Uniswap Flop - Dharma Vote Stopped

The first Uniswap proposal has failed.

A vote created by Dharma  proposing “a threshold of 3m UNI for proposal submission, and 30m UNI as quorum.”  has been rejected today after failing to meet quorum.

This was a controversial move by the founders of Dharma, who claimed that a lower proposal and quorum threshold would increase participation in Uniswap governance.

However if the vote had passed quorum, Dharma, Gauntlet and Univalent would have had total control over the governance of the platform. As the largest holders of UNI, they would have been able to propose and swing votes in their favour.

This dashboard shows who voted, and for which decision.

This Dune Analytics dashboard shows further details on UNI delegators.

“We propose a threshold of 3m UNI for proposal submission, and 30m UNI as quorum.”

The 30M quorum figure is no coincidence - Dharma has 30m votes, meaning this proposal would allow them to pass whatever they choose.

Although unlikely, as the identities of the main UNI holders are public, lowering quorum too much can create the possibility for situations like the DAO hack where malicious proposals lost investors millions.

Many expressed their concern about the negative impact that this vote could have had on the decentralisation of the platform, and on DeFi as a whole had it been successful.

There is currently around $800M in ETH being used in UNI liquidity mining. If the program ends as planned on November 17th, this $800m will be withdrawn from Uniswap, and some are concerned that this increases the susceptibility for bad actors to create a flash crash in the price of ETH.

Creating governance proposals is a fine art, all details should be considered by the reader and the proposer. If multiple changes are desired, multiple proposals are required. Dharma’s Vote 1 proposed two changes to the platform within a single proposal, which is not good practice.

A change to quorum should be one proposal, and a change to proposal submission should be a separate proposal.

Although the centralised distribution of UNI tokens causing an imbalance in power is clearly a cause for concern, Stani of Aave makes a good point regarding token delegation.

This hasn’t prevented many from seeing this vote as a failed attempt to take over the Uniswap platform by one of their main competitors.

The CEO of Dharma has spoken out on this subject…

The suspicion regarding Dharma’s motives to pass the vote was increased by the knowledge that Dharma was not happy with the distribution of the UNI token.

Dharma have made their opinions clear about the UNI distribution, stating that their users were unfairly excluded and the retroactive UNI airdrop should be extended to all wallets that used interfaces that interact with Uniswap, such as Dharma, Matcha, Paraswap etc.

Not only would this extra distribution benefit their users, but Dharma would stand to benefit greatly from such a move.

If Uniswap Vote 1 had passed, Dharma would have not only been able to propose a further UNI distribution, but they would have been able to swing the vote in their favour.

This is a clear example of the potential impact of governance and the power of holding large sums of governance tokens.

Groups such as the Penguin Party are aiming to protect the decentralisation and sovereignty of Uniswap by implementing Autonomous proposals similar to those used in Compound.

Access to autonomous proposals would go some way toward preventing this total control of power occurring in the future, as community members would be able to pool their voting power and easily create formal proposals.

Currently, even well-known groups or individuals might struggle to raise enough UNI to create a proposal, so it appears autonomous proposals are vital for the continued decentralisation of the platform.

Another controversial factor of the debut Uniswap Governance proposal is the fact that many users were prevented from voting due to the following restriction.

Only UNI votes that were self delegated or delegated to another address before block**11042288**are eligible for voting.

This rule required anyone who wished to vote to have delegated their UNI *before *the proposal was made, an unnecessary restriction which seems to only favour the party who created the proposal, while punishing anyone who is not in favour or had not prepared.

Snapshotting the delegation in this way is clearly an oversight; at the time the proposal was launched, only 48M total UNI were delegated, and as the required quorum to pass a vote is at least 40M UNI, we can see that Uniswap’s Governance still has some teething problems.

Many will be relieved with today’s results. Although the vote was not passed, it seems to have been a good learning opportunity, and perhaps served as a good warning of what could happen if a bad actor manages to take control of a platform.

We may never know if Dharma would have used this opportunity in a dishonest way, perhaps they were just trying to offer some better yield to their users...

Governance is power, and the actions of those able to manipulate popular platforms can affect us all.

Whatever your opinion on Dharma or the UNI token, it’s fair to point out that all of this is the result of a flawed distribution and initial governance rules laid out by Uniswap.

We should all keep a close eye on any new proposals, and consider the motives of those who are responsible for their creation, lest we all get rekt.

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