There’s Uniswap Labs, the company with its equity and shareholders. And there’s Uniswap, the blockchain protocol with its token and token holders.

The two sets of investors are vying to extract value from the decentralized exchange, with each asset carrying different economics and rights. It’s an unstable balance and sparks fly when one side perceives the scale is tilting the other way.

That’s what happened this week when Uniswap Labs announced it’s implementing a fee for swapping select pairs on the DEX’s website and wallet. That’s revenue for the company, which will benefit shareholders. Meanwhile, UNI token holders are still waiting to turn on a protocol-level fee that would benefit them.

The dynamic between company and protocol is common across DeFi. Teams hoping to build a decentralized protocol often retain control over a centralized company which becomes one of what they hope, will be many builders and service providers on top of the protocol. In these cases it’s not always clear how value accrues to owners of equity versus token holders.

$84,000 for Labs in 24 Hours

The case for Uniswap Labs’s new swap fee is simple. Uniswap Labs needs to make money and the new 15 basis point cut on the most popular trading pairs allows it to.

It’s already working — Labs made nearly $84,000 in the first 24 hours since introducing the fee on Oct.16, which annualizes to over $30M.

Will Warren, co-founder of 0x, a set of trading APIs, and Matcha, a trading aggregator which sources liquidity from Uniswap, said Labs’s move “indicates we’ve kind of matured from a space where everything is subsidized.”

“I think Uniswap turning on fees is great,” Warren said in an interview. “It’s going to allow companies that are actually creating value for users to start to be able to be sustainable.”

Gnosis co-founder Martin Koppelmann tweeted the frontend fee switch was “good news.”

“​​If we want to have resilient systems that work at scale there needs to be entities that have a sustainable income.”

UNI Drops on News

But when Labs made the announcement, UNI dropped 6% in the 24 hours after as holders wondered whether they would ever catch a similar break. Holders have long hoped that UNI will eventually entitle holders to a share of revenue on trades.

UNI is down 23% year-to-date, compared with ETH’s 34% increase, and is down 91% from its all-time high of $44.9 in May 2021, according to data by Coingecko. Uniswap Labs last year raised $165M in a Series B round at a valuation of $1.66B.

Scott Lewis, the founder of DeFi Pulse and Slingshot Crypto, was quick to criticize the move, and tweeted that Uniswap Labs is “rugging $UNI holders by monetizing Uniswaps Labs equity with a fee switch,” before monetizing the token.

Popular Crypto Twitter account Autism Capital said the move “absolutely neglects all the holders of their useless ‘governance token’ UNI that *still* hasn’t turned on a fee switch to provide one scrap of value to those tricked into buying it.”

Fee Switch Proposals

The first proposal to turn on the protocol-level fee switch dates back to September 2020, almost immediately after the token was first issued, and the latest fee proposal was made as recently as May.

But the vote closed in June with over 45% of participants in favor of no fee, while 42% were in favor of a fee. Even token holders are split on the decision as they weigh whether a fee would diminish liquidity, make Uniswap less competitive, trigger tax complications and invite regulatory scrutiny.

Conflicts of Interest

Getty Hill, co-founder of GFX Labs, which drafted the proposal, said in an interview it was shot down by a single entity that controlled UNI through a variety of wallets. That party also owned equity in Labs, making for what Hill called a “delicate situation.”

Tension is compounded by potential conflicts of interest as Labs also owns UNI tokens — the Labs team received 21% of the token supply of UNI.

Investors, who also own a stake in Labs, received 18% of the tokens. That means equity holders can also participate in token governance, and while they stand to gain from an upside in the token, they will also protect their equity holdings.

Competitors Salivate

Competitors, like Curve Finance, LlamaSwap, were quick to capitalize on the fee swap turmoil.

Antonio Juliano, the founder of dYdX, was also one of them, noting that the derivatives exchange charges fees at the protocol level and not at on its interface

“dYdX interfaces will have zero, yes zero, fees to dYdX Trading Inc. come dYdX chain,” he posted less than an hour after Uniswap Labs’ founder Hayden Adams, announced the 15 basis point fee.

Nathan Cha, marketing lead at dYdX Trading, told The Defiant in a later interview that the company had built up six years of runway thanks to the fees it already charged.

“I think our standpoint is just fundamentally different because of how we’ve run our business over the last few years,” he said. “We prioritized profitability at first but our aim was always progressive decentralization.”

Bypassing Uniswap’s Frontend

Matcha is one of many aggregators which will bypass Labs’ fee by interacting directly with the underlying Uniswap protocol.

“We’re not going to charge fees just to access publicly [available] liquidity,” 0x’s Warren said. “Where we are willing to charge and where we see a big opportunity to deliver value beyond just a great user experience within Matcha is in trade execution.”

Matcha charges a 15 basis point fee on its Auto feature, which protects users against maximal extractable value (MEV), and increases trade speed, among other potential advantages. Warren estimated that roughly 70% of the aggregator’s users use Auto.

Like Juliano, Matcha’s Twitter feed took a subtle shot at Uniswap, this time suggesting that the aggregator’s fee is more visible than Uniswap’s when comparing the two interfaces.

Likewise, Oku, which launched in July and is focused on giving a sleek trading experience, highlighted that despite using Uniswap V3 exclusively under the hood, users don’t have to pay any fees.

GFX Labs, the group behind the latest proposal to turn on protocol-level fees on Uniswap, is the developer of Oku.

Unsiwap is Not Alone

But Uniswap is not alone at charging fees at the interface level. MetaMask, the most popular wallet in crypto, charges 87.5 basis points on swaps. MetaMask made over $500,000 in the past week off those fees and has made $200M in total revenue from the feature, according to a Dune Analytics dashboard.

The difference with MetaMask though, is that the Consensys-backed wallet doesn’t have a token.

Moving forward, Uniswap activity will provide a gauge on how price sensitive its users are. So far, many are sticking around to use one of the most iconic interfaces in DeFi— Labs has made over $110,000 since the feature went live on Oct. 17.

For those who are more price sensitive, we’ve already seen how eager competitors are to pick up any unhappy Uniswap traders.

Meanwhile for UNI holders, they can continue participating in governance with some of them still hoping they can one-day flip that switch.