Uniswap's UNI token experienced a surge, jumping as high as 38% on Monday, following the unveiling of a joint proposal by Uniswap Labs and the Uniswap Foundation aimed at enhancing the token's appeal to investors. The proposal, dubbed "UNIfication," outlines potential changes, including activating a protocol-level fee mechanism to burn UNI tokens and establishing a Protocol Fee Discount Auctions system to boost returns for liquidity providers.

The "UNIfication" proposal suggests directing a portion of trading fees to a UNI burn mechanism, alongside fees from Uniswap's layer-2 network, Unichain. The proposal also includes a retroactive burn of 100 million UNI from the treasury. This amount, Uniswap Labs claims, would match the amount that would have been burned if protocol fees had been active since launch.

This initiative marks a significant step for the protocol and its token holders, who have long advocated for a "fee switch". This switch would redirect a portion of trading fees, traditionally allocated to liquidity providers, to the Uniswap protocol's treasury or UNI token holders.

The proposal also considers Protocol Fee Discount Auctions (PFDA) to allow traders to bid for fee discounts. This would internalize maximal extractable value (MEV) and help boost the burn process further. New "hooks" would enable Uniswap v4 to aggregate fees from external liquidity sources.

In addition to burning tokens, the "UNIfication" plan would merge the non-profit Uniswap Foundation into Labs. Uniswap Labs will also shift its focus from monetizing its interfaces to protocol growth and development. Labs' fees on the interface, wallet, and API will be set to zero.

The Uniswap Foundation and Uniswap Labs believe that this proposal positions the Uniswap Protocol to win as the default decentralized exchange for tokenized value. The Uniswap protocol includes a fee switch that can only be turned on by a UNI governance vote. If approved, Labs will shift its focus from monetizing its interfaces to protocol growth and development.

The proposal comes as DeFi reaches an inflection point. Decentralized trading protocols are rivaling centralized platforms in performance and scale, tokens are going mainstream, and institutions are building on Uniswap and other DeFi protocols. The Uniswap Foundation was first proposed in August 2022 to simplify the ecosystem's complex governance structure and provide developers with a more robust infrastructure.