Voting requires risk awareness | The three major pitfalls behind UNI burn

The 100 million UNI burn on Christmas, with a 99.9% voting consensus rate—this story is too perfect—so perfect that it raises suspicion. As an investor who has experienced multiple market cycles, I see three issues that require caution in this “feast.”

The Decentralization Trap of Voting Consensus Rate

A 99.9% support rate sounds like a collective will of all UNI holders, but a closer analysis reveals the problem.

True decentralized governance should not have such high unanimity. According to the proposal’s voting mechanism, this decision is essentially dominated by large token holders. Ordinary retail investors hold limited UNI, and their influence on decision-making is almost negligible. Early investors and the team control a significant portion of tokens—they are the real players who can sway the voting results.

This 99.9% figure, rather than reflecting community consensus, is more like an internal decision’s external packaging. Voting should promote critical thinking, not blind followership.

The Economics Behind Burning 100 Million UNI

On the surface, burning tokens worth about $590 million (priced at $5.90) is astonishing. But there is a key detail hidden here—these tokens are not repurchased from the market but are directly burned from the Foundation’s reserves.

This means these tokens were never in circulation, so their impact on current market supply is limited. To use a simple analogy: burning stock in a warehouse does not reduce the goods on store shelves.

On-chain data analysis shows that considering the ecosystem budget expenditure of 20 million UNI annually, the actual net deflation rate is only 0.44%, far below the widely promoted 5%. Retail investors are easily attracted by large numbers like “hundred million burns,” but they overlook the underlying economic logic.

Ecosystem Risks Behind Protocol Fee Switch

A rarely discussed issue: activating the protocol fee mechanism actually changes the revenue model for liquidity providers (LPs).

Previously, Uniswap’s 0.3% trading fee all went to LPs. The new proposal requires 0.05% of that to be converted into protocol fees for buying back and burning UNI. This directly means LP income drops by about 17%.

In the fiercely competitive DEX market, liquidity is Uniswap’s core moat. If many LPs move to other protocols due to reduced earnings, Uniswap’s trading depth and user experience will be directly affected. Competitors have openly stated this is a “strategic mistake” and are ready to take over the lost liquidity.

It’s like a shopping mall raising commissions to increase revenue, only to see merchants collectively move to a neighboring mall.

Can UNI Achieve a “Token Revolution”

The core significance of this proposal is the first time establishing a direct link between protocol revenue and token value. UNI’s long-standing pain point has been the lack of value capture—Uniswap earns $5-10 million daily in fees, but this has nothing to do with token holders.

This change opens new possibilities, but the road ahead is not smooth. Whether UNI can evolve from a simple governance tool into a true value asset depends on three factors:

Sustained Trading Volume: If Uniswap can solidify its position as the DEX leader, even a small fee ratio can accumulate a substantial token buyback scale.

Ecosystem Incentive Efficiency: If the $20 million UNI annual budget is precisely used for ecosystem expansion, it could drive protocol revenue growth.

Liquidity Stability: Maintaining LP confidence is crucial amid the impact of emerging DEXs.

Rational Investment Strategy

In response to this move, I recommend adopting a “cautiously optimistic” attitude. Short-term market sentiment and deflation narratives may continue to push prices higher, but there is speculation involved. Retail investors rushing to chase the high are likely to become the bagholders.

Long-term, whether UNI can fulfill its promises—balancing LP incentives, protocol revenue, and ecosystem development—is key to its true value.

Strategically, avoid chasing highs or blindly following trends; only enter at well-understood price levels in batches. Crypto opportunities are endless, but what’s scarce is patience and independent judgment. Whether this reform marks the beginning of UNI’s value return or a carefully crafted chip transfer will become clearer through execution. The most important thing voting should promote is critical thinking.