The value of the Uniswap unification proposal and the CCA protocol

Preface

Recently, the industry's excitement has been shifted by the rise of the X402 payment track and the panic of Black Monday, Tuesday, Wednesday, Thursday, and Friday, as well as the rotation of the privacy sector related to the bull's end legend.

This world is really wonderful and also too noisy.

Now the bear market is fine, after all, a common mistake made by smart people is to try to optimize something that shouldn't exist~ (from Musk). Now, calm down and review the brilliance of past successful products, look at which players in the competition are engaging in ineffective operations, see which are the pigs on the wind, and 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 summer of DeFi, and by 2025, there are multiple typical products that have solidified their presence, occupying a significant voice in the market from concepts to execution. The most amazing aspect of this track 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 player Uniswap in DeFi is also continuously innovating. This article will deeply analyze two major moves made by Uniswap this week.

Market Status of Uniswap**

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

As can be seen from the figure below, even with new challengers emerging in 2025, Ethereum's mainnet still occupies 70-80% of the market size.

In the recent 25 years of October, he had a trading volume of about 138B. Excluding 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. This means that there are better staking options in the market. Moreover, even though Uniswap continues to launch v3 and v4 with more performance, gas, and LP optimizations, it is still competing for a shrinking market.

Market share of various versions of Uniswap on Ethereum

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

In the cross-chain Swap market, the actual performance of uniswapX is far inferior to the optimization in experience offered by its competitor PancakeSwap, and starting from 2024, its market share has been continuously eroded. Now it only holds about 20-30% of the market share.

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

EVM Cross-chain Dex Trading Volume

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

Can we turn the tide with UNIfication at this moment?

UNIfication New Unification Proposal

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

The following actions are relatively important:

• Enable Protocol Fees and UNI Burn: Turn on the built-in “fee switch” so that a portion of the fees from each transaction goes to the protocol (instead of all 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 an annual revenue of about 7.5 million USD) 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 that internalizes the maximum extractable value ( MEV ) while enhancing the returns for liquidity providers (LP). In short, traders can bid for temporary fee discounts (i.e., they can 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 otherwise flowed to bots or validators will be captured by Uniswap and used to burn UNI.

• 100 million UNI tokens burned (retroactive burn): To compensate UNI holders for the fees “missed” during the conversion fee closure, they proposed to burn 100 million UNI tokens in one go from the treasury. 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 a growth budget of 20 million UNI per year for Uniswap Labs (distributed quarterly).

How to understand?

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

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

For LP

Clearly, the cost comes from the sheep, for example in the Uniswap v2 version, the trading fee will be adjusted from 0.30% (all goes 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) plan, it is also simultaneously expanding the pie, 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 calculate that this mechanism will increase LP's earnings by about 0.06 to 0.26 dollars per 10,000 dollars in trading volume. Considering that LP's profits are usually very low, this is significant.

For ordinary users

First, user 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 directly 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 actually share in the trading fees generated by Uniswap itself (which were previously given to LPs).

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

This point clearly references the governance model of Hyperliquid, and from a certain perspective, destruction and buyback are analogous.

For Lab operations

Secondly, previously the extra fees from the app's usage were used to pay employees, but now it is done through a budget of 2kwUni, based on the current market price,

This is a research and operation budget of 140 million US dollars, which is considered very high.

Sometimes I wonder if he is just doing all this for the 2kwuni, as it is clear that this scale is far greater than the previous transaction 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 of the foundation's team members will join Labs to form a united team focused on the development of Uniswap. In this light, it does seem to have a refreshing new atmosphere of striving for excellence.

Is this mechanism worth a long-term view?

It may be that the black swan events this week were a bit too much, as the valuation increase brought about by the burn quickly retraced.

Apart from external factors, I believe that his short-term fluctuations stem from the initial announcement that everyone quickly understood he would destroy, which led to growth, but destruction is not the 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 LP earnings be stabilized?

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

Moreover, similarly for competing products (all doing LP), those doing Uni will have to hold a large amount of regular tokens, which often incur the biggest losses during black swan events, thereby amplifying the impermanent loss of LP. And what about mainstream platform tokens? The staking of Ethereum itself offers a clear annualized yield of 4%, while staking Sol is accompanied by market conditions and Jito's capture of MEV, yielding 8% or even higher, without the worry of the volatile surges and declines of altcoins.

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

Therefore, although the UNIification is the biggest change in Uniswap since the launch of the UNI token. It addresses the long-standing issue of the lack of a direct correlation between the value of the UNI token and the actual performance of Uniswap.

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

CCA (Continuous Clearing Auction)

This is the new protocol CCA recently released in collaboration by Uniswap and Aztec, specifically designed for price discovery and the initial stages of liquidity for new assets.

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

Evolution of Asset Pricing Schemes

In fact, how to set prices has always been 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 new asset pricing back in the day.

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

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

Therefore, fair price discovery and fair initial token distribution have always been major issues for DEX platforms. However, most distributions today still feel like behind-the-scenes transactions disguised as “community activities.” Insiders gain 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, and so on.

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

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

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

3. A one-time auction reduces demand and often initiates a rush to buy at the last minute.

4. Various Curve curves have path dependency and are easily manipulated by humans.

Design Concept of CCA

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

It is a configurable auction framework, and everything is conducted on-chain (which is better than uniswapX). The five stages are

Bidding Stage

1. Configuration Phase: The auction initiator first sets the rules on the chain, such as the start and end times, how many “rounds” or time periods the auction is divided into, what proportion of tokens are released in each time period, the floor price, and additional configurations like whether a whitelist/identity verification is required, and how to introduce liquidity into Uniswap v4 after the auction ends, etc.
2. Bidding Phase: During the auction, participants can place bids at any time, with each bid containing two parameters: the amount of funds invested and the maximum acceptable unit price.
3. Allocation Stage: The system will automatically distribute a bid across the remaining “release periods”. Therefore, the earlier the bid is placed, the more time periods there are to participate, providing the opportunity to engage in more rounds of settlement.
4. Settlement Phase: In each round, the system will accumulate all valid bids for that round and then use a unified rule to determine a price that can exactly sell all the tokens to be released in that round, serving as the final transaction price for that round.
5. Injection Phase: After the auction ends, participants can claim their received tokens and the portion of funds that were not transacted; 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.

How to understand

In summary, it is actually about breaking a one-time auction into multiple times, distributing the competition during the auction process across multiple instances. This aims to solve the issue that occurred during one-time auctions, where a bunch of transactions would be completed in the last second (just before the block is mined), turning the auction into a black box.

But is this enough?

Obviously, complexity will deter many new coins from launching on this platform. Moreover, 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 very difficult to replicate as the uniswapV1 version, with 200 lines of code rewriting the history of new coin issuance pricing successfully. Moreover, it relies on the V4 version, and its development can be seen from the data above, showing a gap of 5 times compared to the mainstream V2V3.

About Asset Growth and Value Discovery

Regarding asset growth, what I discussed earlier was the pricing platforms in the initial stage. I would like to add some comments on the pricing logic in the mid-to-large development stage.

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

Many people are attracted to this first, but the real intrinsic value of Perps is that they can help in pricing assets.

Very small assets can be listed on Uniswap and meme platforms. Then, when you grow to medium-sized assets, you can list them on BN's Alpha platform or other CEX platforms for small and medium exchanges. However, objectively speaking, before 2025, there were fewer pricing platforms from a decentralized perspective in the market when moving from medium to large assets.

Therefore, during this hollow period, it is easy for the market to misjudge, which has led to investors frequently exiting at lightning speed after assets are listed on exchanges.

Firstly, because Perps are futures, you need to know that if you want to price in the market, you have to put assets up there, your liquidity will be in the market, and locked there. This is actually unfavorable for an asset.

Then if you have too small of an asset, you go borrow coins to provide liquidity to the market makers, which is actually quite easy. Often, small coins disappear because they didn't coordinate well with the market makers, and both of them are pushing up the price together, then the official releases the goods, or when the official is purchasing, they are also pushing up the price.

So the influence of many market makers prevents these small tokens from rising. Then, at the mid-token stage, you have to put liquidity on top to create a higher depth, which increases the costs for the project team. Additionally, the LP's returns become unstable and unclear, because with highly volatile tokens, people are reluctant to hold them for the long term.

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

Recently facing a bull-bear transition, I have also experienced two cycles. Objectively speaking, with the constant changes between bull and bear markets, those platforms that can survive long enough must be the ones that capture long-term demand.