Uniswap branded itself as “decentralization” through governance tokens, but in the short term, Uniswap sacrificed “decentralization” in order to control the protocol.
Written by: Liesl Eichholz
Translation: Lu Jiangfei
It took only 18 months for Uniswap to become the world’s largest decentralized exchange (DEX) with the largest transaction volume, although the recent fork project “Sushi” Sushiswap has decentralized community ownership through the governance token SUSHI and caused Uniswap to lose a large part of its liquidity Sex, but in the end Uniswap survived the storm and seemed to become stronger.
As shown in the figure above, Uniswap has recovered its vitality, and the liquidity that Sushiswap takes away does not pose a threat to its survival. (Source: Uniswap.info)
Perhaps in response to Sushiswap and the community’s call for decentralization, Uniswap released the native protocol token UNI. According to them, the issuance of the UNI token means that “Uniswap has been officially listed as a community-owned and self-sustainable infrastructure, and will continue to be cautious to maintain its indestructible community autonomy.”
Although the announcement of the UNI token has enabled Uniswap to regain its market position (DeBank data at the time of writing this article shows that Uniswap’s lock-up amount reached 2.08 billion US dollars ranked first), but at least for the foreseeable future, Uniswap will transition to a real “go” through the UNI token. “Centralized community governance” still has a long way to go.
Basic situation of UNI token
Token utility
The main functions of UNI token include:
- Governance of Uniswap agreement;
- To obtain potential revenue share, there is a “fee switch” in the Uniswap governance contract. If the switch is activated, UNI token holders can get a part of the agreement fee. The “fee switch” sets a 180-day time lock to ensure investors and liquidity Sex providers (LP) have half a year to prepare for this new revenue sharing model (if it happens).
UNI token issuance
UNI tokens were initially issued through community airdrops and liquidity mining, with a total supply of 1 billion. They were launched on September 18, 2020, and then gradually entered circulation.
Community airdrop: 15% of the initial supply of UNI tokens will be distributed to the Uniswap community through airdrops, 10.06% of the supply will be provided to historical users, and 4.92% will be allocated to stock liquidity providers (proportionally based on the liquidity provided by users in the past Allocation), users of existing SOCKS can claim 0.02%.
Liquidity mining: Uniswap distributes another 2% of UNI tokens to the community through liquidity mining. Anyone can use one or more of the four pools: USDT/ETH, USDC/ETH, DAI/ETH and WBTC/ETH One provides liquidity to farm UNI tokens (more liquidity pools may be added after 30 days). Between September 18, 2020 and November 17, 2020, 5 million UNI will be allocated to each fund pool and allocated to liquidity providers in proportion to the liquidity provided.
Above: UNI Liquidity Mining Pool (Source: Uniswap)
Token distribution
Since Uniswap adopts community airdrops, theoretically, the circulating supply of UNI tokens should start from 150 million. However, because the airdrop tokens have not been claimed, the current circulation is only 130 million. In general, 60% of the founding supply of UNI will flow to the community, and the remaining 40% will be allocated to team members, investors and consultants. These tokens will be released within four years to minimize the occurrence of manipulation in the UNI market possibility.
Initial release:
- 15% for community airdrop;
- 2% is used for liquidity mining.
Release within four years:
- The governance database will retain 43% of the UNI supply;
- Team members and future employees will receive 21.51% of the UNI supply;
- Investors (i.e. Uniswap early venture investors) will receive 17.80% of the UNI supply;
- The consultant will receive 0.69% of the UNI supply.
Is UNI token distribution a “black box”?
Although Uniswap claimed that the tokens allocated to the team and investors will be released within four years, they did not publicly disclose the exact release schedule. What’s more worrying is that these tokens currently appear to be completely in circulation.
Although Uniswap gave a rough distribution framework, the tokens to be allocated to the Uniswap team and investors are currently stored in a regular Ethereum address (externally owned address or EOA). The tokens allocated in the governance vault are locked in smart contracts and are expected to be released programmatically over time.
Who is controlling the keys for these addresses? The answer to this question is still unknown, but unless there are other explanations, it is clear that these tokens are not locked. The Uniswap team seems to use the word “release” very loosely. Perhaps their real purpose is to mislead community members and make them feel that the team/investor party representatives need to wait until “release” before they can use it.
Uniswap provides 400 million UNI tokens to employees and consultants, which will be released within four years-but do we know the release schedule, at least it is not clear yet-whether the relevant accounts are currently locked… no? Am I missing something?
——DK (@dkryptd) September 17, 2020
Essentially, this method of token storage allows the Uniswap team and investors to have protocol administrator rights. A possible reasonable explanation for this is: if Uniswap has a coordinated attack, these tokens may become an “emergency override measure.” In addition, perhaps in order to give the community more confidence, Uniswap stated that team members will not directly participate in governance in the foreseeable future. Although they can delegate voting rights to agreement representatives, they will not try to influence their voting decisions.
But the problem is that regardless of whether there are any security-related reasons, or a vague promise to the community not to participate in governance, the non-locking of tokens still attracts attention. Even if there is a valid reason, the Uniswap team should give a detailed and transparent explanation of the structure of the token, the reasons for keeping it unlocked, and the preventive measures taken to prevent human manipulation.
Note: The analysis in this article is based on the assumption that the Uniswap team, investors, and advisor tokens can be accessed immediately and are not locked or restricted in any form. If someone finds that this is not the case or has other evidence of rebuttal, they can contact Glassnode’s official Twitter via private message.
UNI token governance issues
The main function of UNI tokens is to grant holders the right to make decisions about the agreement. such as:
- Update and modify the protocol logic;
- Allocate funds from the governance treasury (currently 43% of the total UNI supply has been allocated in the governance treasury, valued at more than 2 billion US dollars).
The token governance function actually took effect on the first day of UNI token release, but the vault needs to be unlocked after 30 days. After unlocking, UNI token holders will be able to decide how to deal with the funds in the vault.
However, not all funds in the vault can be used immediately. The tokens in the smart contract of the governance vault will be gradually reduced in the next four years. The figure below is the release schedule of UNI tokens in the Uniswap governance vault (source: Uniswap):
Uniswap can use these tokens for contributor donations, community programs, liquidity mining, and other projects to further develop the Uniswap protocol and ecosystem.
Disputes about governance proposals
On the surface, the governance vault is a good decentralized protocol ownership method, but the community is worried about Uniswap’s specific governance model, degree of decentralization and flexibility. One of the most controversial governance principles is :
If community members want to submit governance proposals, the minimum threshold is to hold 1% of the total supply of UNI tokens.
Uniswap decentralized autonomous organization uses a delegation system through which holders of UNI tokens can delegate voting rights to others. This means that if you want to reach the voting threshold of holding 1% of the total supply of UNI tokens, token holders need to delegate 10 million UNI tokens to voting representatives, which is estimated to be approximately 50 million based on the current UNI token price. Dollar.
However, the real problem with this delegation system is that the current circulation of UNI tokens is only 130 million, so if voting representatives want to get enough voting rights to submit proposals, they need to control at least 8% of the current total circulating UNI tokens (Either they hold so many UNI tokens themselves, or there are enough UNI token holders willing to delegate their voting rights to them).
Therefore, you will find that within a week of the UNI token listing, the community has not put forward any governance suggestions (as shown in the figure below, source of information), which is a distinct form of other dynamic and active DeFi communities Compared.
Another governance issue is that a minimum quorum is required to pass the proposal (that is, there is a minimum requirement for the “yes” voting option), and if this condition is to be met, 4% of the total supply of UNI tokens is required ( 40 million pieces), which accounts for almost 31% of the current total circulation. Therefore, even if you reach the threshold of holding 1% of the total supply of tokens, it is very difficult for the proposal to pass.
Potential governance of the “giant whale”
Currently, only 15 addresses control 10 million (or more) UNI tokens, but when it comes to the possibility of creating governance proposals, we can exclude a few of them:
- Contains a total of 4 addresses that are currently locked but will gradually release UNI tokens. These tokens will be retained for the purpose of managing the vault;
- The UNI token distributor contract has 1 address, which is used to airdrop 400 UNI tokens;
- There are 9 addresses that include part of the team and investor token allocation. As mentioned above, these tokens are not actually locked-but due to reputation considerations, the Uniswap team and investors may not propose at this stage Any governance suggestions.
Based on the above analysis, at this stage, there is actually only one address with sufficient UNI token liquidity to submit governance proposals. This address is owned by Binance, of which 26 million UNI tokens exist-that is, one in the governance vault During the period of unlocking after a month, only Binance has the right to decide how to use these funds, but Binance is actually a centralized exchange that directly competes with Uniswap, so it is almost impossible to propose to Uniswap. Proposal.
In this case, unless someone can now lobby for delegated voting rights worth 10 million UNI tokens and have at least 40 million votes, there will be no community governance at all.
Andre Cronje is the founder of year.finance and the most trusted BUILDer in the DeFi industry. He tried to collect delegated votes through Univalent. After five days of lobbying, he finally got 6.5 million delegated votes from UNI. But there is still a long way to go to the 10 million threshold.
Compared with the Uniswap team and investors, independent UNI token holders not only have fewer voting rights, but community governance has become more difficult due to the low voter turnout. In the end, there will inevitably be such a result: many UNI holders will only sit on tokens (anticipating appreciation), rather than participate in governance
Uniswap governance power game
The UNI governance model raises another problem: even if the Uniswap team and investors will not use the unreleased tokens, they also have disproportionate power with the community in the early stages of governance. They can even vote on the distribution of funds in the treasury to further increase their holdings of UNI tokens, thereby giving themselves greater voting rights.
However, some people think that although the UNI governance model looks like Uniswap has set a very high threshold, in fact, their real purpose is to avoid major changes in the agreement in the early stage, and then smoothly transition to decentralized governance when the agreement is stable. .
“I think Uniswap may be designed this way “on purpose” in order to prevent people from collecting 10 million votes and making suggestions. However, it is speculated that once the circulating supply increases, ordinary people are more likely to get enough votes. “
——Larry Cermak, Director of Research, The Block
Of course, the Uniswap team and investors may be relatively more constrained. Some other DeFi agreements released recently on the market have “giant whales”. DeFi “giant whales” are a group of anonymous income farming farmers who hold a lot of money. They don’t care about the future of the project at all. Making money is the only purpose, but Uniswap ” “Big Whale” is actually the Uniswap team and investors. They are already widely known, so they may be concerned about reputation issues.
Therefore, even if the Uniswap community is purely for personal gain, it will have some protective measures. In other words, even if the Uniswap team and investors have tremendous power, they will have to weigh the “potential profits and power” and “good reputation and community support”-“Sushi” Sushiswap is a lesson for the past, and they obviously don’t Hope that something similar happens again. If the Uniswap team and investors want to maintain their reputation and the value of UNI tokens, they should not easily try to manipulate the agreement.
Protective measures against attack vectors
As mentioned above, the only external address that has enough tokens and can independently make governance recommendations is controlled by Binance. There are currently nearly 26 million UNI tokens of user funds (valued at more than 120 million U.S. dollars) deposited on the exchange .
Above: The number of UNI tokens currently held by Binance (Source: ETHerscan)
In theory, these funds can be used to launch attacks on Uniswap. Although Binance may not be able to control enough UNI tokens to satisfy the 4% quorum, it is possible to unite multiple centralized exchanges (CEX) in a coordinated attack. If 40 million UNI tokens are required to reach the quorum of the proposal, the current holdings of the three centralized exchanges are close to this threshold, including:
- Binance: 26 million UNI
- Huobi: 9.4 million UNI
- OKEx: 1.5 million UNI
As we mentioned in the previous article, it is very difficult to mobilize the community to “catch enough” so many votes, but Uniswap is ready for this possibility. Although the token release time is arranged, it is still necessary to ensure that there is enough Liquidity to maintain the team/investor token distribution. It is almost certain that in order to prevent attacks on centralized exchanges, they chose to make these tokens fully “accessible” before they are released.
According to Vault Research, most of the top 200 addresses in UNI token holdings are held by Uniswap team/investors/advisors, as shown in the figure below:
This means that even if the community can gather enough UNI tokens, the Uniswap team/investors/advisors still have the majority of voting rights to ensure that centralized exchanges cannot be attacked/governed. At the same time, at least for a period of time, Uniswap will also Unable to be governed by the community, as shown in the following figure:
Is there no other choice for Uniswap?
Many people believe that the Uniswap team/investors/advisors “occupying” voting rights are necessary sacrifices to protect the protocol from attacks on centralized exchanges, but is that true? The method adopted by Uniswap is fundamentally opposed to the spirit of the agreement, and there are other solutions on the market, such as:
Quadratic voting -This method has been fully tested in production and has been successfully implemented by many DeFi protocols. If used correctly, it will minimize the influence of “Whale” in protocol governance, and it will also be much more reasonable than Uniswap’s unilateral governance rights.
Emergency migration contract -This potential backup plan is more like a mechanism. If there is a malicious governance proposal, stakeholders can vote to transfer all liquid funds to the new Uniswap fork. However, in order to avoid abuse of this mechanism, UNI token holders and Uniswap liquidity providers may be required to reach a quorum, and it must be used only when the vast majority of agreement stakeholders benefit.
The above potential security solutions can allow the Uniswap team to retain relevant control rights, but the “disproportionate voting rights” they adopt now seems likely to harm the best interests of the team and investors, especially since this method is technically feasible , So the community is very worried.
Are Uniswap’s current community governance decisions fair?
Although the community is full of concerns, the fact that the Uniswap team maintains absolute control over the unreleased tokens is not entirely without reason. There are three reasons:
First, although there are other security solutions, these solutions take time to implement and require testing and auditing. After the “Sushi” Sushiswap forked, there was actually very little time left for Uniswap, especially since they hope to release the UNI token as soon as possible. We can see that the current UNI token has been successfully released, and Uniswap once again dominates the DeFi market, so the Uniswap team now finally has more time to prepare for network decentralization.
Second, as Ethereum co-founder “V God” Vitalik Buterin pointed out earlier, for early projects, gradual decentralization and ultimately complete decentralization is usually the safest and most practical method—the most effective method for early projects. The best governance structure is the “founder’s dictatorship”, and the best governance structure for mature projects is “allowing a large number of users/stakeholders to participate”. Although Uniswap is not an early stage project, it is indeed the first time they have tried a decentralized governance model, so it is too early to transition to a “fully decentralized” node at this stage. The Uniswap team is also working hard to “launch” and want the community to take over governance, but it is still in the early stages, so the founding team decided to maintain control.
Third, the Uniswap team is trusted and respected in the community. Unlike Chef Nomi, the founder of Sushiswap, the Uniswap team/investors/advisors are unlikely to sell tokens at high prices. Although the UNI tokens that should have been locked are currently in a liquid state, the chance of these tokens being abused is very low (the tokens were not used at all before the release). However, it is important to note that although the Uniswap team/investors/advisors are trustworthy, the core of the decentralized protocol is to allow the community to not rely on this “trust”.
in conclusion
With the launch of the UNI token, Uniswap has labelled itself “decentralized”, but it still has a long way to go to achieve this goal. At least in the short term, Uniswap did sacrifice “decentralization” in order to control the protocol. However, even if the Uniswap team/investors/advisors choose to retain control of UNI at this stage, we can understand that their purpose is likely to ensure the maximum benefit of the agreement and avoid the risk of attack in the early stage. Eventually, as the treasury funds are gradually released, the control of the Uniswap team/investors/advisors will also be diluted, and the control of the agreement will also be transferred to the community.
Overall, although the Uniswap team currently lacks transparency and has some deceptive marketing problems, the UNI token is still a powerful and valuable asset. Considering the short design time for the UNI token release, this basic mechanism design has obviously been well thought out. After all, it is not easy to build a model that everyone agrees with and is satisfied.
We have seen the impressive growth rate of the DeFi market. With the upcoming release of V3, Uniswap is expected to continue to be one of the most valuable platforms in the crypto industry. If the protocol fee conversion is activated (that is, UNI token holders can earn Taking part of the transaction fee), the possibility of UNI token holders receiving sustained and substantial returns is very high.
Some people think that the Uniswap protocol decentralization process is pragmatic, and some people think it is misleading, but no matter which view you hold, UNI token holders and their huge community are likely to benefit from the continuous development of Uniswap.
Source link: insights.glassnode.com
