Word on the tweet is that there was a heist at the Uniswap treasury
and a bunch of bandits in suits made off with $25 million in UNI tokens.
But it was kind of an inside job, so it didn't get much press.
Today, we're going to take a look at what happened
and see what can be improved about Uniswap's governance system.
Let's get it!
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In this video, we're going to examine some of the recent concerns
that people are having about Uniswap's governance
and the possibility that appears to have been hijacked by a powerful group of investors
who own a large share of the platform's tokens.
The controversy began when a group calling themselves the DeFi Education Fund
requested a grant from the Uniswap treasury for up to one and a half million UNI tokens,
which is over $25 million at current prices.
The proposal was called “Temperature Check - Funding a Political Defense of DeFi,”
and it promised to use the money to build a lobbying group
that would help to get more favorable crypto regulations passed.
The measure was ultimately pushed through
thanks to the enthusiastic support of Uniswap founder Hayden Adams.
At face value, this all sounds great.
The industry is in desperate need of political allies.
But many Uniswap token holders and the Ethereum community as a whole
had some major reservations about how all this went down.
Many were quick to point out that the Twitter profile for the DeFi Defense Fund was just created on June 3
and the account didn't even have a profile picture until they got called out for not having one.
DeFi legend Andre Cronje posted a poll asking his followers
if they were aware of this group before the recent proposal,
and an overwhelming majority had never heard of them.
His audience is a pretty good indication of the general community too
because it consists mostly of DeFi power users and developers who live and breathe crypto.
It certainly is a bit strange that some of the most active people in the space
are just now learning about this group.
The proposal itself was criticized for being extremely opaque,
with no breakdown of expenses or specific plan of how they're going to achieve their stated goals.
But just wait.
It gets worse.
The DeFi Defense Fund supposed to slowly cash out their UNI tokens over the next several years.
On June 1, while responding to concerns from the community about the large grant proposal,
they promised that the grant would be liquidated over the next four to five years
to prevent any impact on the price of the UNI token.
Here's the statement that they made last month before they were given the money.
The proposal outlines that these funds are anticipated to be allocated over the next four to five years,
so it won't have the same dilutive effect of selling 1 million UNI all at once,
which we agree would be a problem.
We think it is important that the board has enough to work with
so they can react quickly to regulatory threats
without being hamstrung by the long governance process for every decision they make.
Now, guess what happened after they got the money.
They sold almost half of it right away.
On July 12, just over a month later,
the DeFi Defense Fund made its second post on Twitter
to announce that they had already sold a half million UNI tokens
for $10.2 million in USDC.
In a Medium post playing damage control,
the DeFi Defense Fund said that they were given considerable discretion over the funds
and claimed that they were within their legal rights to cash out
despite breaking a promise that was made to the community.
The post went on to promise
that no one on the committee was personally getting paid from the fund.
That sounds like the promises we hear from a third world dictator,
not a crypto degen.
"Oh, we promise that we didn't pay ourselves after we cashed out."
Right.
And Epstein slipped on an empty bag of Skittles and bumped his head.
Behind the DeFi Education Fund is another group called the Harvard Law Blockchain and FinTech Initiative.
The initiative is made up of a collection of lawyers, technology researchers,
and Wall Street types with connections to Harvard.
One of its foundation members was VJ Vesnaver,
who is the head of business operations and strategy at Coinbase,
according to his LinkedIn profile.
Another founding member Amy Zhang bragged in her bio that she worked with the SEC
to take down nutso ICOs.
I'm not sure that these are the people that I want representing our industry in Washington.
It's not entirely clear what the hierarchy of this group is,
but it seems that Vesnaver has had a large role from the beginning,
which means that Coinbase Ventures has its hands all over this thing.
And we know who's behind that.
The issue has raised some serious concerns that Uniswap's governance has been hijacked
by powerful insiders who are creating slush funds for themselves
with a little oversight from the community.
Before we get into that,
take a second and click that like and subscribe button for us.
It puts you in the BitSquad, which is not a DeFi platform
but a benevolent dictatorship run by yours truly.
We still have a lot of work to do though in governance in DeFi
before everything is truly decentralized.
As it stands right now,
VCs have an incredible amount of power in parts of the crypto markets
through their early investments in large projects.
In many cases, they are given opportunities to invest in blockchain startups
before the general public even finds out about them.
Not only do they have enough tokens to manipulate the markets,
but they also have enough tokens to significantly influence the governance of these platforms.
With Uniswap specifically,
insiders are definitely a problem, as we've already covered.
But there are also rules baked into the governance system that prevents people with smaller holdings
from participating in the process,
which makes the situation even worse.
There have been cases where the community has attempted to band together to pass measures
that ultimately would democratize the governance process,
but these measures failed
because the insiders decided to vote against them despite overwhelming community support.
Sounds kind of like Washington.
But I want to be clear.
I'm not here to spread FUD.
I think Uniswap is an incredible platform.
We use it here all the time.
This is the DeFi channel.
We love DeFi in all its flavors.
I believe that DeFi has the potential to change the world.
And I think decentralized governance is a huge breakthrough
that could help to correct the power imbalances that we currently see
that are breaking our economies and tearing apart our society.
But we need to do this right.
I can't turn and look away from shady activity just because I'm a fan of the platform.
Especially if I want that platform and this entire ecosystem to succeed.
We have an unprecedented opportunity to improve the world with this technology.
And unlike the traditional financial system,
we actually do have some say in which direction this industry will go.
Even if we're not large token holders in these networks,
we are a part of the social layer that holds this whole thing together.
Don't forget that it's our belief in this technology that gives all these assets their value in the first place.
As far as tangible solutions go,
Uniswap and other DeFi protocols need to ensure that small token holders
still have a significant voice in governance.
If that were the case,
this measure probably never would have happened.
Judging from the many comments on the controversial Uniswap proposal,
the community would have preferred if this group were first given an opportunity
to prove that they would provide value with a smaller grant
before they were awarded millions of dollars with no questions asked.
It seems kind of like a loophole they want to shore up.
Teams that are launching new projects should also put more thought into fair launches
that result in wider token distributions.
There are also different voting methods like first past the post
that could be an improvement to the simple majority.
Either way, Uniswap needs to clean up its act.
Not just for DeFi as a whole but for their own survival.
Don't forget the other smart contract platform coming out
that's been working on its governance for a long time,
Cardano.
And if Uniswap and Ethereum want to succeed,
they can't sit on their first mover advantage.
They could face a future that looks more like Nokia
instead of Apple.
They have to do better
because ADA is coming on strong
and will gladly drink their milkshake.
But that's all I got.
Be blessed.
BitBoy out.