VCs Fight Over Uniswap

Crypto governance is often referred to as a “meme”, and for good reason. Whether it be low participation rates, whales and VCs deciding votes, or goofs of almost unbelievable proportion, crypto governance just doesn’t work all too well at the moment.

Well, the Uniswap bridge wars have put crypto governance back in the news.

Is it another case of dysfunction, or is decentralized governance actually working this time?

Let’s break it down.

The Backdrop

Uniswap is the largest decentralized exchange (DEX) by a mile, but that position isn’t guaranteed to last.

That is because Uniswap’s Business Source License is expiring in April. Once it expires, anybody can create their own version of Uniswap by copying and pasting Uniswap’s code. This isn’t a problem on chains Uniswap already dominates and has a loyal user base (such as Ethereum), but it is a problem on chains that Uniswap has yet to reach. If copy-cats can deploy first, it is possible their first-mover advantage would suck up the user base, leaving Uniswap out in the cold.

One such chain is the BNB Chain. If Uniswap wants to dominate BNB like they have every other chain, they have to deploy Uniswap on it, and fast.

Without getting too technical, to do this, BNB Uniswap will need to implement the use of a bridge. And that is where the governance battle begins.

The Bridge Wars

The battle of which bridge to choose came down to LayerZero or Wormhole. Both are behemoths in the bridge space, and are backed by some of the largest players in crypto.LayerZero is backed by crypto VC giants a16z and Sequoia, while Wormhole is funded by crypto VC firm Jump.Both had obvious incentives to be chosen as Uniswap’s bridge, and both put on an intense lobbying effort.Before we move forward, it is important to understand that the way Uniswap votes work is that there are two voting rounds:

1. An off-chain vote (which they call a temperature check). This allows the token holders to get a good idea of how the community stands.

2. An on-chain vote which is based upon the feedback from the first round of voting and that decides what actually happens.

In the first round of voting, Wormhole ended up prevailing. So, case closed? Uniswap’s going to use Wormhole with maybe a few feedback changes. Right?

Not so fast.

In the first round there was one significant voter that was unable to cast their vote: a16z.

We won’t go deep into the details of why, but you can learn more here.

Considering a16z controls 15 million UNI governance tokens (representing enough to sway votes in their favor), people were worried that they would kill the proposal, putting the future of Uniswap on the BNB Chain at risk.

Well, it turns out those 15M tokens didn’t make much of a difference:

Final Thoughts

So, did crypto governance work this time?

We’d say yes. The two sides rallied votes, and the bridge that people most preferred is going to win. That’s how it should work.

But, it’s still a fraught process.

If Wormhole wasn’t backed by fellow large entities, there’s a good chance that a16z’s 15 million tokens would be enough to win the vote. Is it right for any one party to have that much power? Do we want crypto to simply be a battle between VCs? Didn’t we get into crypto to break away from the whims of the rich and powerful?

Unfortunately, there’s no easy way to do crypto governance. Voting based on tokens ensures that the rich control the outcome, but getting rid of tokens would remove the financial aspect of crypto, its current main draw.

Until a better form of governance is discovered, we’ll just have to hope that the VCs act in our best interests.