The Dharma DeFi Dilemma: Is Uniswap Becoming More Centralized?

Touted as a ‘huge milestone’ by Uniswap founder Hayden Adams, the first governance vote is underway for the leading DeFi exchange. The vote has been proposed by DeFi lending and trading platform Dharma, which is one of Uniswap’s largest token holders. The suggestion is to reduce the current proposal submission threshold from 10 million UNI, or 1% of the total supply, to 0.3%. Additionally, Dharma wants to drop the quorum threshold from 40 million UNI, or 4% of the total, to 3%. The theory is that it will make governance more accessible, but in reality, it may hand the reigns to just a couple of big bag holders if the number of tokens needed to pass a vote is reduced by 25%. The Dharma co-founder and COO has already appealed to other DeFi whales to join the vote:

Great progress towards 40m quorum. So far, we're at 30.2m.

We need @kaiynne @StaniKulechov @AndreCronjeTech and the Univalent crew to vote for the proposal, and then we'll be ~1m UNI votes away. https://t.co/k9v17oBWve

— Brendan from Dharma (@brendan_dharma) October 13, 2020

Dharma Destroying DeFi Decentralization?

The DeFi community has reacted to the proposal, pointing out that Dharma is one of the largest holders of UNI so it would need only one other large delegate on-side to push a vote through relatively unchallenged. The other UNI whale is the blockchain simulation platform Gauntlet. As it stands, there are almost 98% of votes for the proposal, but over 60% of that has come from the two top delegates, Dharma and Gauntlet, according to a blog post by Uniswap Discord member David Felton. A screenshot showing top delegates by voting addresses shows that almost 30 million votes have come from those two entities alone. Felton is appealing for a ‘no’ vote to prevent a minority of whales from controlling the protocol.

“Lowering the quorum creates the possibility for situations like the DAO hack where malicious proposals lost investors millions.”

Davids and Goliath

DeFi protocols cannot be considered decentralized if their governance systems are controlled by a minority of whales, akin to a board of directors or top shareholders controlling a corporation. DeFi Watch founder, Chris Blec, has previously questioned the motives of a number of industry protocols and their dubious decision-making policies. Blec claims to have been blocked by Dharma after pointing out how centralized Uniswap has become: https://twitter.com/ChrisBlec/status/1316023415602462722 He added that a company like Dharma with clear business interests should not have this level of control over Uniswap decisions, which should be in the hands of the users;

“If they want to join the club with Binance and Crypto.com, they should drop the DeFi label immediately.”

The governance vote is due to end on Oct 20, but it is already shaping up to be a one-horse race ridden by two whales.