Uniswap's Compliance Breakthrough: How DUNA Paves the Way for Fee Switches and Token Empowerment

By JAE, PANews

On August 12, 2025, the Uniswap Foundation released a proposal to register Uniswap Governance as a Decentralized Unincorporated Nonprofit Association (DUNA) in Wyoming, naming the entity "DUNI." This move will lend Uniswap's decentralized governance a veneer of compliance and pave the way for the activation of the protocol's fee mechanism. If successful, this development could mark a significant turning point in the DeFi space, representing a profound shift in protocol governance and value capture mechanisms.

As a leading DEX in the DeFi ecosystem, Uniswap's move may set a new precedent for DAO compliance. Amidst the crypto industry's increasing emphasis on compliance, this initiative offers a new approach to ensuring legal operation, risk management, and coordinating off-chain interactions.

An In-Depth Analysis of Wyoming’s DUNA Framework: A New Path to DAO Compliance

Over the past two years, the Foundation has been seeking a legal structure that would provide more comprehensive liability protection for governance participants, enabling off-chain interactions while maintaining protocol governance authority without introducing centralization risks. Following in-depth research, legal consultation, and community input, DUNA was identified as an appropriate option to meet these needs.

In March 2024, the crypto-friendly state of Wyoming in the United States passed legislation recognizing DUNA as a new form of legal entity, which came into effect in July of the same year. It is designed specifically for DAOs and public chains, while retaining the decentralized governance nature of both, giving them legal status.

The core characteristic of DUNA is its non-profit nature, which means that although DUNA is allowed to engage in profit-making activities, all profits must be used for non-profit purposes, and no profits or dividends may be distributed to members or token holders. However, DUNA may pay salaries or reimburse expenses to those who provide services to it, such as paying salaries to employees, incentivizing node operators or contributors, and reimbursing expenses.

The main advantage of DUNA is that it provides limited liability protection for DAO members and token holders, exempting relevant personnel from assuming the obligations, debts or legal liabilities of the DAO, and effectively avoiding the risk that an unregistered DAO will be treated as a general partnership, which will lead to the risk of members being jointly and severally liable.

The establishment of DUNI will enable Uniswap to perform off-chain operations, such as signing contracts, holding assets, engaging third-party services (such as lawyers and auditors), and fulfilling potential regulatory and tax obligations. For a DeFi protocol, establishing a legal entity is a critical step in integrating with the traditional business world. With legal status, Uniswap can more smoothly collaborate with external organizations and expand its ecosystem.

To ensure the smooth operation and compliance of DUNI, the proposal calls for allocating $16.5 million worth of UNI from the treasury for legal defense and tax compliance. The Foundation estimates that the cost of resolving historical tax liabilities and penalties will be less than $10 million. Additionally, Uniswap must pay $75,000 to the tax consulting firm Cowrie as compensation for its compliance administrator. Notably, Cowrie co-founder David Kerr was deeply involved in drafting Wyoming's DUNA bill.

Brian Nistler, General Counsel of the Uniswap Foundation, stated that applying the DUNA framework will pave the way for the activation of protocol fees, allowing a portion of LP fees to be transferred to the DAO treasury. He noted, "Based on this legal framework, the scope of what DUNA can do, participate in, and trade will be greatly expanded. This not only lays the foundation for future protocol fee voting, but also formalizes Uniswap's governance activities while protecting participants in collective decision-making."

Protocol Fee Mechanism: Potential Benefits and Challenges of Uniswap’s Economic Model Transformation

Currently, Uniswap sets a transaction fee of 0.3%, with all fees distributed proportionally to LPs (liquidity providers). When a trade occurs, the fee is directly deposited into the liquidity reserve, increasing the value of the LP-Token and thus incentivizing LPs.

Both Uniswap V3 and V4 include a protocol fee mechanism, which can be activated via a governance proposal. Once activated, one-sixth of the 0.3% trading fee, or 0.05%, will no longer go to limited partners (LPs). Instead, it will be collected by the protocol's DAO treasury. While traders will not see an increase in fees, LPs will see a decrease in returns.

The DUNA framework provides the necessary legal basis for the legitimate collection and management of agreement fees. Without a legal entity, agreement fees may face securities and tax compliance risks. DUNI, however, allows for the legal holding and management of these revenues.

Assuming the protocol fee mechanism is activated, it is expected to bring considerable revenue to Uniswap DAO, which can be used to fund protocol development and construction, security audits, community donations, ecosystem incentives, and other strategic support, which will be conducive to the sustainable development of the protocol and consolidate its innovative and leading position in the DeFi market.

Under the DUNA framework, if the protocol fee mechanism is activated, it will also reshape Uniswap's business model. Previously, the protocol's business model was primarily based on transactions, with limited partners bearing costs and earning fees, and the protocol itself generating no direct revenue. The DUNA framework provides a legal basis for DAOs to legally charge fees, transforming Uniswap from a model where the protocol itself generates direct revenue.

While DUNA's non-profit nature limits the protocol's ability to directly distribute profits to token holders, increased revenue can indirectly boost the value of $UNI in a variety of ways, such as through the DAO's ability to repurchase and burn $UNI, thereby increasing its intrinsic value. Furthermore, revenue can be reinvested in the ecosystem, establishing a self-sustaining "non-profit business model" for the DAO and enabling more proactive ecosystem expansion.

However, activating the protocol fee mechanism will directly impact LP returns and may cause some LPs to withdraw liquidity. Liquidity dilution means that users will receive worse prices due to higher slippage when executing large trades on Uniswap, potentially driving users to other DEXs, leading to a decline in Uniswap trading volume and creating a "negative flywheel effect": fees reduce LP returns → LPs withdraw liquidity → increased slippage → declining trading volume → further decline in LP returns. Furthermore, MEV traders are more sensitive to liquidity, and their activity is expected to decline as TVL decreases.

Gauntlet’s report previously hinted at the existence of a “negative flywheel effect,” meaning that while activating a fee switch might appear to immediately increase revenue, it could also trigger a chain reaction that undermines the protocol’s key advantages: deep liquidity and competitive pricing.

Once the protocol fee mechanism is activated, Uniswap DAO must closely monitor the indicator data to avoid reaching the "revenue decay point." This situation also highlights the contradiction between the protocol's value capture and maintaining user experience.

Market reaction: Uniswap community views are polarized

Upon the announcement of the proposal, the price of $UNI briefly surged by over 8% to $11.86, indicating that the market was optimistic about the news and could interpret it as a long-term positive for $UNI’s value capture capabilities.

The proposal has been actively discussed on Uniswap's social media and governance forums. Supporters believe that DUNA is a key step in legitimizing the DAO and activating the protocol's fee mechanism, which will benefit the long-term development of the protocol. By establishing a legal entity, Uniswap will be able to better interact with the off-chain world.

Conversely, some community members have expressed concerns about the timeline for activating the fee switch, centralization risks, transparency, and cross-border compliance. Therefore, despite the proposal's significant long-term impact, many users are adopting a wait-and-see approach due to these concerns.

The above remarks reflect the complex trade-offs faced by the DAO community in pursuing innovation and compliance, and between short-term benefits and long-term value.