Happy birthday! No, it's not your birthday — probably — and not mine either, but it's definitely somebody's birthday and the rest of us should celebrate too 🥳 You brought the cake, right?
I brought the presents: Hedgehog swag for the weekly giveaway. Answer my question at the end of the email for a chance to win. It's usually something super-duper difficult like, "What cake would you bring to a surprise party?" But you'll have to read to the end to discover the real question 😈
By the way, in case you forgot who I am, this is Taylor, CEO of Hedgehog. Our mission is to simplify and streamline access to the crypto ecosystem, so that anyone can participate without losing their mind. (Unless you want to lose your mind. I don't judge!)
Who is in charge?
The Uniswap community is experiencing a dramatic governance battle — well, as dramatic as it gets when the main battlefield is a forum. However, if those forum commenters are deciding the future of a valuable crypto product, tensions will run high.
Quick refresher: Uniswap is a decentralized exchange (also known as a DEX). As the FAQ puts it: "Uniswap is an automated market maker. In practical terms, it is a collection of smart contracts that define a standard way to create liquidity pools, provide liquidity, and swap assets."
And governance is the process of deciding the roadmap for a cryptocurrency protocol, including which new features will be developed and deployed. One common method of governance is intentional plutocracy.
That's right, after Pluto was demoted from planet status, it got into the crypto game.
The Uniplutocracy weighs each vote by the number of tokens delegated to the voter. In other words, the more UNI you own, the more votes you control. The idea is that stakeholders with the most "skin in the game" should have the most influence.
With that context, here's what is happening:
A proposal to deploy the latest version of decentralized exchange Uniswap on the BNB Chain passed an early temperature check, and a full governance vote on the Uniswap DAO is bringing the heavy hitters out to bat.
OxPlasma Labs put forward the proposal to deploy Uniswap V3 on BNB Chain, using the Wormhole bridge for the deployment. A16z put its considerable UNI holdings to use by voting against it. [...] Andreessen Horowitz's crypto arm, a16z, backs LayerZero as a bridge, while Jump [another VC in the Uniswap ecosystem, which abstained from voting] is invested in Wormhole. A16z could not vote in last week's temperature check, but partners noted their intention to back LayerZero.
Tldr: PlutoProposal potentially problematic, participating pool predominantly populated by praetorians.
Porter Smith, a partner at a16z Crypto, explained the firm's perspective on the Uniswap forum:
Given the number of possible upcoming bridge deployments, we agree that it's important to have an independent third party weigh in with their relevant experience and expertise. Consequently, our vote against this proposal is to reset the Binance Uniswap v3 deployment process until the formal assessment is completed.
Second, we do not believe Wormhole offers the most secure or decentralized bridging option. The Wormhole bridge suffered a $326M exploit last year. The bridge then had another critical vulnerability that put all $1.8B TVL [total value locked] at risk. Wormhole has since reduced their maximum bug bounty from $10M to $2.5M. Additionally, the Uniswap DAO will not have the ability to run and control the bridge independently if Wormhole is selected as the provider. We believe this is an equally important factor to consider.
Other parties do share these security concerns.
So why are people up in arms? Basically, it's not very decentralized if a16z has the biggest say in the decision, allowing the VC firm to divert resources and opportunities away from competitors of a16z's portfolio companies. On the other hand… what did people expect? It's long been known that a16z holds a ton of UNI, and the design of the governance system is no surprise either.
Binance CEO Changpeng Zhao, usually called CZ, weighed in: "On chain voting just means the large whale(s) control the blockchain then. Just like shareholders." (He stated that Binance would not get involved directly.)
Crypto commentator Cobie said: "No a16z fan but how is voting 'going against a community' I mean it's literally the whole point to vote on what you think is best? It's not like it's 99-0 and they're the first vote on the other side — even if that were true, it's still the whole point to be able to dissent."
Tldr: Voting, man. The above statements have three distinctly different viewpoints, and I find that fascinating.
The plot keeps thickening. A CoinDesk op-ed on the controversy pointed out that a16z did not bring its full strength to this fight:
A representative for a16z told CoinDesk that it delegates a large amount of its UNI votes to independent third parties. It does this, the representative says, to ensure that Uniswap's governance system remains decentralized. Among the third parties named by the representative were organizations like GFXLabs – which voted against a16z and in favor of launching Uniswap onto BNB Chain using Wormhole.
But the delegation defense leads to another question: How many UNI tokens does a16z hold in total?
According to a tweet from Lazzarin, a16z's head of engineering, "We delegate ~40m votes to outside groups (with no conditions on how they vote)." [Here's the tweet — link to your sources, please, CoinDesk!] Lazzarin did not specify the full size of a16z’s UNI holdings and neither did the representative that spoke to CoinDesk. But based on Lazzarin's tweets, a16z owns at least 55 million UNI in all, counting the tokens it has delegated. The a16z representative told CoinDesk that its agreements with delegates theoretically allow the firm to re-claim its delegated tokens should it so choose.
With 55 million UNI, a16z would have had enough votes to throw any previous Uniswap proposal in its favor. (Just 65 million UNI have been cast so far in the Uniswap-BNB vote, and the largest-ever Uniswap DAO vote received 85 million votes in total.)
Just as a16z does not disclose the full size of its Uniswap holdings, neither do other parties. It is impossible to know who, exactly, has influence within Uniswap's governance ecosystem. And this is unlikely to change. A person familiar with Uniswap Foundation leadership told CoinDesk that anonymity is a core feature of crypto culture, so it's hard to imagine that the DAO would ever force all UNI holders to disclose who they are.
Expect to see many more of these conflicts as crypto continues to grow in importance.
Tldr: The phrase "dark money" comes to mind. Like the Dark Knight, but instead of Batman running around Gotham, it's venture capitalists in a frenzy of tweets.
Learn a lil something
Real quick, a shoutout to wallet company MetaMask for publishing The Web3 101 Course. Crypto education is something I'm passionate about, and there is so much need for friendly introductions. These are the chapters in MetaMask's 101 Course:
- What is Web3?
- What is a Crypto Wallet?
- The Era of Digital Identity
- What is Self-Custody?
- The Advent of Digital Ownership
- NFTs and Creators
- Finance, Decentralized
- The Age of Communities
Speaking of communities, I haven't plugged Hedgehog's Discord in a while. Come join us! We're a friendly bunch.
Tldr: It never hurts to review the basics.
Birthday time! Wait, I mean giveaway time. We already established that it's not our birthday. (Unless it actually is your birthday, in which case, happy birthday!)
Question of the week:
- What's your favorite kind of cake?
- What's your least favorite kind of cake?
- Are you 100% sure they're both cake?
Reply to this email with your answer to be entered to win a bundle of sweet Hedgehog swag.
Wondering if everything I see is cake, or if THE CAKE IS A LIE,