a buyback and burn mechanism. If the proposal is implemented, all fees will result in automatic buying pressure for the token. You can compare this to a company starting a permanent share repurchase program, automatically funded by product revenue. The front-end will stop charging users, so that every dollar of activity will now accrue to the token network itself and not to a company (equity) sitting on top of it.

It’s no coincidence that it’s happening now: the biggest hurdle to turn on the ‘fee-switch’ was the hostile regulatory situation, of which Uniswap was a constant target for years. With this regulatory overhang now gone, governance can finally act. It also fits the broader trend in which token holders are no longer satisfied with symbolic governance and want real protection against value leakage to equity holders. The long-standing dual-structure model of equity plus token is starting to crack. Projects like Morpho, for instance, have recently responded with token-only architectures, directing all fees and incentives onchain to ensure perfect alignment.

The Uniswap protocol, one of crypto’s most iconic public goods, is turning into a business, and ownership is moving from equity to token holders.

Also this week

• SEC Chair Paul Atkins unveils plan for 'token taxonomy' to redefine crypto regulation
• Senators unveil draft crypto bill giving CFTC oversight power
• Crypto asset manager Grayscale files for IPO in the U.S.
• Visa pilots USDC payouts for creators and gig workers
• Cash app will offer stablecoin payments via Solana
• Polymarket becomes Yahoo Finance’s exclusive prediction market partner

Relevant financial updates

• Allora*, a self-improving decentralized AI network that allows applications to access more intelligence without relying on centralized providers, had its TGE and is now trading at a $188mln FDV
• Rift, a self-custodial, peer-to-peer protocol for trading Bitcoin, has raised $8mln in a Seed funding round with investments from Paradigm, Mert Mumtaz, DeFi Dad, Anthony Pompliano, FarmerJoe and 11 others
• Commonware*, a company that develops cryptographic tools and peer-to-peer communication protocols to facilitate the creation of onchain applications, has raised $25mln in a funding round with investments from Stripe’s blockchain Tempo
• Lighter*, a perpetual futures exchange delivering provable order matching and liquidations via zero-knowledge proofs, has raised $68mln in a funding round with investments from Ribbit Capital, Founders Fund, Haun Ventures and Robinhood, valuing the company at $1.5bln
• Seismic*, an encrypted blockchain platform that restructures the open-source blockchain stack around secure hardware, has raised $10mln in a funding round with investments from Andreessen Horowitz, Polychain Capital, Amber Group, dao5, LayerZero Labs and 1 other
• Self, a privacy-first identity system that verifies real users with zero-knowledge proofs and selective disclosure from real-world IDs such as passports, has raised $9mln in a Seed funding round with investments from Sandeep Nailwal, Greenfield Capital, Sreeram Kannan, Julien Bouteloup, Hart Lambur and 6 others

*Underlying TBV portfolio position | Prices as per 14/11

Interesting things to read

• “Prediction Markets: The Race to Predict Everything” by Castle Labs
• Strategy CEO Phong Le details how his company invented the "Digital Asset Treasury Company" model to raise over $20B+ in 2025 and create a new class of Bitcoin-backed securities

Upcoming events

• Slush Investor Day, Helsinki
• Financial Investigator Seminar