A $80 million incentive gamble by Uniswap sparks controversy over its rise.

On February 14, 2025, Devin Walsh, the Executive Director and Co-Founder of the Uniswap Foundation, initiated a proposal regarding liquidity incentives for Uniswap v4 and Unichain within the Uniswap governance. This proposal was approved on March 3 after a Temp Check on Snapshot and was officially finalized on March 21 on Tally, with a total of 53 million UNI and 468 addresses participating in the vote. The technical support for the plan, Gauntlet, announced that the first phase of the initiative will last for 2 weeks and will begin on April 15.

The proposal sparked intense discussions within the community as soon as it was released. Some expressed support, while others believed that this plan was meaningless and detrimental to the interests of the DAO. This article will detail the main content of the plan, how to participate, and the community's views.

Proposal Details

The proposal includes plans for UniSwap v4 over the next six months and for Unichain over the next year. The foundation's goal for Uniswap v4 is to migrate the 30-day rolling trading volume of 32.8 billion dollars from v3 to v4 on the target chain within the next six months, for which a budget of 24 million dollars has been applied for this six-month plan.

The Uniswap Foundation's plan for the next three months is to achieve Unichain's $750 million TVL and $11 billion cumulative trading volume, and to achieve the above goals, Unichain plans to request about $60 million in incentives in the first year, "including $21 million requested this time". Operates in a similar way to Uniswap v4, but the rewards will take into account non-DEX DeFi activity to increase liquidity organic demand "primarily made up of the Uniswap Foundation and other projects built on Unichain".

The incentive activities of the two chains have some differences. The activities of Uniswap v4 will focus on promoting AMM trading volume on each chain, while Unichain's activities will strategically deploy AMM incentive measures to promote broader DeFi activities within the entire chain and within AMM.

The first Unichain event will kick off on April 15, 2025 and will run for three months with millions of dollars in incentive funds. $UNI incentives will be distributed across 12 different Unichain pools to reward LPs, and 12 mining pools below the first two weeks will receive $UNI rewards: $USDC /$ETH, $USDC /$USDT 0, $ETH/$WBTC, $USDC/$WBTC, $UNI / $ETH, $ETH / $USDT 0, $WBTC /$USDT 0, $wstETH/$ETH, $weETH/$ETH, $rsETH/$ ETH、$ezETH/$ETH、$COMP/$ETH。

In this event, Gauntlet, Merkl, a simulation platform for on-chain risk management, leverages agent-based simulations to adjust the key parameters of the protocol to improve capital efficiency, fees, risk, and incentives. Merkl is incubated by a16z and is a one-stop platform for DeFi investment opportunities that integrate multiple chains and protocols.

In this event, Gauntlet provides its "Aera" vault technology, which stores funds in the vault after being approved by DAO voting. Gauntlet determines the liquidity pools with the highest trading volume on each network and calculates the additional yield required to make Uniswap v4 a more economically attractive option. Adjustments will be made on a bi-weekly basis, and the pools selected to receive incentives and rewards will be announced on the Merkl website.

Radical Growth Targets, Conventional Growth Strategies

Incentive effects and subsequent retention discussions

Member "UreNotInD" was the first to oppose this proposal in the Dao voting discussion. The main reason was that when the proposal mentioned the required funding, it compared the funds spent on liquidity by other projects: "Aerodrome spends 40-50 million dollars per month, ZkSync Ignite spent 42 million dollars over 9 months, and Arbitrum has spent nearly 200 million dollars since March last year." He believes this is an old strategy that many projects have already tried with little effect.

Currently, the strongest competitor Fluid is capturing market share without providing any incentives. The most popular L2 network Base has successfully gained market share without user incentives. These measures do not address the structural issues that could help Unichain grow, while interoperability between super chains, creating unique use cases for DeFi, and improving the issuance of on-chain native assets "RWA, meme coins, AI tokens" are crucial, as native assets are the most sticky. The foundation should attract and fund more developers through the above methods.

Member "0x keyrock.eth" shares the same concerns, believing that Gauntlet's report should be publicly shared in the forum. This report cost a significant amount of money, yet the information presented in the forum is quite superficial, insufficient to support the rationale for such a large-scale incentive.

He raised several unreasonable points in the reports. For example, Aerodrome's high incentives are because 100% of the fees are redistributed to veHolders, which cannot be compared with such liquidity incentives. Secondly, zkSync's monthly token rewards of 5 million USD only increased the TVL from 100 million USD to 266 million USD.

At this time, Unichain's total TVL is only 10 million USD, indicating a lack of intrinsic demand for Unichain in the market. Gauntlet claims it can elevate Unichain to a TVL of 750 million USD with incentives of 7 million USD per month, which seems to lack authenticity.

Even if the activity level may be temporarily boosted through incentive subsidy activities, how to sustain demand is a concern. Historical cases such as MODE "TVL dropped from 575 million to 19 million", Manta "dropped from 667 million to 46 million", and Blast "dropped from 2.27 billion to 233 million" indicate that Unichain may face a similar fate.

Based on this, from the "TVL growth per dollar" data previously compared by Forse Analytics for UniSwap across various chains, it is found that in Base, which has the most complete infrastructure in L2, the best case is that each dollar can obtain 2600 dollars of TVL, while the worst performer, Blast, is about 500 dollars. To reach the target of 750 million dollars in TVL, simple calculations show that the former needs 300,000 dollars per day, while the latter needs 1.5 million dollars.

Although the analogy data is not perfect, it can represent a certain range of proportions. If we want to raise Unichain's TVL to 750 million dollars within three months with 7 million dollars, we need to improve the surrounding infrastructure and user levels to be similar to Base. Currently, the worst-performing Blast chain still has a TVL over 10 times that of Unichain.

The member also shared the activity result data of the incentive plan for the deployment of Uniswap v3 on the new chain in 2024. The best performer was Sei, ranking 6th in DEX TVL in that chain's ecosystem, with a TVL of only $718,000. The worst was Polygon zkEVM, which had a TVL of only $2,600, ranking 13th in DEX TVL in that chain's ecosystem. None of these deployments had a TVL exceeding $1 million, and almost none entered the top DEX of their respective chains. Most of these deployments have completely lost vitality, with the only trading volume coming from arbitrageurs fixing outdated prices.

The table created by 0x keyrock.eth shows the TVL harvested after deploying incentives for Uniswap across multiple chains and its ranking in DEX.

However, these incentive pools have almost not generated a flywheel effect, showing a cliff-like decline after the activities ended. Uniswap spent $2.75 million on these deployments "not including the matched amount in the protocol", while the annual fee for these deployments is $310,000. Even if fee conversion is used to recover costs "assuming a share of 15%", the DAO can only earn about $46,500 per year, which corresponds to a return rate of 1.7%, and it would take 59 years to break even.

The area between the two dashed lines is the incentive activity interval, and it can be seen that almost all liquidity pools experienced a cliff-like drop after the activity.

Of course, some members indicated that although there is generally a cliff-like drop in liquidity after the incentives end, this incentive program is still the most effective strategy. Member "alicecorsini" used data from Forse Analytics' recent review of UNI incentives on Uniswap v3 on Base to illustrate the difficulties in retaining users, liquidity, and trading volume after the incentives end.

In terms of base, Uniswap's biggest competitor is Aerodrome, and the data presents a more complex situation. 27.8% of Uniswap incentivized LPs provided liquidity to Aerodrome after the incentives ended, of which 84.5% completely left Uniswap, and about 64.8% of users who left Uniswap did not turn to Aerodrome, even though they had a better APR than Uniswap v3 without incentives.

While some LPs have turned to Aerodrome, a larger proportion of users have simply exited directly, rather than investing in direct competitors. This indicates a broader structural challenge in retaining users and liquidity. He believes that brainstorming methods to improve retention "simultaneously" with deploying incentives is a worthwhile effort, but this incentive program remains the most effective strategy for the first step of the traffic funnel.

The community's skepticism towards Gauntlet's capabilities.

Community member Pepo "@0x PEPO" expressed his concerns about Gauntlet on social media X, noting that the Uniswap Foundation had already paid participation fees of $1.2 million and $1.25 million to Aera and Gauntlet, respectively, even before the proposal was approved. However, there is a lack of performance records to determine whether the Aera team is capable of completing such a project.

He mentioned that Gauntlet's designated Uniswap growth manager, Peteris Erins, was the founder of Auditless and a member of the Aera team. Despite Peteris having almost no public track record apart from his work at Aera, the only notable public achievement is that its protocol reached over $80 million in TVL in its first year.

However, he believes that the total locked value may not reflect the true performance, as every customer of Aera is also a customer of Gauntlet. When a company's performance depends on its parent company, the growth data becomes questionable. He further cited data from Aave and Gauntlet. The data indicates that Gauntlet may have been suppressing growth, as Aave saw significant improvements in both its TVL and profitability after parting ways with Gauntlet.

Devin Walsh, the Executive Director and Co-founder of the Uniswap Foundation, responded that Gauntlet underwent a more stringent review than typical collaborators and has gone through two due diligence processes.

The first time was at the beginning of 2023, when a consultant was being selected to conduct a motivation analysis. In order to select a supplier, we provided similar proposals to three potential collaborators, and we evaluated the final results based on the rigor and comprehensiveness of the analysis, as well as the ability to drive execution after the analysis. At the time, Gauntlet's results were far superior to those of other companies. The second time, in the third quarter of 2024, was conducted by the Foundation to evaluate a cohort of candidates to determine who would be best suited to collaborate on Uniswap v4 and Unichain's incentive campaigns. We assessed the candidate's track record, relevant experience, and ability to achieve the desired outcome. Based on the analysis, we believe that Gauntlet is best suited for this task. At the same time, we also took the opportunity to renegotiate the contract, and now plan to pay by the number of events and lock in the rate until 2027.

The security issues of the underlying technology Layer 0 of USDT 0 that occur multiple times

Before the event started, analyst Todd "0x_Todd" pointed out the security risks of USDT 0 on social media X. USDT 0 is the cross-chain version of USDT, with the parent asset USDT existing on ETH. It becomes USDT 0 by crossing chains to other chains via Layer 0. The chains supporting USDT 0 can also cross-chain with each other, such as ETH-Arb-Unichain-BearChain-megaETH, and so on.

USDT 0 is dominated by Everdawn Labs, uses the underlying technology of Layer 0, and is endorsed by Tether and INK. Todd expressed his trust in Layer 0, "My trust in Layer 0 is limited, and there have been many cases of top-level cross-chain bridges overturning in the past, from multichain to thorchai, there is no threshold for cross-chain technology at all, it is nothing more than multi-signature"
Because in the current situation, in addition to the two risks of Tether and Uniswap, you also need to bear four additional risks, namely the security of Everdawn, the security of Layer 0, the security of Unichain, and the security of other public chains that support USDT 0. If other public chains are hacked and USDT 0 is issued indefinitely, then Unichain's USDT 0 will also be polluted.

How do users exploit the benefits?

Enter Merkl to view the incentive pools. These incentive mechanisms may increase or decrease over time. If you want to efficiently mine $UNI, you need to keep an eye on the reward changes of the 12 pools.

Providing liquidity to these pools allows you to supply liquidity to the incentive pool from any interface and earn liquidity activity rewards.

In the Merkl personal interface, users can claim rewards through the Merkl interface or any interface connected to the Merkl API.

Overall, most community users are not optimistic about this proposal. They believe that it poses risks to the rights of $UNI holders in various aspects. However, for retail investors who simply want to mine $UNI, they need to be cautious about the potential risks involved and pay attention to the changes in liquidity pool rewards that occur every two weeks. BlockBeats will continue to track and report on the potential risks that may arise in the future.