Uniswap’s first governance vote has become highly contentious as concerns over centralization are raised. They may not be the only risks posed, however, as industry observers and analysts begin to dig up more dirt.
Uniswap’s opening governance vote has almost concluded before the end of the voting period as the final ‘whale account’ has voted in favor of Dharma’s proposal to reduce the number of votes required for a quorum.
This will effectively consolidate governance power to just a few addresses holding the majority of UNI tokens. Three addresses holding the most tokens made up almost all of the 39.5 million votes for the proposal, while almost 700k voted against it. It needs only 500k more to win the vote and get a quorum of 40 million.
Chris Blec from DeFi Watch has been highly vocal about the voting process which erodes any notion of decentralization the protocol has:
As reported by BeInCrypto, the successful passing of this vote would grant Dharma and Gauntlet nearly all of the power providing they both vote on the same side for future governance decisions.
Other Risks to DeFi
The centralization of Uniswap is not the only risk posed as observed by Predictions Global creator Ryan Berckmans (@RyanBerckmans).
The coming weeks could be volatile for Uniswap and the entire DeFi sector, he explained, adding that centralized governance still poses one of the greatest threats:
1/ Uniswap's UNI governance may have some urgent risks over the next few weeks.
The worst-case scenario seems terrible for UNI and bad for DeFi.
The good news is the community has ample opportunity to avoid the worst-case scenario.
Here are the risks as I currently see them.
— Ryan Berckmans (@RyanBerckmans) October 18, 2020
“New airdrops of UNI (via governance proposals) to a centralized party or smart contract seem like a gross violation of the spirit of the original UNI airdrop.”
These toxic airdrops, as he describes them, could change the balance of governance power, though as evidenced already, the whales are already in control of the protocol.
ETH Flash Crash Worries
The second risk is the end of UNI liquidity mining, which is set to expire on Nov 17. As it currently stands, there is over $2.16 billion in ETH, stablecoin, and wrapped Bitcoin collateral spread across the four liquidity pools.
Berckmans added that as much as $800 million in ETH would be withdrawn from the pools when they expire which could lead to a flash crash and destabilize the DeFi ecosystem. He suggested extending the UNI farming incentive to maintain industry stability.
DeFi protocols are largely experimental and Uniswap has been the largest of them all. By their nature, they should put decentralization at the top of the priority list.
However, as we have seen so often this year, the whales are still in control, especially with these often flawed governance systems.