Uniswap DAO prepares to expand $5 billion beyond UNI

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• The Uniswap DAO is voting on the first step to diversify its treasury.

• The DAO has $5 billion in reserves.

• Almost all of that reserve is in UNI tokens.

The Uniswap DAO, the third-richest protocol in crypto with a $5 billion treasury, has been content to keep its reserves denominated solely in its native UNI token. But that may be changing.

As Uniswap explores a new revenue-sharing model that includes token holders, the DAO that governs the decentralized exchange is looking for ways to expand its reach without depleting the project’s reserves.

Like other DAOs, or decentralized autonomous organizations, Uniswap uses its treasury to fund its DAO activities, including functions such as paying contributors and marketing projects.

“If the DAO needs to fund certain initiatives, we should be able to draw on the reserves without significant harm to the token price.”

— Uniswap DAO Proposal

Uniswap’s treasury is primarily stocked with UNI tokens, and its reserves reflect the price volatility of its native token as well as the wealth of the broader crypto market.

The proposal states that the value of Uniswap funds rose to nearly $19 billion at its peak in 2021, but fell to $1.5 billion during the 2022 market crash — such fluctuations in the value of Uniswap funds are not ideal.

To prevent further instability, the DAO is currently voting on a proposal to create an advisory committee to help Uniswap diversify its funding.

In addition to diversification, the committee’s goal is to study how to transform Uniswap’s treasury from a dormant reserve of UNI tokens into a pool of funds that can earn yield and additional income for the DAO, the proposal says.

“If the DAO needs to fund certain initiatives, we should be able to draw from the reserve without significant harm to the token price,” the proposal says.

The committee, called the Uniswap Finance Working Group, will explore plans to manage the protocol’s reserves and generate additional income for the project, the proposal says, while also proposing a $74,000 budget for members to spend on eight weeks of research work.

Early voting data shows overwhelming support for the proposal, with 74% approval from participants, according to data from off-chain voting platform Snapshot.

The exercise, which ends on March 31, is a temperature check vote — a preliminary poll used to gauge sentiment among DAO members before a proposal goes to a final vote to execute the plan.

Despite the support for the proposal, regulatory concerns remain given that the action taken to diversify the treasury would involve selling UNI tokens from the Uniswap reserve. Such a sale could have tax implications.

The committee may also explore the recent DUNA framework to address such regulatory concerns.

DUNA stands for Decentralized Unincorporated Nonprofit Associations Act, a new law passed by the U.S. state of Wyoming that recognizes DAOs as legal entities.