Analyzing the value of the Uniswap unification proposal and the CCA auction protocol

Author | Shi Si Jun

Introduction

Recently, the industry's enthusiasm has been shifted by the rise of the X402 payment track, as well as the panic of Black Monday, Tuesday, Wednesday, Thursday, and Friday, along with the rotation of the privacy sector in the Bull End Legend.

This world is truly amazing, yet so noisy.

Now, whether it’s in a bear market or not, the fact is that one common mistake smart people make is to work hard to optimize something that shouldn't exist (from Musk). Now, let's calm down and review the brilliance of past successful products, look at which players in the competition are ineffective, and see which ones are the pigs on the wind. When the wind stops, we can truly see the long-term value of the future.

If asked, what are the representative track trends this year?

My first choice is Dex. It has been 4 years since the DeFi summer, and there are indeed several typical products that have solidified their presence in the market from concept to substantial volume. The most fascinating aspect of this field is that just when you think everything that can be done has been done, and the landscape should have settled, you suddenly see certain projects emerging as dark horses from the details. Hyperliquid in Perps is one such example, and fomo in Meme bots is another.

In addition to the challenges posed by new platforms, the evergreen giant Uniswap in DeFi continues to innovate. This article will provide an in-depth analysis of Uniswap's two major moves this week.

The market status of Uniswap

As of today, Uniswap has processed approximately $4 trillion in transaction volume. It is undoubtedly the leading Dex platform.

As seen in the figure below, even with new challengers in 2025, Ethereum's mainnet still holds a market share of 70-80%.

In the recent October of the last 25 years, he had a trading volume of about 138B. Setting aside monthly fluctuations, the average trading volume is also between 60–100B.

Market share situation of various DEX on Ethereum

However, beneath the prosperity, there are actually quite a few challengers, as Uniswap's TVL continues to decline, which means there are better staking opportunities in the market. Moreover, even with the continuous launch of v3 and v4, which have more performance and optimizations in terms of GAS and LP, Uniswap is still competing for a shrinking market.

Market share situation of various versions of Uniswap on Ethereum

And in the entire Dex market, it is not the only one.

In the cross-chain Swap market, the actual performance of UniswapX is far inferior to the experience optimizations of its competitor PancakeSwap. Since 2024, its market share has been continuously eroded. Now it has only about 20-30% market share.

However, even so, one cannot underestimate the potential of this market, as Uniswap still has a scale of around 200B in monthly cross-chain swap trading volume.

EVM cross-chain Dex trading volume

There are obviously a lot of problems here. The most criticized is the poor performance of the UNI token itself. The current situation is simply abysmal compared to its peak in 2021.

Can UNIfication turn the tide at this moment?

UNIfication New Unification Proposal

UNIfication, a proposal jointly put forward by Uniswap Labs and the Uniswap Foundation, aims to fundamentally reform the way Uniswap operates — from fee distribution to governance structure to token economic model.

The following important actions are as follows:

Enable Protocol Fees and UNI Burn: Turn on the built-in “fee switch” to allocate a portion of the fees from each transaction to the protocol (instead of the entire amount going to liquidity providers). The portion of fees collected by the protocol will be used to burn UNI tokens, thus permanently reducing the supply of UNI. Therefore, the future usage of Uniswap is directly linked to the scarcity of the tokens.

Unichain Sequencer fees will be used for burning: Uniswap now has its own Layer-2 network called Unichain. The fees earned by Unichain Sequencer (currently with an annual income of approximately $7.5 million) will also be used for the UNI token burning mechanism. Therefore, every layer of Uniswap (the main exchange and its L2 chain) participates in the same burning mechanism, and as usage increases, the scarcity of UNI tokens will also increase.

Protocol Fee Discount Auction (PFDA): A new mechanism to internalize the maximum extractable value ( MEV ) and enhance the returns for liquidity providers (LP). In short, traders can bid to obtain a temporary fee discount (i.e., trade without paying protocol fees for a short period). The highest bid (paid in UNI) will be used to burn the contract. In this way, the MEV that would have flowed to bots or validators will be captured by Uniswap and used to burn UNI.

100 million UNI tokens will be burned (retroactive burn): To compensate UNI holders for the fees “missed” during the closure of fee conversion, they proposed to burn 100 million UNI tokens from the treasury in one go. This amounts to approximately 16% of the circulating supply of UNI.

No more interface/wallet fees: Uniswap Labs will stop charging fees for its products (Uniswap official web application, mobile wallet, and API).

Introduced an annual growth budget of 20 million UNI for Uniswap Labs (allocated quarterly).

How to understand?

Alright, there is indeed a lot of information, let's think about it from the perspectives of different stakeholders.

1. For LPs

Clearly, the costs come from the sheep themselves. For example, in the Uniswap v2 version, the trading fee will be adjusted from 0.30% (all going to liquidity providers) to 0.25% for liquidity providers and 0.05% for the protocol. Therefore, after the protocol fee is enabled, the earnings of LPs from each transaction will decrease by 1/6.

Although this proposal also includes a protocol fee discount auction (PFDA) scheme, it is simultaneously expanding the cake, for example, by internalizing part of the market execution value (MEV), guiding external liquidity and charging certain fees, as well as overall increasing trading volume.

Some analyses in the market have calculated that this mechanism will increase LP's earnings by approximately $0.06 to $0.26 per $10,000 in trading volume. Considering that LP's profits are usually very low, this is significant.

However, the author is not so optimistic, after all, the feedback of the profits from extracting MEV to LP and users has always been a major challenge. Moreover, LP also bears the risk of impermanent loss.

2. For ordinary users

First, user transaction fees will be directly reduced. On one hand, high-end users can obtain fee discount coupons through the PFDA mechanism combined with auctions. On the other hand, the fees for using the Uniswap app page have been completely eliminated.

However, UNI can finally benefit from the success of Uniswap, which is significant because previously UNI was just a governance token and did not share in the trading fees generated by Uniswap itself (which were previously all given to LPs).

Moreover, UNI itself has formed a deflationary asset closely related to cash flow, rather than a passive governance token.

This clearly references the governance model of Hyperliquid, and from a certain perspective, burning and buybacks are analogous.

3. For Lab operations

Secondly, previously, employee salaries were paid through extra fees based on the app usage, but now it is done through a budget of 2kwUni. At the current market price, this amounts to a research and development operational budget of 140 million USD, which is considered very high.

Sometimes I wonder if he is just messing around with this setup for the 2kwuni, obviously this scale is much larger than the previous fee income.

Moreover, Uniswap Labs and the foundation will also merge: Labs, responsible for protocol development, and the foundation, responsible for grants/governance, plan to combine. Most team members from the foundation will join Labs to form a united team focused on the development of Uniswap. In this regard, it indeed presents a refreshing atmosphere of diligence and hard work.

4. Is this mechanism worth a long-term view?

It may be that there were too many black swan events this week, as the valuation increase brought by the destruction quickly fell back.

Setting aside external factors, I believe that his short-term volatility is due to the initial announcement that everyone quickly understood he would destroy it, leading to growth. However, destruction is not a source of long-term value.

Uniswap hopes that the increase in trading volume, MEV sharing, and other incentives can offset the impact of reduced earnings over time. How can it stabilize LP earnings?

In the initial chart, we have already seen that long-term Uniswap LPs are gradually migrating away.

Moreover, similarly to competing products (all engaged in LP), those doing UNI will have to hold a large amount of conventional tokens, which often incur the largest losses during black swan events, thus amplifying the impermanent loss of LP. But what about mainstream platform tokens? Ethereum staking itself offers a clear annualized return of 4%, while staking on Solana comes with market dynamics and Jito's capture of MEV, yielding 8% or even higher returns, without the concern of the volatile rises and falls of altcoins.

Therefore, the departure of LP will ultimately affect trading depth, increase trading slippage, and will ultimately harm the user level.

Therefore, while it is said that the UNI tokenization is the biggest change for Uniswap since the launch of the UNI token. It addresses the long-standing issue of the lack of direct correlation between the value of the UNI token and the actual performance of Uniswap.

In the long run, the competition between decentralized exchanges (DEXs) over the past 25 years has been exceptionally fierce, and the scale of Uniswap means that its liquidity can withstand fluctuations for a while. Launching this move at this time is reasonable, but it will inevitably bring about volatility.

CCA (Continuous Clearing Auction)

This is the newly launched protocol CCA jointly released by Uniswap and Aztec, which is specifically designed for price discovery and liquidity bootstrapping of new assets.

After the auction process is completed, the project team can import the raised funds and tokens into Uniswap v4 and directly connect to the secondary market for trading.

1. Evolution of Asset Pricing Schemes

In fact, how to price is always a grand issue. In my previous interpretations of the mechanisms of UniswapX and UniswapV2, I mentioned that, objectively speaking, Uniswap's rise was due to seizing the demand for the pricing of new assets at that time.

After all, the on-chain AMM formula for two token quantities, x*y=k, is the easiest way to quickly return to a reasonable price within the performance-constrained EVM architecture.

However, this mechanism is not perfect; the slippage is significant, MEV attacks, and impermanent loss of LPs are all key factors that affect it.

Therefore, fair price discovery and fair initial token distribution have always been significant issues for DEX platforms. However, nowadays, most releases still feel like behind-the-scenes transactions disguised as “community activities.” Insiders get certainty, while others get the leftovers.

Later, various platforms also made many attempts on how to price new assets, such as team airdrops, Dutch auctions, fixed price sales, as well as LBP, Bonding Curve, Fee mint, fair launches, etc.

Moreover, the above solution still has flaws, for example:

Fixed-price sales can lead to pricing errors and priority disputes, resulting in insufficient or unstable liquidity.

Dutch auctions create a time game, giving professionals like us an advantage over actual participants.

One-time auctions reduce demand and often initiate last-minute rushes.

Various types of Curve lines have path dependence and are easily manipulated by humans.

2. The Design Philosophy of CCA

Essentially, CCA is a protocol independent of Uniswap v4, serving as a complete framework for issuance and pricing. However, it will connect with the AMM core through the hooks mechanism of Uniswap v4. In the entire workflow of issuance, it is the CCA Auction module shown in the figure below.

bidding stage

Configuration Phase: The auction initiator first sets rules on the blockchain, such as the start and end time, how many “rounds” or time periods the auction is divided into, the proportion of tokens released in each time period, the floor price, and additional configurations like whether a whitelist/identity verification is needed, and how to introduce liquidity to Uniswap v4 after the auction ends, etc.

Bidding Phase: During the auction, participants can place bids at any time. Each bid consists of two parameters: how much capital to invest and the maximum acceptable unit price.

Distribution Phase: The system will automatically spread a bid across the remaining “release periods”. Therefore, the earlier the bid is placed, the more time slots are available for participation, providing opportunities to participate in liquidation in more rounds.

Clearing Phase: In each round, the system accumulates all valid bids for that round and then identifies a price using a unified rule, which can just sell all tokens to be released in that round, serving as the final transaction price for that round.

Injection Phase: After the auction has ended, participants can receive the tokens they have won as well as the portion of funds that were not successfully traded; the protocol will inject the raised assets and the other side of assets prepared by the project party into Uniswap v4 according to the pre-agreed strategy, officially starting the liquidity pool of the secondary market.

3. How to Understand

In summary, it essentially divides a one-time auction into multiple times, distributing the competition that occurs during the auction process over several instances. This approach aims to address the issue that arose during a one-time auction, where a flurry of transactions typically happens in the last second (just before the block is mined), turning the auction into a black box.

But is this enough?

Clearly, the complexity will deter many new coins from launching on this platform. Moreover, the efficiency has also decreased. Objectively speaking, since version X, the auction logic of Uniswap has not been very successful, and too many DeFi protocols have left the complexity to the users.

The author believes that this set is difficult to replicate as the Uniswap V1 version, with 200 lines of code rewriting the history of new token issuance pricing successfully. Moreover, it relies on the V4 version, and its development can be seen from the data above, showing a 5-fold gap compared to the mainstream V2 and V3.

On Asset Growth and Value Discovery

Regarding asset growth, what I mentioned earlier was about initial pricing platforms. I would like to add some insights on the pricing logic during the mid-to-large development stages.

Although trading financial derivatives, especially on perpetual platforms, is the most profitable in all trading links.

Many people are distracted by this, but the real intrinsic value of Perps is that it can help in pricing assets.

Very small assets can be listed on Uniswap or meme platforms. When you grow to medium-sized assets, you can go on the alpha platform of BN or the CEX platforms of other small and medium exchanges. However, objectively speaking, before 2025, there were fewer decentralized pricing platforms in the market when transitioning from small to large assets.

Therefore, during this hollow period, it is easy for the market to misjudge, which often leads to investors quickly exiting after their assets are listed on the exchange.

Here, firstly because Perps are futures, you need to know that if you want to price in the market, you have to put assets on it, and your liquidity is locked there in the market, which is actually unfavorable for an asset.

If you have too small of an asset, then you can lend coins to market makers, which is actually quite easy. Others often lose small coins because they didn't coordinate well with the market makers, and both sides are pushing the price up together. Then the officials sell off their stock, or when the officials are buying in, they are pushing the price up.

So the influence of many of these market makers prevents small coins from rising, and when it comes to medium-sized coins, you have to put liquidity on them to create a higher depth, which increases the costs for the project parties. Additionally, the returns for LPs become unstable and not obvious, because with highly volatile coins, people are reluctant to hold them for the long term.

So looking at it this way, since the perpetual platform is futures, you actually don't need to deliver anything; you just need to believe it has this price. Therefore, it is a very good pricing platform for medium assets.

Recently facing the transition between bull and bear markets, I have also experienced 2 cycles. Objectively speaking, as the bull and bear markets continuously change, those that can survive long enough must be platforms that capture long-term demand.