UNI is an ERC-20 governance token for the decentralised exchange protocol Uniswap, where users can vote on changes to the protocol. Uniswap is the largest decentralised exchange built on Ethereum, created by Hayden Adams and launched on mainnet in November 2018
Apart from governance proposals, other rights for UNI token holders include: managing funds in the community treasury, determine the tokens that are on the Uniswap default token list, ownership of the Uniswap Ethereum Name Service domain name and the protocol fee switch.
To govern protocol changes, a delegate system is used where UNI holders may delegate their voting power to a representative. Over time, as the token supply is diluted the governance system should work more effectively as it becomes easier to submit proposals and submit votes to pass them. The initial governance parameters for steering the direction of the Uniswap protocol are:
1% of UNI total supply (delegated) to submit a governance proposal,
4% of UNI supply required to vote ’yes’ to reach quorum,
7-day voting period, and
2-day timelock delay on execution.
One of the main motivations for the launch of the UNI token was the emergence of a forked version of Uniswap. This forked version, SushiSwap, introduced its own token (SUSHI) to provide liquidity providers with rewards. Anyone who provided liquidity to SushiSwap would continue to earn a proportion of fees even if they had withdrawn their liquidity. Of the pool fees, SushiSwap liquidity providers earned 0.25% while SUSHI token holders received 0.05%.
Also, SushiSwap introduced liquidity mining based on staking Uniswap LP tokens (which are used to payout liquidity providers in Uniswap), engaging in 'vampire mining' to drain Uniswap's liquidity. The UNI token was introduced in response and has so far been succesful in protecting Uniswap's position as the leader in the DEX space. Once the protocol fee switch is activated, UNI token holders will be rewarded in a similar fashion to SUSHI token holders (i.e., 0.25% of the fees will go to liquidity providers and 0.05% will be directed to the community treasury for UNI holders to allocate).
The supply of the UNI token at genesis is 1 billion tokens, which will become accessible over the course of four years. Of these 1 billion tokens, 21.266% are allocated to Uniswap team members, 18.044% are to be given to investors, 0.69% of the supply is for advisors and the remaning 60% is to be distributed to the community. The UNI token does not have a supply cap, and after four years, there will be a perpetual inflation rate of 2%.
UNI was distributed to community members on September 16, 2020 via an airdrop, accounting for 15% of the genesis supply (150 million UNI). The 150 million tokens were distributed to historical liquidity providers (~49.16 million UNI), historical user addresses (~100.61 million UNI) and to SOCKs holders/redeemers (220,000 UNI). Any individual who interacted with Uniswap's smart contracts received tokens, with 400 UNI given to 251,534 addresses.
The remaining 430 million UNI tokens earmarked for the community are to be held in the governance treasury and will be distributed on an ongoing basis through grants, community initiatives, liquidity mining and other programs. The funds held in the governance treasury will not be available immediately, but will be vested over a four-year schedule as shown below:
- Year 1: 172 million UNI (40% of the governance treasury funds)
- Year 2: 129 million UNI (30% of the governance treasury funds)
- Year 3: 86 million UNI (20% of the governance treasury funds)
- Year 4: 43 million UNI (10% of the governance treasury funds).
The initial liquidity mining program took place between September 18, 2020 and November 17, 2020, targeting four pools on Uniswap v2 (ETH-USDT, ETH-USDC, ETH-DAI, and ETH-WBTC). For each pool, a total of 5 million UNI will be distributed to liquidity providers.
To learn more about the UNI token, check out our coin profile.