The joys of governance – Many protocols on Ethereum (ETH) have decided to decentralize the decision-making process via governance tokens. However, this mechanism can be dangerous, as it allows a group of wealthy users to pass proposals with significant conflicts of interest.
Flipside: the fund to attract new users
It has been almost a year since the Uniswap protocol launched its governance token, the UNI. In fact, this token was mainly distributed to the users of the protocol in order to allow them to take part in the decision-making process of the protocol.
Among other decisions, users can determine how the protocol will evolve and how the cash flow will be spent. While this idea sounds good in theory, it is not always the case in practice.
Last week, for example, blockchain analytics company Flipside Crypto issued a surprising proposal, to say the least, via Uniswap’s governance module. It has proposed that UNI token holders create a fund, which aims to attract new users.
Initially, Flipside wanted to receive $15 million from its treasury to set up a bounty system to attract and retain new users of the protocol through education.
“In this way, new users learn how to use a complex protocol, think about the underlying mechanisms and even become familiar with using SQL to build queries and results for the public. “
Flipside Crypto proposal
In practical terms, these bonuses would have been funded by the returns generated by the $15 million deposited on the Aave protocol.
A disturbing proposal
While the first part of the proposal is interesting for Uniswap and its ecosystem, the second part reveals a conflict of interest.
Indeed, in addition to the $15 million, Flipside wants to get an additional $10 million after a year, which would be used to fund his own company. Following the same model as presented above, Flipside would like to use the returns generated by the $10 million to pay the full salary of 7 of its employees and part of the salary of about 7 others.
A problem was then highlighted by the company Dune Analytics via
Twitter, on August 19, less than 24 hours before the end of the vote.
Dune Analytics publication – Source: Twitter.
“A Uniswap governance proposal that will allow Flipside Crypto to manage up to $25 million in $UNI tokens and use the return to fund their own operations is about to pass in less than 24 hours with almost no attention from the community. “
Indeed, it seems aberrant that a decentralized protocol would fund the entire operations of a private company, even if they are partly involved in its democratization.
A community that reacted
After Dune Analytics sounded the alarm, many members of the Uniswap community decided to vote against the proposal. Among them, we find Robert Leshner, the founder of Compound as well as the wallets of Dharma and Argent Wallet teams.
On the flip side, those in favor of the proposal include StanfordCrypto, MITBitcoinClub, and several wealthy private investors.
Fortunately, even though the “for” side won at the end of the vote, it was cancelled in the face of its media coverage.
Results of the cancelled Flipside Crypto vote – Source: Flipside Crypto
This is not the first time Uniswap has faced this kind of situation. In fact, last month, the Harvard Law Blockchain and FinTech Initiative created a lobbying fund funded by the protocol. However, only a few weeks after its launch, they decided to sell 500,000 UNI tokens
, even though they had committed to holding them for several years.
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