The Uniswap community has rejected a governance proposal seeking to make changes to its fee mechanism that would allow the distribution of revenue to tokenholders.

The voting period for the proposal closed on March 9, with 59.9% of mobilized UNI cast in opposition. The proposal sought to allow the DAO to make future changes to Uniswap’s fee mechanism, paving the way for activation of a long-awaited Uniswap “fee-switch” which could distribute protocol revenue to UNI holders.

The proposal was shot down two days after a separate proposal to enable protocol revenue collection was passed with borderline unanimous support.

Community members have long sought the activation of a fee-switch since Uniswap airdropped its UNI token to early adopters in 2020.

GFX Labs, the DeFi-focused research and development firm that co-authored the latest fee switch proposal, launched a similar proposal last year, suggesting that either 10% or 20% pool fees could be disbursed to tokenholders.

The proposal was shot down with 45.3% of votes cast against it, while 42.3% of votes backed a 20% fee distribution and 12.3% supported a 10% fee — meaning the majority of votes were cast in favor of activating some form of fee switch despite the proposal ultimately failing.

A common criticism levied against the proposal was the risk of the Uniswap protocol or its core team incurring tax or legal liability as a result of fee distributions.

“The whales that dominate Uniswap governance (a16z, Hayden, etc) refuse to activate the fee switch because they don’t want to create a legal liability,” tweeted Chris Blec, an outspoken web3 commentator.

Threats and concerns

Discussions surrounding the recent proposal gave rise to concerns surrounding the security and technical risks associated with allowing Uniswap’s DAO to make changes to the code underpinning the protocol’s fee mechanism.

“Upgradeable contracts introduce the ability for governance to rug token holders / ecosystem builders,” said Leighton Cusack, the founder of Pool Together. “It will be hard for this system to get traction if it can be changed.”

“If we were to adopt this amendment, each time that base-level contract infrastructure changed it would present technical and implementation risk that is not negligible… the entire system would need to be re-written, re-audited, and re-deployed,” said Erin Koen of the Uniswap Foundation. “A V3FactoryOwner or UniStaker that rewarded multiple stakeholders in different ways would have a necessarily complex internal accounting system. Each time one aspect of this system changed (say, gas rebates for swappers) the others would be at risk.”

UNI is down 12.3% from its March 7 local high, according to CoinGecko.