Reviewing the Uniswap Proposal Controversy: The Interest Dispute Among Top VCs

Original link: https://twitter.com/abdullahbumar/status/1622278659120762884

Compiled by: Xi Xiangxiang, ChainCatcher

The struggle in the crypto market is more political than you might think.

Last week, a dramatic battle occurred between WormHole and LayerZero. The battlefield was the Uniswap proposal forum, with top VCs like a16z, Sequoia, and Jump Crypto backing both sides.

The Beginning of the Interest Struggle

It all started in December.

0xPlasma Labs founder @ILIA_0x released a draft proposal to launch Uniswap v3 on the BNB Chain. Why initiate this proposal? Because Uniswap needs to ensure it becomes the de facto DEX on the BNB Chain before its license expires—potentially even taking over PancakeSwap.

What is the Uniswap license?

In short, Uniswap applied for a commercial source code license in 2021 to prevent others from forking its source code. This license will expire in April this year.

This means that after April, anyone can copy and paste the Uni v3 code onto the BNB Chain (or any other chain), thereby forking their own exchange.

Therefore, to dominate the DeFi market on the BNB Chain, Uniswap must capture as much TVL as possible before numerous alternatives emerge to gain a first-mover advantage. Thus, the urgency of this proposal is evident.

On the other hand, we need to understand that changes and governance related to the Uniswap protocol ultimately rest with the Uniswap DAO.

As the leading representative of DAOs, the Uniswap DAO has a relatively complete governance structure, with about 370,000 token holders and 28,000 unique historical voters.

Before the on-chain execution of the Uniswap proposal, several steps must be completed:

1) Forum proposal discussion and debate

2) Temperature check: off-chain voting to assess sentiment

3) Proposal iteration based on community feedback

4) On-chain voting to finalize the proposal

The proposal itself went very smoothly until everyone encountered a significant issue:

What tool should be used to achieve cross-chain governance and messaging between Ethereum and the BNB Chain?

There are currently four options: Wormhole, LayerZero, Celer, and deBridge.

At this point, things began to get chaotic.

The Confrontation of Two Major Players

Each cross-chain tool naturally hopes to be chosen by Uniswap, so they actively express their advantages in the forum, explaining why their solution is better than others.

At this stage, the communication and debate were still relatively healthy.

But things beneath the surface were not so simple.

The leading cross-chain bridge tools have reached this point with the strong support of many stakeholders. Among them, the most obvious stakeholders are investors, as the business progress of the companies they invest in is of great concern to them.

Currently, Wormhole and LayerZero have not issued tokens, so they are not related to retail investors. LayerZero has the backing of a16z and Sequoia, while Wormhole is supported by Jump Crypto, Folius Ventures, and others. In terms of backing, Celer and deBridge clearly fall short.

As a result, the debate mainly centered around Wormhole and LayerZero quickly escalated to 85 pages of PDF.

Undoubtedly, this is the most active proposal discussion to date. It includes various voices: token holders, the cross-chain tools themselves, venture capitalists like a16z, and completely unrelated onlookers.

For companies directly related to LayerZero or Wormhole, it is obvious whom to support. But for most neutral parties, making this decision is very difficult.

Although each cross-chain tool tries to present compelling arguments, no one is truly head and shoulders above the rest.

Thus, when the discussions in the public forum yielded no results, everyone began lobbying in Telegram and other venues.

LayerZero stated that their architecture is more decentralized, allowing Uniswap to control inter-chain messaging. This is indeed their advantage, as Wormhole relies on 19 validators, and LayerZero believes that if a few Wormhole validators collude, there is no proper slashing mechanism to prevent them from launching malicious attacks.

In response, Wormhole countered that the 19 validators protecting its system have significant overlap with validators on multiple POS chains, including Solana, Cosmos, and Ethereum. If these POS chains are trustworthy, why should they be suspected?

Moreover, most validators are unlikely to be malicious actors; they would not collude. The most frequent security incidents currently stem from coding errors exploited by hackers, rather than a few evil validators intentionally sabotaging the network.

Additionally, LayerZero argued that its code is immutable. In contrast, Wormhole's code is upgradeable. The danger of upgradeability lies in the potential for unexpected errors during smart contract updates, which could lead to vulnerabilities being exploited by hackers.

However, it should also be considered that LayerZero's immutable code has drawbacks, as if errors are discovered later, it could also result in irreparable losses.

In response, LayerZero claimed that its source code has been audited over 35 times, ensuring its security is beyond doubt.

But can LayerZero really withstand the test of time? Objectively speaking, no one can guarantee that.

A year ago, Wormhole was hacked, with over $300 million in funds stolen. This hack was not due to malicious collusion among validators; according to Paradigm researcher @samczsun, Wormhole failed to properly validate all input accounts, allowing attackers to deceive guardians into signing and mint 120,000 ETH on Solana, then bridge 93,750 ETH back to Ethereum.

After such a severe hacking incident, most cross-chain tools were left reeling, but Wormhole survived.

Why? Because Jump Crypto chose to step in and cover the $300 million gap.

Since then, Wormhole not only recovered but also began to expand its business, integrating with over 22 public chains.

Results Fall Short of Expectations, a16z Raises Issues Again

Back to the temperature check vote. It ended on January 31, with Wormhole leading the pack.

But this is certainly not the final result, as a16z did not vote. It is worth noting that a16z holds 15 million UNI tokens; why didn’t they vote? Do they not support LayerZero?

Of course, they support it, but they couldn’t vote this time. Because they had Fireblocks custody the UNI tokens, they were unable to vote on off-chain proposals.

However, they can still vote on on-chain proposals.

Thus, in the on-chain voting phase, a16z decisively rejected the proposal to deploy Uni to the BNB Chain. The reason is simple: the community did not choose LayerZero, which a16z supports.

In response, TheBlock researcher @Dogetoshi stated that this is the first time in a16z's history that they voted against a Uniswap proposal.

This could have broader implications, as Uniswap may not be able to deploy on the BNB Chain before the license expires.

In other words, due to this internal strife, Uniswap may fail to gain a first-mover advantage on the BNB Chain.

Fortunately, the voting is not over, and there is still room for maneuver.

Currently, the situation is very tense, and everyone can continue to track the subsequent developments through this link:

https://www.tally.xyz/gov/uniswap/proposal/31

In any case, this small milestone event serves as a wake-up call for everyone—the struggle in the crypto market is equally intricate, posing new challenges for DAOs on how to optimize their governance structures.