Fee switch

Many DeFi protocols launched with code that lets governance turn on a protocol fee at a later date. Flipping this fee switch sends a fraction of the fees that would otherwise go entirely to liquidity providers into a treasury, a buyback contract or a staking pool for governance token holders. Uniswap's long debate over activating its switch made the phrase common.

It is the clearest example of a governance token gaining direct value accrual. Without it, holders vote on parameters but receive no cash flow; with it, the token starts to resemble an equity-like claim on revenue, and analysts can value it on earnings rather than narrative alone.

The trade-offs are real. Taking a cut from liquidity providers can push liquidity to cheaper competitors, and paying fees to token holders has been seen as strengthening the case that a token is a security, especially in the United States. Projects often wrap the change in legal structures or delay it for those reasons.