Reflecting on Uniswap's "Hottest" Proposal: Have We Overreacted to "Oligarchic Governance"?

Host: Leo, CatcherVC

Guests: Wayne, MinDAO, Jimmy

Organizer: Biscuit, ChainCatcher

Last Friday night, the "most popular" proposal on Uniswap, "Deploy Uniswap V3 on BNB Chain," finally came to an end. It was ultimately passed with a 66% support rate on Tally. Representatives with significant voting power, including ConsenSys and Compound Finance founder Robert Leshner, voted in favor, while a16z voted against.

Before the proposal was passed, the Uniswap community also made a choice between the two cross-chain bridges, Wormhole and LayerZero, on Snapshot, with Wormhole emerging victorious. Meanwhile, the community is also attempting to integrate multiple new proposals for cross-chain bridges.

You can read "Reviewing the Uniswap Proposal Controversy: The Battle of Interests Among Top VCs" to understand the details of this controversy. However, we believe that the discussions arising from the Uniswap proposal incident should not stop at the disputes of venture capital institutions; we should also consider the role that venture capital firms should play in projects, the best ways to govern communities, and so on. Therefore, ChainCatcher invited Wayne, CEO of TokenInsight, MinDAO, founder of the DeFi project dForce, and Jimmy, co-founder of iZUMi Finance, to discuss these related issues in last Friday's Twitter Space titled "From Oligarchic Governance to Community Governance: What Warnings Does the 'Most Lively' Uniswap Proposal Bring?"

Click here to listen to the full discussion.

1. ChainCatcher: First, I would like to ask each guest what their individual concerns are regarding the Uniswap proposal?

Wayne: What I've observed is that most of the debate around the proposal is actually about which cross-chain mechanism to use and which protocol to support cross-chain, with LayerZero, Wormhole, and other cross-chain protocols actively recommending themselves. The viewpoints of the two factions differ, leading to this outcome.

MinDAO: I think BNB Chain has not yet seen any truly meaningful DeFi protocols, which is closely related to the ideology of the entire Ethereum community in the past, including Aave, Compound, Curve, and of course, Uniswap, which has not migrated to BNB Chain. So for the community, migrating to BNB Chain itself is a division.

On the other hand, the biggest point of contention in this vote is the different cross-chain bridges represented by two large institutions, including Wormhole and LayerZero. If Uniswap were to cross to BNB Chain, it would definitely bring a lot of users to the major cross-chain bridges, which implies competition in the user market, ultimately evolving into a competition between institutions and the community. Who should have greater decision-making power?

The last crypto cycle was led by VC-driven private placements, so VCs have very high voting power. For example, in POS networks, it is quite normal for institutions to hold one-third of the tokens, but this may grant institutions veto power over any proposal. Therefore, the Uniswap cross-chain incident also reflects the overall institutional trend in Crypto.

Jimmy: I find it interesting that Uniswap actually places a lot of emphasis on deploying to BNB Chain. After temperature checks and consensus checks, there wasn't much discussion, and the controversy arose over which cross-chain bridge to use. If you examine it closely, both topics are controversial, but people tend to conflate them. Additionally, the proposal initiator, 0xPlasma Labs founder @ILIA_0x, is interesting; they hope to act as an agent after deploying Uniswap to BNB Chain.

The first proposal mainly involves Uniswap's multi-chain deployment plan. Does Uniswap's arrival on BNB Chain mean a change in the future DeFi ecosystem? Conversely, will BNB Chain's welcoming of Uniswap attract other DeFi protocols, including Aave or Curve? Curve previously deployed a licensed version called Ellipsis on BNB Chain, but whether these protocols will enter this chain in their own form is also an interesting point of concern.

Regarding the discussion of cross-chain bridges, the bridges represented by capital will undoubtedly use their voting power to compete for governance rights. But the interesting point is whether a one-person-one-vote governance model is truly effective? I think this raises discussions about governance tokens and the balance of rights between capital giants and community users.

2. ChainCatcher: Some criticize a16z for deciding and controlling the future of Uniswap, while others believe there is nothing wrong with it, just that this is how the free market operates. What do the guests think about the role a16z plays in this proposal?

Wayne: I don't think there's anything wrong with it; the role of tokens is to vote. We can't determine that a16z has a monopolistic nature just because they have more votes; that would be a very unfair behavior.** If Binance wants to participate in this matter, they need to buy a large amount of UNI to gain voting rights, which is beneficial for UNI holders. It's a fair game with rules set in advance; we shouldn't feel embarrassed or envious just because others have more chips later on.

This is inherently a fair game. Later, I saw a16z delegate 40 million UNI to a third party, and after that, I don't know any other information; perhaps it was under pressure.

MinDAO: Yes, I agree with Wayne's point. First, I think this matter is overblown; a16z has been an early investor in Uniswap, and they didn't sell all their holdings when the UNI price was high. I feel that a16z genuinely considers Uniswap's long-term development. Second, regarding voting rights, any voting system can be cheated; even if there's one vote per account, malicious actors can create many accounts. I think discussions in this area are meaningless.

From the perspective of choosing cross-chain bridges, this is a critical business development opportunity. But for Uniswap, it doesn't matter; the best solution is to support multiple bridges. Additionally, Uniswap was widely criticized during DeFi Summer for not distributing dividends to UNI holders who didn't vote. In stark contrast, Curve has everyone competing for CRV voting rights.

Therefore, I think this is a contradictory double standard; the so-called competition among institutions is not a problem, but we need to see what the issue is. For the community, such resolutions should just let a few big players compete.

To solve the problem of institutions having concentrated voting power, Compound has long introduced a delegation system, similar to the delegation mechanism in POS networks. For example, if an institution has a lot of voting power, it can delegate its votes to other institutions or entities to vote. Later, a16z also yielded to community pressure and delegated all 40 million votes. This also reflects the characteristics of professional decentralized governance, and we could even set some risk parameters.

So I think the oligarch issue discussed today has been exaggerated; in fact, it is not a big problem for the overall DeFi governance. The tug-of-war between two institutions with different styles doesn't really matter to users; it doesn't matter which cross-chain bridge is used.

Jimmy: I find it interesting that there is a difference in how Curve and Uniswap empower their own tokens. People generally believe that Uniswap's technology and philosophy are quite good, but they don't do well in voting governance. In this incident, only a few tens of millions of votes participated, while Uniswap issued 1 billion tokens, meaning the voting participation rate is very low. However, Uniswap's characteristics are that the voting content does not significantly affect its normal development.

3. ChainCatcher: Zhao Changpeng characterized this matter as "Uniswap controlled by a16z," further sparking community discussions about oligopoly and monopoly. As a result, a16z found itself in a difficult position and delegated about 40 million UNI votes to external groups. However, it is also an undeniable fact that whales manipulate and investors hold a large number of tokens. I would like to discuss with the guests whether DAO and community governance can achieve decentralization of projects? What dilemmas currently exist in on-chain governance?

MinDAO: I think the trend of DeFi governance right now is not for every retail investor to participate. For example, we now see that most governance in Curve is actually driven by the project team. So from this perspective, even though the voting volume may be large, the actual entities and individuals voting are not many, and some entities are even unrelated to DeFi; for instance, several university blockchain associations are participating in DeFi governance.

Currently, the common practice of large institutions is to assess the expertise and participation of each governance participant and then delegate their voting rights to different governance participants. Another approach worth trying might be to allow POS networks to delegate votes to nodes, and if the delegation volume is large, the nodes earn transaction fees, so their motivation to participate in governance is very strong.

I haven't seen DeFi systems do this yet, but I think it is worth referencing; distributing system inflation to delegates can ensure that the participants in governance are more diverse and more active. This is my basic observation.

Jimmy: I think Uniswap's governance has always been in a relatively laid-back state. For example, the recent discussion about the fee switch did not directly benefit users but went to the treasury. But even for such a protocol, previous votes have passed, yet they have not been executed. Uniswap does not have a timely feedback governance system.

Perhaps we see that Uniswap is actually making many new attempts, including acquiring and integrating NFT aggregators. These plans are not discussed in the community but are voted on regarding relatively certain matters. The participation of token holders is not particularly strong, which creates a separated community governance environment.

If Uniswap's final execution direction and details are separated, then users are indifferent in the governance process.

Wayne: I agree with what MinDAO said, governance is a very professional matter and should be done by professionals, so we see that all countries, companies, and various organizations need at least one responsible person. If everyone is responsible, it ultimately leads to no one being responsible.

4. ChainCatcher: The severe unequal distribution of voting rights has also led to excessive power for whales, causing other small token holders to helplessly choose to "lie flat," resulting in many people being indifferent in governance. Do the guests see or explore better solutions for this?

Jimmy: I think adopting a hierarchical model based on corporate structures, where a portion of token rights is classified as shareholder rights, would lead to shareholder meetings, boards of directors, and an executive team, while the community consists of owners and users. Tokens serve as a coupling agent for ecosystem participants, embodying brand concepts, future profits, and other values. From this perspective, I believe that professional stratification is definitely one part.

How to split the power of tokens into several different segments is important; some people just want to hold tokens and wait for appreciation, while others may want to take on more governance responsibilities. Perhaps, for example, publicly listed companies set standards for CEOs to achieve certain incentives; we can borrow some governance methods from traditional fields.

For issues like which cross-chain bridge to use, how to allocate new incentives, and which public chain to launch on, these may require community discussions rather than a simple agenda. Setting governance rules for such issues is what I think needs to be explored. The discussion of cross-chain bridges today is just a start; there will be more governance challenges ahead.

MinDAO: I think Optimism's governance system has some innovative aspects that can serve as a reference for other DeFi projects. Optimism divides voting rights into two parts, allowing token holders and the community to better balance future project decisions.

Token holders can delegate their voting rights to trusted governance participants. Each governance participant publishes a campaign statement on the forum, including their own experience. If token holders are dissatisfied, they can delegate their voting rights again. If there are particularly active community members willing to participate deeply in governance, I think they can compete.

Audience @start asks: Do you have any particularly good suggestions regarding large token holders in projects who are also core contributors, especially concerning the weight of their votes?

MinDAO: The delegation system I mentioned earlier can solve this problem. For example, the MakerDAO community does not have many votes, but its delegation reserves are very large, which significantly impacts the governance of MakerDAO. Another model is to use LP tokens to participate in governance, which can also be designed to reflect voting rights based on liquidity, such as giving a 50% weight to LP liquidity voting rights.

So I think there are various ways to allow retail investors to participate in the governance system. The best way is to initiate delegation and let others vote on their behalf, so the voting share of retail investors can increase with the community's contributions and activity.