Uniswap Founder Says New v4 Protocol Fee Does Not Reduce LP Earnings

Governance vote and fee structure

According to the proposal outcome, 46.6 million UNI backed the activation of v4 protocol fees. Adams said claims that the move cuts into LP earnings are based on a misunderstanding of how the fee is calculated.

His explanation was that liquidity providers continue to receive the pool fee already set for a market, while traders pay an additional protocol charge on top. In the example he gave, a pool with a 30-basis-point fee would add another five basis points for the protocol, bringing the protocol’s share to 14% of the total fees paid on the trade.

That framing differs from criticism that described the new mechanism as a direct take from LP revenue. Adams argued that under v4, the protocol fee is not carved out of the existing LP rate.

What the v4 code shows

The source article said Uniswap v4’s published code reflects that distinction. In the Pool contract, the total swap fee is described as the sum of the LP fee and the protocol fee. The code calculates the protocol portion separately, with the remaining fee growth routed to liquidity providers.

The exact amount can vary because v4 supports hooks and dynamic pool fees. That means the fee design is more flexible than a fixed, one-size-fits-all model, and the economics may differ between pools.

Criticism from market participants

Not everyone involved in the governance debate agreed with the design. During the discussion, Panoptic founder Guillaume Lambert argued that taking 10% to 25% of fees could damage LP returns and encourage capital to move to rival automated market makers.

Lambert also called for protocol charges to depend on whether LP positions were already profitable. His criticism treated the fee as a reduction in LP income, while Adams’ response focused on the technical implementation in v4, where the protocol charge is additive.

Adams separately criticized a competing Uniswap fork that, he said, sends all swap fees away from LPs and instead compensates them through token emissions distributed by voting. He did not identify the protocol in his July 28 post, and that comparison was presented separately from the narrower question of how Uniswap v4 handles fees.

Earlier fee activations and what remains unclear

Uniswap Labs previously said fee activation on earlier protocol versions did not trigger a broad withdrawal of liquidity. In a July 18 governance response, the company said the 25 largest fee-enabled v3 pools on Ethereum kept 98.5% of their pre-activation liquidity in token terms. It also said protocol fees had funded roughly 7.5 million UNI in burns since December.

Those figures came from Uniswap Labs and do not yet show how v4 liquidity providers will respond. The source article noted that v4 pools can use customized hooks, dynamic pricing and different strategies, making their economics different from v3. Labs said governance could bring another proposal to adjust fee rates if the new charges prove poorly tolerated.