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Unichain, a Layer-2 solution designed for the Uniswap protocol, stand to gain up to $500 million annually in fees that would have otherwise gone to Ethereum validators.
Key Notes
By controlling Unichain's validators, Uniswap Labs will capture all MEV, estimated at 10% of Uniswap's total fees.Ethereum validators are expected to lose a significant revenue stream as Unichain redirects fees and reduces ETH burning.Vitalik Buterin previously criticized the Layer 2 development by Uniswap Labs.Unichain, the newly introduced Layer 2 solution for the Uniswap protocol could serve as a major revenue boost to Uniswap Labs and the UNI UNI $7.88 24h volatility: 1.2% Market cap: $5.94 B Vol. 24h: $427.75 M token holders. The latest reports suggest Uniswap Labs could potentially earn an additional $500 million every year from fees, that would have otherwise gone to Ethereum ETH $2 532 24h volatility: 2.9% Market cap: $304.00 B Vol. 24h: $12.95 B .
Last year, the Ethereum validators earned a total of $368 million through activities taking place on the Uniswap protocol. However, the Unichain launch would put this amount directly into the hands of Uniswap Labs along with the UNI token holders, claimed Michael Nadeau, the DeFi Report Founder in a post on the X platform on October 13.
He further added that Uniswap Labs will capture all Maximum Extractable Value (MEV) on Unchain while controlling the network’s validators, instead of allowing Ethereum validators to collect the MEV.
“MEV is estimated to be about 10% of total fees paid on Uniswap ($100m over the last year). They will have the option to share some of this with token holders as well,” Nadeau said.
He further stated that the Uniswap liquidity providers will benefit from the new Layer 2 blockchain, as it will allow them to participate in the settlement and MEV capture through the process of staking. This development would be a big dent to the Ethereum validators who would lose a major earning opportunity. The Ethereum mainnet revenue has already suffered due to Layer 2 demand this year.
Nadeau noted that Ethereum validators and ETH token holders stand to lose the most after Unichain’s launch, as it would result in less ETH being burned and fewer fees returning to the Ethereum blockchain.
Uniswap Generates Massive Revenue Fee
This year so far in 2021, the Uniswap protocol has generated a total of over $1.3 billion in trading and settlement fees across five primary chains including Ethereum, BNB chain, Optimism, Polygon, and Base.
Last week on October 10, Uniswap launched Unichain offering faster and cheaper transactions while improving interoperability across different blockchain networks. However, this launch faced mixed sentiments with some DeFi experts stating that there was no need for another Layer 2.
On the other hand, the support of Unichain claimed that it would offer a smoother user experience, more concentrated liquidity, and reduce fragmentation issues across multiple blockchains.
Back in the last month of September, Ethereum co-founder Vitalik Buterin strongly criticized Uniswap’s idea of having a Layer 2.
“Uniswap’s main value proposition is that you can just go and get a trade done in 30 seconds without thinking about it. A Uniswap chain or even rollup makes no sense in that context. A copy of Uniswap on every rollup does,” he wrote.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
