Breaking Down Uniswap’s Fee Switch and UNIfication Proposal | Hayden Adams & Jesse Walden

Transcript

Part of what I'm so excited about with unification is, you know, when I think about like the labs team, I think that like one thing that we're most unique about is like our expertise in in market structure and in AM design and protocol design. And so I'm really excited to kind of like align our focus. Uh and and that's part of what this proposal is about, building what is most valuable for the protocol. >> Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed.

All right, everyone. Welcome back to another episode of Bell Curve. Uh, it's a very special episode today. I've got Hayden Adams of Uniswap and Jesse Walden of Variant. Guys, this is going to be a fun one. Welcome. >> Great to be here. >> Thanks for having us. >> Thanks, guys. Well, the the trigger for this podcast was um Hayden, the proposal that you just put out uh to activate the unis swap fe. We had a little bit of a false start yesterday. That's my bad. Uh Montana got snowed in [laughter] so lost power, but here we are. We're back at it. Um and I want to get as much as we possibly can covered around uh just there's a whole rich history that goes along I think specifically with the unis swap uh fee switch that I'm super interested to to get at. But maybe to

address um what I'm really curious about, maybe you could rewind the clock a couple of years ago and talk about what it was like to be running unis swap during the Gendler years of the SEC because I feel like that's a huge part of the subtext of this entire conversation. Um so yeah, kind of want to give you the just chance to address the audience like what was that like? What could you do? What couldn't you do? Like take us through what it was like. >> Yeah. So, um, and by the way, you know, if it's if it's cold in Montana, we released a interesting pair of socks that you could you could use back in the day. They're still available.

>> What I want is the Paul Frambo uh unisocks mashup. I was actually there that night earlier. So, uh, little part of >> Yeah, the history of that, I don't know if we're going too off the rails already, but um, I uh I was telling him how I really don't like long socks, so I don't wear my unis socks because they're too long for me. And so, I you know, and then he said, "Why don't why don't you just cut off the tops? I'll buy the top. And so I cut off the top of a pair of unis socks. And um and he was like, "How much for it?" I'm like, "I don't I don't know how to price like the top of a pair of my socks." Um and so he I was like, "How about you just give me something of equal value sometime in the future uh at

your discussion?" And then a year over a year later, he comes in with this like crazy custom jacket that he made. Um which which was really cool. Okay. I >> I literally bought the top. >> Yeah, he bought the top of of [laughter] uh Okay. we we've already gone off the rails. Um, okay. Building during the Gensler era. Yeah, I think that like maybe some some context even kind of before then. Um, so you know, UniS swap had this like meteoric rise in in 2020. Um, so UniS swap protocol went from doing $10 million a day in trading at the beginning of what we called DeFi summer, summer 2020, uh, to by the end of the summer, uh, it was doing over a billion dollars a day in trading. Um, and that was sort of like this like

crazy kind of catalyst of defi adoption and growth. and Usub was sort of like right at the heart of of Defi Summer. Um, and out of that, you know, one of the big learnings of DeFi summer was uh sort of like this like interest and and kind of um idea of of and and this had already been around in crypto, but you know, uh DeFi protocols that that have you know that that you know have have a form of you know ownership and and direct participation from their communities. Um and and that was sort of one of the learnings even on like Sushi Swap and the vampire attacks. Um and and that whole craziness which could could get its own podcast or many podcasts. Um [snorts] and you know and so that we launched the UNI token in uh se or UNI token launched in September 2020. Um and

uh basically just maybe four months later the a man named Gary Kendler was nominated to lead the SEC. And so this was sort of like right at the tail end of DeFi summer. We were excited about that if you remember. We were like, "Hey, this guy taught a course at MIT. He's boys with Sylvio Macaulay." There was excitement around that at the time. >> Yeah. And and I think that that was sort of what made it so disappointing what happened after uh because you know he he you know in in theory had like the sophistication to understand um you know the the the technology but seemingly did not uh in in you know how how the regulations kind of unfolded and and we entered this sort of you know very intense period of regulation by enforcement which was basically that you know um the the focus of of the uh you

know the focus of of the government agency there was was to kind of was really often it was really about going after the good actors, not the bad ones and and going after the biggest actors and the good actors that were, you know, in the United States and not the kind of uh foreign people, you know, foreign um actors that had kind of like moved abroad and were doing sort of u maybe more more sketchy things. And and so they were sort of like rather than going after the scammers, they were going after the legit actors. Um and and so that was one thing that was really tough. um you know uh in the sort of like earlier era like the general understand like the you know if you remember like the first like kind of like the previous before before the Gendzor era right the main um kind of uh

viewpoint into this that we that you know the world got was like you know this this speech about Ethereum and and how Ethereum was sufficiently decentralized and I think everyone understood you know and and and the kind of common understanding was Ethereum was is like was you know because of like the decentralization of the network um was like a had sort of reached a level of decentralization um that where where it wasn't a security and I think that that was like the general consensus and and I think that like you know unis swap uh as a protocol has always been extremely decentralized right at its core um it's you know the the smart contracts are immutable they're not upgradeable it sort of just works and just functions um and and and the only way for you know the unisoft protocol to go down is for

Ethereum itself to go down and so there's like a kind of an equal level of decentralization and uh and so that's sort of always been the case in our minds and so that you know and and so we were just like kind of like very excited for for what this community governance part uh portion of the unis swap uh protocol could be and and kind of how that would work. Um and then I think that like though in this Schzler era that there was a very different approach which was taken which was anything that anyone does to create any or to to kind of like um build you know like almost like anything that anyone does at all uh is bad and and that was sort of like you know if you if you build and create things that are valuable if you build um

if you build and launch things like you know you know you're not supposed to do that and and so that was sort of like the kind of the the stance that was being taken. And so that was really tough. And so um you know Uniswap Labs kind of within that era just maybe some context. So you know Uniswap Labs uh a a company that I created that that launched the unis swap protocol. Um uh obviously you guys know that but um uh you know and then so within that era you know unisoft labs was basically like highly restricted in terms of how it could you know in in terms of like ways like you know we sort of have like had like internal policies around like how we participate in governance and the answer and it was mostly like you know don't uh that's a paraphrase and and so

um but uh you know we're sort of like very restricted in our participation and within that context it was sort of like kind of like uh no not not much happening around unis swap governance and and so um uh uh this guy Ken who was running grants at at the Ethereum foundation before that um you know left the foundation grants and actually uh submitted a governance proposal to unis swap kind of on his own to create this independent grants program that um created this independent grants program to to kind of like create things within the unis swap ecosystem that was separate from labs that was sort of like more focused around governance and and and that was really cool and and it was really and and we started to kind of like build out this ecosystem of more more and more projects building on top

of Uniswap and kind of helping you know propel that forward. Um uh and then you know with that kind of initial success of the grants program uh Devon who who had been working at at labs basically you know uh left labs uh joined up with Ken and they submitted a proposal to create what's called the un swap foundation uh which is you know a new kind of independent entity fully independent from labs that was focus that was meant to be focused more around the ecosystem and and the governance system and and kind uh that's sort of where the kind of conversation of the fee switch has happened and so we you know labs created the protocol uh we deployed it and then there's you know, there there have been fee switches from the beginning. They've always been off.

Uh, since the launch of the Uni token, they've always been one governance proposal from being turned on. Um, and there have been attempts at that through throughout history, um, by different participants out in the out in the world. Um, uh, this is one that we are putting forward with with unification. Um and then kind of you know uh Devon and Ken they've been sort of they've been running the swap grants program and or sorry the UNOP foundation and foundation has kind of been much more involved in the kind of historical governance proposals around uh the fee switch that that didn't pass ultimately. Um but uh you know here this is a new joint proposal from from labs and the foundation uh that that we're you know we're really excited for has gotten really positive community response so far. Um just passed the snapshot vote uh

which was which is sort of the the last step before the full onchain vote. um with with a you know very high degree of participation. I think it's the most voted on a snapshot vote and and uh pretty much unanimously uh positive. So [snorts] >> and it's also the first you've put forward right? >> Uh yes. Uh so one part of the uh you know part of the like kind of internal approach we took to governance is that you know we weren't going to put forward any proposals uh during that kind of previous era. Um but yeah this is the f my this is my first governance proposal. Um, technically it's a joint proposal from labs or it's a joint proposal from labs and the foundation. Um, and so, uh, you know, the it's been like a really cool collaborative effort. It's been really cool to see kind of like to be

kind of like involved in an area of the community that I've been, you know, at arms distance from for a really long time. >> Um, and uh, yeah, it's also just been really cool to see how positively it was received and and you know, I've done kind of I've been like, you know, doing calls with delegates and and uh, and stuff like that. And so it's been really cool to to kind of see that reception. I would just add like quick thing from from the investor perspective. So like we invested in Misoft Labs prior to Uni token launch and you know been so been around from early in the journey and and like you know we invested in large part in Hayden and and the early team and like you know the people building this protocol and so if you think about it just zoomed out like it's kind of an

insane thing like you know we you know we back this team um because of like you know their capabilities what they built and then they launched this thing that was really successful had very strong product market fit prior to launching the token which was a retroactive airdrop that was also a first. Um and uh and then essentially like they just couldn't like work on the thing anymore for like four years basically. That's a little little bit of an overstating like but like he didn't couldn't put forward governance proposals until like a month ago. So like it's it's just like if you just take stock and that's it's pretty insane. Like it's it's so hard for a startup to capture lightning in a bottle and and like find product market fit.

Imagine like be doing that and then and then being like forced to like not, you know, continue to work on that thing for in the way that you want to. It's it's it doesn't make any sense. >> Yeah. I think, you know, I was recently listening to an acquired podcast that did a great overview of the history of Microsoft and they were getting into the weeds on the legal battle that, you know, Bill Gates and Steve Balmer fought back back in the day. And yeah, just took it. It just was a visceral reminder for me of building a heart building a startup is hard enough, but to be fighting the government and getting sued, yeah, my heart goes out, man. I can't even imagine.

>> It's been like a a pretty insane journey. Um, and like kind of even like getting through to this proposal, there was like so much things that went into it and and to made it possible in the specific way that it kind of has manifested. um you know the uh I think sometimes something that like people underestimate is that sometimes it's like oh other people in the industry do this this thing and they do it this way and so why can't you right if they're doing it and I think that like something that people underestimate is that like you know unis swap has been the like from like a brand perspective from a name perspective we're like the largest most kind of uh you know like things we do get the most attention of any part of the industry um we're also like you know

a lot of kind of DeFi projects have been launched out of like say Dubai or like another kind of region has like a very different kind of approach here. And so I think that we've sort of always been at like the forefront of of what gets the most attention that gets the most scrutiny. Um we also, you know, uh have kind of always held ourselves to a very high standard. Uh you know, in part because of that, in part just because we believe in in doing things the right way. Um and I think that like I don't know if that's always been like rewarded. I think it's been like a challenge, but I think that ultimately, you know, we're we're pretty excited that we were able to make this work in the way we did. an example of something that had to happen for the current

proposal to exist in the way it does is like you know the propo a lot of this proposal is built on this this Duna thing which is actually like a you know a new type of entity that was created through a Wyoming law that was passed in the past like two years and so like this required like like you know when you look at like previous feich proposals and kind of how the conversation went uh funny enough that it like I actually don't have much more context than your average person in the public in the sense that like that a lot of the conversations happened in the governance forum and I wasn't even participating having those conversations as other people. But like when you follow the conversations, there were like things like you have things like A6Z saying, "Hey, we're worried about tax liability.

We're worried about oh this ukie case and that you know where where where governance participants got sued." Um and and so you know I don't know if they specifically said that but that would be like an example of like the type of things that you're seeing in these conversations. And so like the the Duna, you know, as an example, right, which which was a new type of entity that was created just for crypto by Wyoming very recently, like for example, was part of what um you know, gave like some level of like understanding around how tax would be would be viewed within this, what gave some level of understanding around you know, the the liability of of governance participants. uh because you know and and so like these things are like kind of like underestimated and they're like and maybe it's like yeah if you're like a you know a three person

startup running out of you know a country and kind of skirting the law like that's a different situation but unis swap is built here like you know we we've been building in the US we're trying to do it the right way and it's it's been like a really interesting process and so I think part of what's really exciting about unification is that we're kind of like on the forefront of adopting um new new ways of of organizing but but doing it in a way that like has some clarity around it which is kind of like a interesting thing um and and has been a big effort. Yeah, I think it's really well said and I hadn't even, you know, put together the do what maybe one theme of just the current moment in crypto is that we've we've built a lot and solve some of the

biggest outstanding challenges on, you know, whether that's a legal structure like Duna, whether it's um infrastructure challenges around like ETH and roll-ups and things like that. There there's a lot that is much clearer today than it was in the past. And you know, I want to maybe move this conversation now towards the unification proposal that you wrote, Hayden. And maybe I'll ask you to just give us a an outline of what that is. And I want to approach I want to approach this both from the perspective of you, the builder, Hayden, but also you, Jesse, the investor. Um, and how you each look at this. And there are some really interesting questions around strategy and where unis swap is choosing to monetize now that you're uh now that it's one kind of single aligned entity.

So maybe Hayden, can you just start off by giving us the run of show or what what are what are the most critical points around the proposal? Yeah. And and technically there are still several entities involved, but I'll kind of clarify, but uh but um generally speaking, you know, I kind of we we summarize the proposal and you know, everyone should just read the proposal also in full if they're interested in really really understanding it. But um you know, the the first kind of part of the proposal is just turning on the fe the fee switches. Um and uh I say switches because actually something that's been really interesting. People have always been like when fe switch it's actually there's actually like there's unis swap v2 there unis swap v3 there's unis swap v4 there's unis swap x has a fee switch as well and each

version of it um uh there's uni chain which also has fees and and those are all going to the sequencer but there's sort of kind of a a an implementation that's happening that that uh makes it um you know turns it into a protocol fee and and has a has [clears throat] the same burning mechanism. So there's a kind of like a a lot of different places that that um fees can be collected. And then each version of these protocol has its own uh uh kind of like parameters to it. And so you know for V4 for example fees are additive for for V3 they're subtractive and there's all these things and so a part of what we're proposing is basically a a model for how fees work for the protocol. So we wrote you know a series of smart contracts. They have cool names like token jar and fire pit.

Um and uh you know and uh and then we're basically you know th those contracts are kind of in the final stages of auditing and and will be uh and are uh just were just posted publicly actually today uh as as we're recording or at least the the the deployed versions um there were sort of public GitHub versions but but so first one is basically kind of a system for how to to to use the how the fee the fee switches work um as well as turning them on um and so we're proposing turning them on initially on mainet um for V2 and V3 and then kind of expanding to um the uh through V4 and and other chains etc through through subsequent proposals. Um, and then as part of that, we're also proposing how the fees are

are implemented. And so that includes essentially all fees are are uh used to uh burn uni. Um, and and we have the the token jar contract basically it just like fills up with thousands of tokens from like you know across all different unis pools. And then essentially when the jar becomes valuable enough anyone can you know withdraw every everything from the jar um and in exchange in exch. So that's kind of a cool thing. And there's actually like that has some parameters to it that governance can uh adjust in the future, right? How how you know how big of a how big do you make the jar, right? Um you can almost imagine it's like a jar full of different change and someone has to guess what it's worth and and they can you know, but I guess you'd have to light the the thing you pay on fire. But

um so that's the uh so there's sort of turning on the fee switch for the protocol. There's also turning it on for uni chain. Um that's another thing that we're proposing. Um and and and that's pretty exciting because you know uni chain is is the kind of only uh place where uh unis swap protocol creates so much value for the chains on which it lives. um you know just in order of like you can imagine like there there were periods where it was a billion dollars a year in ETH being burned just from um you know usage of unis swap on L1 right and it's it's just like an insane number um and so having a deploy uh of unis swap where as much value is internalized to the protocol as as can be is really interesting and and it's not the only deploy of value it's good having unis

swap protocol in a lot of different places but unichain on its own has started to become you know a place where certain types of pairs are being created certain types of tokens are being traded. Um, and so having the the fees on there is also part of the proposal. Uh, then we have we're actually implementing a kind of a fe we we introduced this new thing called uh protocol fee discount auctions. Uh, this is a really uh I know you have a more technical audience and so this one might be one where I can go a little deeper than I might on some podcasts. Um, protocol feed. there's kind of this like very funny beautiful thing that happened which was there's been so many like like we've thought for so long about ways to internalize some amount of MEV um you know just it kind of speaks to like the

value that you uh brings and sort of value and like when you think about like a pie chart of where value flows you know you have swappers you have LPS you have the protocol fees you have um you have uh the MEV searchers right you have all these different people and generally speaking when you want to like lower cost users, you try to you want to eat into the you know like the pie that you most want to eat into is honestly like the me searchers, right? Because they're bringing like they bring some value to the table, but they're not um but but you know, you don't want like the more value that flows to them away from swappers, for example, the worse offs you are from liquidity providers. And so there's there's been a lot of conversations around how to improve returns for LPs and and how to kind of

internalize some of the the me that's created. And there's just something so funny like the fe switch is you saw fe switch has been talked about for so long and it's just something so funny that like the first way that we've found to do this really meaningfully on say Ethereum mainet and in certain other uh chains outside of uni chain uh actually requires turning on the protocol fees and then basically auctioning off the right not to pay them. Um there's just something very funny about that. [snorts] Um >> interesting. >> Yeah. And I can kind of explain a little bit of why this works. The other kind of aspect of this thing is that uh when you when you turn on protocol fees right that could have an impact on swappers.

It could have an impact on liquidity providers. And so when we think you know pairing something with the the kind of protocol fee proposal which is kind of an idea for how to kind of bring more value to swappers and liquidity providers felt really nice because um that's sort of like the one you know downside that people kind you know sometimes cite around the the kind of around turning on the protocol fe. Um uh if you want some like an intuition on why like where the like the gain from protocol fee discount auctions can come from uh something that's really interesting is like uh LPs lose money on on when the the the kind of concept of impermanent loss is really it's like price divergence right when when prices kind of uh you know diverge significantly from when someone enters a liquidity position to exits that is sort

of seen as like a you know that's that's kind of like the the price risk that they took on and and where they sort of are most likely to lose money to arbitrage. Um uh on the other side there's like fees along all the chop along the way and so they make money off of volatility and and trades along the way. Um and essentially you know uh when you think about what are protocol like swapping fees swapping fees are actually like kind of like a a they actually get in the way of arbitrage right because like the bigger the swap fee the the the smaller price movements become less profitable to arbitrage. So it kind of a like the bigger the protocol fee the lep you have along the way because you can't make these small little ARP trades. Um, by kind of turning on the protocol fees,

you sort of like shrink the like if LP fees are 30 bits and and and protocol fees are zero and then you have LP fees are now 25 bits and protocol fees are five, you can kind of uh by auctioning off the right to ignore the five. Uh, you can actually make arbitrage trades to within 25 bits instead of 30. Um, and and so one way to kind of think about it is that like you're uh you're sort of like allowing for more and smaller arbitrage trade along the way which can improve LP profits. Um, and then you're sort of ultimately like auctioning off the right to kind of not be doing to to to you know and um and and then like the sort of auction is is uh the auction to not pay that fee is is sort of um how the value ultimately still flows to the

to the or the how the fees still kind of flow to the burn contracts. Um so it's a really like interesting clever design. It's also like a kind of a interesting design space and requires lots of thinking and parameterization and exploration in the future. Um, and so we're sort of propo like we're we're working on kind of an initial implementation of that. Um, but it's it's a really cool design space. Um, and and has a lot of potential. Um, >> can I can I just say like this is the type of thing that [clears throat] like you know this kind of research like should have been happening all along, right? Like in in in theory, right? like if if if not for Gensler saying like oh you can't touch the protocol at all let alone like turn on fees like have a

token that acres fees but it's like this what you just outlined I think is like a really as you just said like exciting domain of research and further work for the protocol to do like it's an exciting proposal and there's more work to do there so like that's all possible now that's that's amazing just wanted to that >> yeah yeah it kind of highlights maybe like an area of the proposal that we're going to get to which is like the unification which like labs is focus, right? Like we've been focusing, you know, in this sort of era that we were in, uh, we kind of had to have a business model that would let us continue to ship and build things. Um, and and if we're not allowed to kind of touch the protocol much, then we are at least, you know, allowed to build

products on top of it. And so that was sort of what our focus has been. But I think when it comes to like how I think, you know, part of what I'm so excited about with unification is, you know, when I think about like the labs team, I think that, you know, I think that we can do like we're we're we're like the thing like one thing that we're most unique about is like our expertise in in market structure and in AM design and protocol design. And so I'm really excited to kind of like align our focus uh and and that's part of what this proposal is about around you know building you know whatever you know building what is most valuable for the protocol. Part of part of what is kind of coming in this proposal is like an acknowledgement or a thinking that like

the the way that we can create the most value for the world as Uniswap Labs um is is to you know is to make unis swap protocol right that this sort of like universal exchange for value. It's not about you know having our interfaces be the biggest interfaces on earth and I think that there's a lot of uh things that our interfaces can do to kind of grow and build value for the protocol and and uh it's something we are continuing to invest in. uh but like but like from like a kind of like a what is like the topline metric that we're tracking you know I don't want that to be like uh you know fees in our front end I want it to be you know usage of the unis swap protocol and because there's so much we can do to kind of

empower and build for you know both for ourselves but also for other people building around unis swap and that's kind of like you know a big kind of idea behind this proposal. Yeah, I'm I'm curious to unpack that because I think the you know, one of the the biggest decisions or most interesting parts of your proposal, Hayden, was the decision to turn off fees on the front end um while you're activating it on the protocol. And I think, you know, one of the um criticisms, you know, fair or not, for about unis swap for years was that there's this misalignment of incentives between equity holders of the labs entity and then protoc, you know, token holders of the protocol. Now my commentary would be that's uh you know probably reflective of the unfair years

of Gendler right and the limitations around what you could do there and you know now it's probably evidence I don't want to put words in your mouth that now that those years are over right that you know you've kind of put this very elegant proposal together to align um these distinct uh entities incentives and so I I want to um actually maybe uh get your quick perspective on that but then Jesse you had a great post uh yeah like early investor in unis swap and have been very keed in contributor and you had a great post u having to do with kind of compliment or commoditizing compliment uh for companies that are building both protocols and products. So maybe Hayden a quick word on just like note of unification here and whether or not this kind of solves some of that

historical criticism and then Jesse can we get to your kind of thoughts on the strategy here of if you're a company that's having uh creating both a product and a protocol. >> Yeah. Um yeah I have a few thoughts here. I think one thing to start with. So I can tell you like how we thought about like how I thought about it internally like because we were restricted in in certain uh things and the way I thought about it you know but but but we still like you know throughout that even during that period right we built unisoft v4 we built uni chain we we also built you know unisoft v3 which is the most used trading protocol and in or spot trading protocol in in crypto history um uh all during that period and I think the way that we kind of talk talked about and thought

about internally was like well you know we can't do certain things but it like you know like you the unis swap protocol is critical infrastructure for the products that we're building. Um it's critical to the brand. It's critical like like you know our products don't work if the protocol isn't what it is and isn't able to you know be improved. And so we kind of like you can almost imagine like from a like justification to internal equity holders or whatever like it's almost like a like a it's like almost like an infrastructure cost or it's like a and it's like a brand building and like uh and I think it's also just like because we were really excited about it and so we continued to do it. But like when you think about um the kind of like you know part of building an organization part of

building like you want like uh like there's like momentum and there's like and there's like and like you want and people want to think you know feel like they're they're building uh what they're building for like drives the you know drives drives value like what they're building for kind of like um you know and so I think that like you know I don't think that like I don't have issu I think front end fees are like fine like I think that the front ends are a product on top of the protocol. It is like reasonable to charge for them. Um, and I don't and I think that like this but but I think with this proposal part of what we wanted to make clear was that like you know we we wanted to make it clear that like our full focus is on the protocol. And so I think that like by

having them on like I don't think it's bad for them to be on but by having them on I think it like just leads to like one at least like questions around around the focus like okay like we have to think about like the revenue separately from the interface from you know our service provider relationship to the DAO which is which is part of this broader proposal. We didn't want that like split focus uh or even like perception of it. Um and we we wanted to kind of like go all in around around this. And then I think separately like I'll say that like also and kind of maybe does get at the commotiz compliment stuff and >> I have like things I mostly I think I think I mostly like that framing. I think there's a few things I I I'll maybe pre uh I'm curious how it just

replies to it. But >> I think that like I think sometimes like the phrase commoditize your compliment kind of implies a little bit of like almost like brutal like we'll like anyone like we're going to like completely compete anyone building on top of the protocol to zero which is really not our goal. I think that like having and I don't think that's your goal either, Jesse. just saying that like we want to like empower all the people building on top of the protocol like a lot of why we want to focus on on the protocol is to like help you know all the people building hooks to help all the developers that are creating businesses on top of the protocol even the other interfaces and if you build a really good interface there's a really really loyal user base that trades through the use protocol and you charge

fees you know we're happy for you we support you we want that to happen um when I think about like our role as labs part of the the point of this proposal is like you know having um having our distrib contribution act as a growth as as a you know thing that that drives volume for the protocol. I I think it's valuable for the protocol. I think it's you know part of um I think that you know we want uh like it's it's like kind of like the strategy we want to adopt for our products um because of our unique positioning. Um the goal isn't to like kind of like drive everything to zero, but I think like you know uh something that's really interesting is like for example we're making our trading API free. Um we're we're also making like a self-s served portal where

people will be able to provision their own keys. So anyone developer that's building on top of the protocol will have access to all the same routing that we do in our front end, you know, kind of like for free. They can build their own front ends on top of it. Um, so we're excited that about that as a way to kind of like uh expand access to to more developers and and uh and and create more volume and and and that's kind of like why we're most excited to do it. Um uh and and you know, the goal isn't to just like kind of like ruthlessly, you know, out compete other funds. >> Yeah. And maybe Jesse, I'd love to get your take here as well because commoditize your compliment is kind of this classic um strategy that you often hear from maybe more of the investor

side of things as well, even than sometimes the the builder is the I think Hayden, you kind of articulated it from the you know intuitive standpoint, but Jesse, can you kind of but but maybe to zoom out a little bit actually as well, could you just give a from your perspective when you see a company that's building both a product and a protocol? I think uh you know I know we love a semantic argument on CT but I think that is a really important distinction and there are different considerations if you're a company that's kind of you know there's an added layer of complexity. So Jesse could you just tell us how you've historically thought about this outline what what we mean when we say commoditize your compliment and then maybe how that applies or how you've historically thought about it within the context of

you as well. By the matter of fact, I there's one thing I quickly forgot to say. I'll be very quick in I I also want to just mention there's a few things that like we haven't been able to prioritize in our front end because it doesn't fit within our business model very well. Um that we're now going to be able to prioritize. For an example, like all our revenue came from swapping fees. And so every kind of quarter as we like are we figuring out what project do we pick up next like you know there's so many liquidity provider features. Our our front end actually has like much greater market share for liquidity provision than it does for swapping because swapping is like the bigger like revenue generator. Um but like you know so you know Uniswap Labs now with this sort of like new setup where we're

focused on on protocol uh you know uh growth and stuff like that. Um we're now able to kind of like invest really heavily into uh the the like LP tools and the LPUI and even like you know having API access to the LP uh you know right now our trading API it's only for swapping but we can you know make have API based liquidity provision. So like all these things um uh become a bigger focus. So part of it is also just allowing us to focus on the things that other people might not be. Uh but change the incentives and and and change the outcome and >> yeah like okay so the first [clears throat] thing I'd say your question is like you know product and protocol equity verse token um everything I'm about to say is actually entirely inspired by unis swap in the

early days so like [clears throat] I I Hayden deserves all the credit for all the thinking here which is like you know if you rewind to the very beginning of unis swap [clears throat] um Hayden did two things. He he invented the unis swap protocol and then he he also built the first front end interface on top. Um and like Cal, you know, the who's I think the first hire like he's amazing amazing designer like built this really buttery smooth interface that made using an AMM super easy. Like an AMM is is is not like if you go and like you know the white paper XY equals K. I mean it's it's very elegant but it's like not intuitive to most people. and and and and then yet like the you know unis swap front end interface like just was this buttery experience of like you

know one token to another it was like a vending machine. Um, and so what worked really well at that time was build this amazing product on top of this really innovative protocol and and back then there were no front end fees, right? Like you gave away the product for free at the in the very early days and and the result was like you know product solve a problem for people had product market fit um bootstrapped liquidity in the underlying protocol, right? and and um today as Hayden just mentioned like the the unis swap labs front end does not is not dominant in terms of market share. In fact like you know a lot of the flow going through the protocol is coming from from third parties. Um the reason third parties have integrated the

protocol is because the protocol is the most liquid venue to trade a lot of these assets and and so like the strategy that that I think unis swap elucidated and and many others have successfully followed is like if you're building a novel protocol you also need to go and build the first product on top make sure that product solves a problem for users and use that product to bootstrap the network effects and the underlying protocol. So like that that's what UNIS swap did at the outset and and I think that's a lot of the inspiration [clears throat] um for this uh the strategy that that that I'm about to outline. The other input for me apart from looking at unis swap was also reading Joel Spolsky's 2002 essay on commoditizing the compliment. Joel

Spolski is a software engineer. He's the founder of Stack Overflow. Um and and he like sort of goes through the rich history of companies commoditizing their compliment in order to grow their their core business. And so like the key idea of commoditizing the compliment is like cereal and milk are compliments. If you're in the business of selling cereal, you want to make milk free. If milk is free, people are going to buy way more cereal. In in in computers, there's like many examples of this, right? Like if if you're um in the operating system business, if you're Microsoft, you want like the hardware to basically be free. You want people to be able to buy computers that require operating systems for very low cost. So, so you want to invest in in making computers as cheap as possible. Um, and

this is why Hayden is saying it sounds kind of like brutal competition, right? Because very often it's it's it's using you're you're trying to like undermine your competitors in order to drive the core business. I think it's actually very different in the case of of uh decentralized protocols and that's why the strategy works even better in this context. So the key difference in crypto is like this game can be much more positive sum. Um and and that's because like the underlying protocol is permissionless decentralized like can't rug you and you can own a piece of it. So um like I I I think in the case of um unis swap today right where where the the front end is now going to be free Hayden can can and team can focus on

like making that product much more useful in ways like focusing more on the LP experience for example um third parties can still integrate the under underlying protocol and like they can own a piece of the token or a piece of the the network that they're integrating by virtue of buying the token and that token is going to acrew fees if that if the or acrew value if the protocol p or the proposal passes, right? So like by integrating and driving value to the protocol, you can participate in the upside of of the value you're generating. Um and and and one possibility is that you might imagine that like protocols start to reward thirdparty interfaces that do this integration um with some of the value they're creating by by way of giving um giving them tokens um as a function of

how much value they're driving. So that's why in in in you know in the crypto context you know building a product giving it away for free um you know it makes a lot more sense because you own a piece of the underlying thing that you're building on top of and driving value too and and so it's it can be very positive sum and it ties to raise all boats. Um so that's the opportunity I've always seen in in that's kind of unique to crypto protocols is like these protocols um can make their users owners. owners can benefit from economic alignment with growth. And what drives growth is building products on top, you know, that are more commoditized that give away some of, you know, give away some of the value that they're creating in order to

drive growth in the underlying thing. Um, so so that's like what Uniswap started to do. It's what they were strained from doing, I think, during the Genser era. It's what this proposal proposes to do now. And I think many other teams can and should follow the same playbook of you know build the product on top of the protocol commoditize the product. It is the complement for the protocol. The protocol can ultimately be be way bigger than any single product because it drives third party integrations. Yeah, I think that's like a fascinating a fascinating strategy and completely follow the yeah the you know now we all think of unis swap and we know exactly what it looks like and how to use it and but when you were going back in the initial days yeah translating um you

know that initial u xy equals k into something that actually is a nice product was very really challenging and so it's super cool to have seen that strategy play out. I'm curious, Hayden, from so in theory, this sounds great. I'm curious about what some of the logistical challenges might have been with this. Like, was it difficult to tell your investors, hey, I know we're making $150 million a year, but we're going to turn this off. Um, and also, I know that even though like the purpose of this is to unify the different stakeholders within the Uniswap ecosystem, but you know, if I was an equity holder in labs, I'm sure you got a lot of questions about this. So, can you just walk us through like how did you uh or maybe these are still open questions, you know, TVD based on if the

proposal passes, but yeah, like I guess what were some of some of the maybe more practical logistical questions of making a change like this? >> Yeah. Um, actually I'll hover to that in 10 seconds. I want to actually quickly riff for a second on this like design like just like the design and like even the Cal's work and like how we like >> I think part of why Uniswap like I think I don't think Uniswap would have been nearly as successful if we hadn't nailed that first interface. Um, and I think the way the reason we got there was really funny because it was like because of like AMMs were so different from order. We were like very worried people wouldn't understand them and we were so paranoid about it. We spent so much time trying to like design a usable like we like we're so worried that it would

would be confusing that we ended up designing something that was like radically simpler that had than had than even like existing you know like like order books have been around for like you know forever, right? and they like and yet the thing that we designed on top of AMMs was like easy to use in an order book. And so there was just like this funny thing which is like we leaprogged by being paranoid that it was going to be hard to use. Um and and sort of like uh you know the like the current swap UI is like iconic and everyone uses it. But like that was like even like like like you know the first hire I ever made or you know one of the first two hires was this guy Cal and and he's just like a total design genius and um it was

a big part of the creation of Unoft's brand and and this like UI that's been forked I think 5,000 times now is something like that just on GitHub at least. Um anyway crazy um okay on the on the investor alignment piece like I think that you know uh something that that is that was really helpful here is that most the the majority of my investors right have been like around for a long time they you know they they were you know they they are most of them are also like stakeholders in the broader USB ecosystem. um there's not like a perfect mapping, but like you know uh but I'd say that uh generally speaking the the kind of investor group has been pretty supportive. Um, and I think that like, you know, I think that for me,

you know, I believe that that we should have upside in a world where the where the community also had like like we want to kind of um like we want to make this system work and I think that that requires sometimes taking risk that requires sometimes like doing things different. And so yes, like frontend fees were like a stable um stable business. But it's I think that like one of the biggest like I think one of the biggest jobs of a CEO and I've been learning this on the job as I go is like almost like thinking like there's sort of like local maxima there's like the local max it's like avoiding like the local maxima trap where like something feels like safe and stable and so you just do that forever um versus like thinking about like the bigger opportunities and and how you kind of

traverse to them. And so I think that like to me like the big opportunity of unis swap um is like you know the unis swap protocol success. And so I want to kind of like align our upside to like making the the protocol successful and not just you know these front end products. And so like I think that that's like and I think that like you know uh you know I think we're we're fortunate to have an investor set that uh that that understands that. And so like it was definitely like a process you know the whole like when you talk about like trials of getting here like again >> some of it required like new laws to be created that we adopted as you know like it wasn't like like this isn't like yes it hasn't been easy. Um but I I I think

that like you know the the the labs investor set is is excited by the direction we're going with unification. >> Yeah. I I I I mean I'm happy to share my perspective as a labs investor which is that in in my view like this is how it sort of always should have been right like the the thing that we really invested in again was was like Hayden and and what they built with the protocol and the and the product on top but I think at the time that we invested the product on top wasn't being monetized the expectation was all the values in this in in in the protocol and the thesis was all the world's value is going to get tokenized all that value is going to need a place to be exchanged and unis swap protocol is the exchange, right? Like it is that is it functionally is the

exchange, the protocol, right? And and and there's going to be many products on top. Um but the protocol will be be the kind of canonical center of of all that liquidity. And so um yeah, this is like in my view, this is like what we invested in. Um and and so it's a no-brainer for me that this is like the the right northstar and like bigger outcome in the long run. What is the plan for and I think you've outlined some of this in your post Hayden but the plans for funding labs going forward. So >> yeah so so the um by the way the proposal includes a a you know a kind of like a growth fund from the treasury that that labs will be you know that will that will fund a lot of the development here. So that that is part of this proposal. Um, and so yeah, I

think that like for now, you know, we're going to be kind of building uh and we're gonna be kind of building for the protocol and we're going to be um funed through the the treasury. >> Nice. Okay. Um well, maybe uh last question for you all. Well, actually, you know, I'd love to maybe turn um uh to actually one thing I'll maybe say on that that's kind of interesting also novel here, just um a slight nerd snipe on this like broader Duna thing that we've been talking about like >> Yeah. Um uh you know one thing the Duna like the Duna has like clarity around tax. It has clarity around like liability. The other thing it does is actually creates like an almost like an end like it almost allows like the the DAO itself to like have governance itself to have like contractual

relationships and stuff like that. And so part of this proposal include you know as part of this like creation of the growth fund etc like includes like a service provider and contractual relationship >> between us and the DAO um and the the unisoft governance through the Duna and and that includes like aligning our interests and um and so there's something just like interesting there and kind of like novel and I don't know if it's even ever been done before. Um uh so kind of >> yeah like what I would overlay to this couple things I'd overlay to this. So first of all is I think like we talked earlier about the the only guidance you know preenser was sufficient decentralization. Ethereum is sufficiently decentralized because it's you know there there's no one party that controls it whatever. Um I think what we learned through the era of Dows back in

like 2021 when there was tons of experimentation going on um is is like too much decentralization. It like is really hard for a startup to to operate under because you know you you do need to make forward progress. Um and um decision by committee is is like kind of a slow grunt and and so this proposal I think like lands in a very sweet spot where you still have um you know governance, you still have like the the token holders um but you also have the service provider relationship that codifies like how unis swap labs can be incentive aligned with all the token holders and and so the result is that like kind of checks and balance system where like unis swap labs has a CEO you right has a team that is like focus on a

number on north stars has to deliver um and um in in in order to continue to exist it's capitalist incentive right and then um you know ultimately there's like the accountability to token holders so I think that's like that's like a new thing that um just in the broad arc of like Dowo experimentation I think we finally landed on something that makes sense like you you like we swung too far towards like total decentralization flat decision- making like that in my view just doesn't work because you start start off thinking leadership and and and now we have leadership.

>> Yeah. The one thing I want to like uh add that the only other nuance I want to add to that story there is like there's like also different things that are like just because sometime I'm I'm very used to people misinterpreting what I say and so just like the protocol itself also is like like sometimes people also kind of like conflate like decentralization of governance and then like the protocol itself right the protocol itself is like immutable smart contract and it's kind of like automatically works it automatically you know uh burns burns fees as part of you know and I think it's really like around like spec like governance is like very limited to specific parameters and then uh but then yeah to the point on like you know development like we're we're we're like a software development firm and like I don't think that like token holders

shouldn't be like voting on day-to-day you know technical decisions from a software development firm and so having this like explicit service provider relationship lets us kind of do what we do best um while you know ultimately to to Jesse's point there's like accountability to the DAO um but but like even you know no even like like an evil DAO and an evil service provider actually would still you know the unis swap protocol like part of what most beautiful to me is that like the token holders could go even if imagine if like all like token token governance and labs were both horrible like Uso would still survive because the protocol itself uh doesn't rely like doesn't you know ultimately rely on on either of these entities to continue to function right and so like a lot of what we're doing is building things for the future um but

but maybe the most beautiful part of the decentralization is is the like immutable smart contracts and and kind of like uh the sort of almost like limited nature of the things that we're we're even talking about here. >> Great. >> Final question for you on the proposal and then I want to turn to the future. Sorry, actually two real quick questions and I'm just I know conscious of time here. One, I saw there was a retroactive token burn. Um and so I would love both the builder and the investor perspective here. A, how did you arrive at the number of tokens um that you that you did for that Hayden? And then I would love to understand you know how you think about value acrruel here and maybe Jesse you could talk a little bit about how you feel about token birds from like a number go up perspective.

Um yeah so from a like in just in ter I we kind of mentioned this in the proposal but like yeah it was it was sort of symbolic I guess and and so we we did we did some data work to estimate you know the idea was um there like we're coming out of this like crazy era there there was like so there had been so much like part of what happened though over the past four years is not just like us fighting legal battles there was also like a community sentiment thing that happened which was like a lot of frustration over a long time people like like not everyone like understood what was happening not people, you know, not everyone had full contacts. People, you know, a lot of people expressed, you know, out out in the unis swap community, I'd say, and outside, you know, out in the crypto

community had like kind of like long expressed like, you know, a wish that the protocol fees had been turned on earlier. >> Um, and you know, and like Uniswap protocol did $4 trillion in trading during the period where the fee switch was off, which is like a mind-boggling number. And people were like, okay, well, you know, and and like part of what we're trying to do with unification, we're trying to like address all, you know, we're almost going through like what are people's complaints? the he had hit every single one of them. Uh and and this one was kind of like, you know, a symbolic nod to like wishing it had been turned on earlier. And the number 100 million like we ran different data queries on like how many and there's like honestly like like there's like a lot it's debatable on how you parameterize it, but like

they they kind of came out in the range of like 100 million uni. It kind of depends on the the exact period like the exact levels. Like there's no perfect number and you can't like retroactively perfectly calculate. But the idea and the other thing that's kind of like was funny and fun for me about this was like we're sort of like unis swap like pioneered the retroactive airdrop. Um, and so like there sort of people are used to like unis swap surprising or like not used to it there's almost like we've surprised with like a retroactive thing in the past and when we did the uni air drop like no it hadn't really been done in the way that we' done it and it kind of really kickstarted this as a as almost a a broader ind industry phenomenon and so like I I I I thought

you know we just kind of thought it was like a nice nod and a nice symbolic thing to kind of do this in this way in this moment. Um let's let's just you know burn burn from the treasury the equivalent amount of of uni that would have been burned um symbolically. >> Love it. >> Yeah. My my two cents on like I guess the investor perspective here is like I think it's great especially for a mature protocol like like like unis swap. Um and and and yet I also think that crypto trader at large is too f too myopically focused on >> totally and and and burning um tokens.

Um >> given that like most most protocols are not as mature as unis swap and like they you know they're they're high growth startups like high growth startups you know need to be profitable but um they generally are not distributing dividends to um token holders. Not not not the burn is is exactly the same thing but still it's it's I think it's a little bit of a myopic focus and um like all all of crypto Twitter I think would do a lot better to focus on how do we grow the pie like many orders of magnitude bigger um in terms of adoption and usage uh before we focus on um you know yeah make m making number go up um you know in in a kind of like more forced artificial way.

Final question here is I'm curious about the role of um labs and maybe this will sound like a little bit of a silly comparison immediately, but proponents of DATs have kind of argued over time that like a labs it could be kind of like if a labs entity was a public company. Um, and so I'm going to ask a question that you probably can't answer, Hayden, but do you have is there a chance that you could ever see labs transitioning to something like ADAD or going public? Um, and then yeah, Jesse, I guess Hayden to ask you that question, then Jesse, maybe can give you the closing word here. [snorts] >> Yeah, I I can share some thoughts. Um I think I'll start by saying like our focus and you know our our our focus

right now is like this unification structure making it work building you know building for the protocol you know through the service provider relationship and I think like going public like you know especially right now would be like a massive distraction to that would also be like a massive confusion to this you know this unification story so like that's certainly not like our focus or area in terms of like I also say like like unis swap labs is pretty different from a dad in in terms of like you DATs tend to, you know, what they're really essentially doing is like buying, you know, raising money, buying a ton of ton of tokens and then but but but but the flip side, a lot of DATs do have stories for how they contribute. They want to create value for the protocols that they're um that they're building on. Um

so yeah, I think that like the only way that I would, you know, be excited to kind of do something in in that direction would be if I felt like it really like contributed to this alignment story and was like really additive to it. Um to me it would feel like a distraction to do this right now. Um uh so yeah, I think that like our so like um and then I think that like I don't know you know a lot of the ways that dads have seemed to have manifested have been a lot more like kind of like short to short-term vibes like kind of sort of like falling into this like myopic category thinking category versus like so like things we do we want to do right we want to kind of think really long term about um I think there's like a lot of different paths for how to

think about uh labs and and if there was sort of like a really good you know very like kind of like ecosystem aligned way to do something um that that you know everyone thought was best that would bring you know that we might do it but like that would have to you know I I I don't have there's no like secret kind of plan here. There's no um I think it would it would have to like really you know make sense and it's certainly not our focus right now. >> Yeah. I guess well I I agree with everything Hen said in terms of like sequence of priority I I think but but like a simple mental model for for for people who are still I guess like working through unification itself in the proposal is like I think the key idea here is that labs um is an equity

entity whose primary sort of value acroal mechanism now today or if the proposal passes is like uni on the balance sheet and like that's great if you want alignment between lab like labs and Hayden, all the like smart people work at labs working on the thing that you also own which is the uni token and um and and and so like if you think about what a DAT is, it's it is an equity entity that is like you know primary value acrruel mechanism is tokens per share right tokens on the balance sheet. So so like there there is that similarity. Um obviously most DATs are are are not like full of you the founders of the protocols are are not at the DAT. Uh so that's one key difference

here. Um and and like most DATs are not, you know, shipping new versions of the protocol. That's another key difference here. So like there there's similarities and there's differences, but I think um many of the DATs that like don't have any kind of like functional value to add to the ecosystems they're in like may not last very long. Like that the ones that stick around will probably have to find a way to do that in order to stand out in the market. So I think like if DATs continue to exist in in three four years which I think they will like they will look very different than they look currently they might look more like operating companies that that actually do things that contribute value. They might look more like what Unisoft Labs looks like today which is you know a company full of smart people building um

building for the ecosystem and and accuring value for doing that um the same instrument that that everyone else can hold. >> Yeah. Yeah, right now DS are kind of like very like I think my my understanding I'm not that deep on that but um it's just like you know people are like want like very low operating costs um you know because you kind of like minimizing like it's people just want like exposure to you know to the to the underlying tokens essentially um in a lot of these stats and so that wouldn't that wouldn't be a model that would make sense here if if people were viewing it that way. >> Okay, last 30 second flash round question. One thing that I think is symbolically interesting about this fee switch proposal were it to go through is people have always looked at this as sort of a the unis swap fee switch is a

bellweather for kind of token value acral and I guess if you guys had to predict is this like the bottom in I don't know alts token value acrruel take your pick um and do would you expect more fee switches to come after this maybe go first and then Jesse >> I you think that like it it seems to be true that the things that we do are copy or or kind of standard industry um in the sense that like you know like we did this airdrop and then suddenly everyone's doing airdrops. We you know our our protocol has been forked 5,000 times. Our front end has been forked 5,000 times at least you know you know there's like people do seem to you know our our kind of like interface set standards for how people do interfaces.

like it it does seem to be the case that people look to us um and and you know I I think that like I'm very excited about destruction for us and so if if it kind of inspires other people to lean into uh you know crypto nativity to lean into protocol uh protocol um you know growth um I'm very excit I I would be very happy to see that. I I don't know um generally but like you know I I I I you know for the same reasons that I believe this is the right direction for us I think that like it is you know like often the right direction for others and so um I would you know I would be excited to see it become a trend. I I have no idea though.

>> I think the the thing that I'm most excited about here is that like if if this works it'll pro prove like a really big point which is that the you know pro protocol growth as the northstar focus is how you actually create way more value right than any single product can create. And so what that would mean is is if like the industry falls at is like the protocols are are growing many orders of magnitude bigger in terms of usage and adoption and integrations and so on. And like we're starting to see that play out across DeFi like we're starting to see way more you know the DeFi mullet thesis is playing out like protocols are getting integrated into way more front ends and and and and as a result like the protocols themselves are probably going to um you know be controlling way more value way more TBL

over time. So like that that's super exciting. Um um and I would I would expect like as you know this gets proven out like more people will follow that that strategy. Um yeah that there was a second part of your question I I forgot. But >> I think that was you basically got the the gist of it there. I have a horrible uh habit of asking three-part questions. So if [laughter] if you if you knock out the main part, that's good enough for me. Uh Jesse Hayden, this has been a ton of fun, guys. Uh I want to be respectful of your time here. Um, but yeah, we'll have to do this again sometime soon. And we'll we'll link, by the way, the the proposal in the in the show notes if anyone wants to go check it out. And then, uh, guys, quick, you know, plug

for yourselves. If folks want to, you know, follow you on Twitter or, I don't know, find more find more out about you. What's the best way to do that? >> I guess uh, you could follow Uniswap on Twitter. You could follow Hayden Zadams on Twitter. Um, yeah, I'm I'm usually on Twitter. Nice >> variant. Fun funde not fun >> but it is fun and it's a fund. Um all right guys I really appreciate the time. This was a ton of fun. Love to do it again sometime soon. Yeah. Thank you so much.