Uniswap Governance Renovation
0x9FfD
March 14th, 2022

This article/proposal was written on February 20, 2022**

Overview

The Uniswap governance model has transitioned from an exemplary model of experimental choice architecture & community ownership to one that adheres to antiquated governance practices that induces voter fatigue, voting power centralization, scalability depression, and closed loop controls. This proposal aims to shed light on a multi-phase solution that would reinvigorate Uniswap’s governance community along with enhancing $UNI utilization. 

Topics

  1. Identify Uniswap’s current governance structure.
    1. How is the $UNI token used?
    2. How much engagement is Uniswap governance obtaining?
    3. How has this translated to overall contributorship?
  2. What’s the Problem? 
    1. Voter Apathy/Fatigue
    2. Centralization of voting power amongst Delegates
    3. Limitations of $UNI utility
  3. Solution 
    1. Expansion of $UNI utility
      1. Example: Voter vaults
    2. veTokens (veUNI)
      1. Example(s): Origin Protocol (when OGN is staked), Balancer, Curve, Yearn, PieDao
    3. Creation/ Encouragement Meta-Delegates
      1. Formation of Governance Parties

Questions Outstanding:

  1. How will these solutions benefit the Uniswap Community?
  2. How can Uniswap, holistically, improve from the suggested solutions?

Identify Uniswap’s Current Governance Structure

How is $UNI Used?

Currently, $UNI acts as the governance token for the Uniswap protocol. At the time of writing, there are currently 6,170 voters (delegates) and over 303,390 holders (according to Tally). Utility-wise, $UNI can be used for the following purposes: 

  1. Primary representation of voting power that could be designated to a self-appointed delegate. 
  2. Providing Liquidity to $UNI pairs
  3. Trading

How much engagement is Uniswap Governance Obtaining?

The short answer is, not much. By using Tally as the primary source of monitoring voter/governance engagement in relation to other protocol, we can see that the number of proposals (11 proposals) and active voters (6,170) warrant concern. 

In order to obtain a valid perspective of true governance engagement, an analysis of the governance forum is required (often referred as a “Community Health check”). When viewing Community Health metrics (provided by the Uniswap Discourse), one can see a steady decline in the following categories:

  • Signups = new account registrations within a given period
  • Topics = new topics created within a given period
  • Posts = new posts created within a given period.
  • New Contributors = number of users who have made their first post within a given period.

Due to time frame option limitations, I was only able to go as far back as 1 year (March 3, 2021, March 3, 2022). This said, it is only fair that I include DAU (Daily Active Users / MAU (Monthly Active Users) and Daily Engaged Users to provide a full-bodied reflection of community participation. 

  • DAU/MAU = number of members that logged in the last day of the month divided by number of members that logged in the last month - returning a percentage indicating community stickiness (Aim for >30%)
  • Daily Engaged Users = number of users that have liked or posted in the last day.

So, what exactly can we infer from these metrics? 

Short Answer: Truly dedicated, motivated, and OG Uniswap community members have remained active participants/contributors (which can be deduced from the given DAU/MAU ratio shown above). Meanwhile, on the other side of the token (pun intended), new contributors and signups continue to decrease. Why? Well, as Other Internet eloquently put it in their recent Tracking the Rise of Interest Representation in Uniswap Governance article, the proposal threshold “is still too high for the average tokenholder.” Due to this, $UNI tokenholders that have obtained a small stake of $UNI are loosely constrained to delegating their tokens to an existing delegate (assuming the tokenholder desires to see their $UNI make an impact in governance). Consequently, the Uniswap community has become rather stagnant in activity, which has resulted in the centralization of voting power amongst heavily influential delegates, and ultimately creating a perpetual principal-agent problem between these delegates and inactive community members. 

What’s the Problem?

The Uniswap Governance model has fallen victim to an array of drawbacks ranging from:

  1. Voting Power Centralization Amongst Delegates
  2. Voter Apathy/Fatigue
  3. Inherent limitations of $UNI utility 

Centralization of Voting Power Amongst Delegates

By analyzing the top 10 voters (excluding two which are Smart Contracts), we can see that they wield a proposal-deciding ~7.52% of voting power. If we were to expand the leaderboard to the top 20, we see that these voters control ~12.37% of voting power. Of the top 20 voters, about half (50%) have participated in the last 10 proposals.

This centralization of voting power is the converse of the actual intention in the creation of the $UNI token. The overarching purpose of $UNI was to stimulate community-led growth, development, and self-sustainability coordinated by the inherent governance system. Unfortunately, the community-led growth aspect has been stymied due to a lack of diverse and high-quality set of protocol delegates - of which has turned to a popularity contest amongst highly influential individuals within the Web3 space. 

TL;DR: There’s a lot of highly influential individuals that are not accurately reflecting the opinions/thoughts of delegators. 

Voter Apathy/Fatigue

DAOs are integral vehicles for governance facilitation. Without these highly coordinated communities of decision-making, protocol growth and innovation is severely hampered. Within these communities, members (stakeholders) are empowered to contribute and participate in order to obtain reputation and, most importantly,  community ownership. This sense of empowerment and ownership should in turn generate an environment where community members are appointed opportunities of influence - hence a la the anarcho-syndicalistic governance model DAOs adhere to today. 

But what happens when some contributors within the DAO/Community garner too much influence/ownership? 

As a result we begin to see a decentivization of governance participation which transitions to voter apathy. Tokenholders no longer feel the need to contribute to governance discussions/processes and would much rather delegate their voting power to someone else. Over time this behavior has - as shown in the previous section - compounded exponentially; ultimately leading to a true lack of participatory decision making. 

**TL;DR: The over financialization of voting power has forced disinterested tokenholders to delegate voting power to a select few representatives.

High VP Concentration + Unmoved tokenholders = Community Misalignment.**

Inherent Limitations of $UNI

Uniswap is supported on: Ethereum Mainnet, Polygon, Optimism, and Arbitrum.

On a scaling perspective, this is a commendable feat as now $UNI is accessible on a variety of L2s & Sidechains. Consequently, $UNI governance should follow suit - enabling L2 & Sidechain tokenholders the ability to actively participate in Uniswap governance. As of now, this remains to be the case since there is no way to accurately reflect one’s L2 & Sidechain voting power without bridging over $UNI to mainnet. In the process of doing so, tokenholders may incur high gas fees in an attempt to remobilize themselves towards active governance participation.  

In other words, $UNI-holders outside of mainnet are severed from any & all governance processes until it’s bridge. The extent of their participatory decision-making and input begins and ends in the Uniswap Governance forum. 

TL;DR: $UNI outside of Ethereum mainnet is basically a shitcoin.

Solution(s)

Expansion of $UNI utility

As the title of this section suggests, the scope of $UNI’s utility needs to undergo substantial remodeling. One of which is applying/implementing the use of voting vaults. Introduced by Element Finance, voting vaults aim to maximize capital efficiency by allowing users to participate in governance while still being able to use those same assets for any other purpose in DeFi. This governance primitive significantly reduces plutocracy while also addressing voter apathy and voter participation! 

Uniswap was heading in the right direction after passing the Setup community cUNI voting proposal on Compound. By doing so, $UNI utility was augmented by enabling the interest-bearing cUNI an equitable opportunity to partake in Uniswap governance. In fact, the cUNI Multisig has amassed a whopping 9.31M votes which is equivalent to 0.93% of voting power. This cUNI Multisig is analogous to the suggested [Uniswap]/Compound/Aave Vault, where tokens are used as collateral and could earn interest while maintaining voting power. 

It’s worth acknowledging the following vault types as plausible additions to the expansion of $UNI utility and the overarching Uniswap governance model**
**(some of the definitions can be found directly on Element Finance’s *Voting Vaults: A New DeFi and Governance Primitive *article):

  • Vesting Vaults: locked positions receive the proportional amount of voting power along with a time-based multiplier for the vested tokens (think veCRV).

  • Locking Vault: stake your governance token in return for proportional voting share/power.

  • LP Vault: receive voting power while providing liquidity.
  • L2-L1 Synthesis Vault: L2 posts balance tree hashes and L1 votes using the merkle balance proof of L2.
  • DAO Merger Vault: gives token holders of other protocols the ability to vote.

The LP and L2-L1 Synthesis vaults are compelling implementations that would accredit these types of participants/tokenholders by providing voting power based on their contribution(s). Ultimately, these vaults will offer a wider range of inclusivity to the ever-growing Uniswap ecosystem by enabling more users/contributors to get involved or delegate in governance, even if their governance voting share is minuscule. 

veTokens (veUNI)

Short for vote-escrowed Tokens, these assets serve as a non-transferable representation of voting power. Majority of veTokens (e.g. veCRV) are non-transferable (illiquid) since they are staked  in a Locking Vault for a certain period of time (usually ranging from 1 -4 years).. By giving up liquidity, tokenholders are incentivized to maintain their stake in the vault through fee-sharing schemes, liquidity mining emissions, and prioritized governance rights. Laid out by Ben Giove in WTF are veTokens, there are multiple benefits with this veToken model: 

  1. Encouraging Long Term Oriented Decision Making
  2. Greated Incentive Alignment Across Protocol Participants
  3. Improved Supply & Demand Dynamics

It would be remiss of me to not include some disadvantages (along with some thoughts):

  1. Lack of Liquidity*
    1. This would be highly unlikely within the Uniswap (and other Blue Chip DeFi Protocol) communities. I would argue that we may see a similar outcome akin to the ongoing “Curve Wars.”
  2. Vote Selling (For Specific Protocols)
    1. DAO2DAO collaborative efforts would benefit significantly from such activities. 

Creation/Encouragement of Meta-Delegates

As a possible resolution to the Centralization of Voting Power Amongst Delegate problem, I propose the encouragement of meta-governance-abiding organizations to appoint itself as a delegate and begin active participation. To some extent, this may be perceived as DeFi Political Parties - I would agree upon this identification. By supporting meta-delegates (meta-governance), the overarching Uniswap governance model is further reinforced by two factored governance process. Instead of having an individual delegate unilaterally vote on a proposal, emboldening the involvement of a Meta-Delegate would offer a more diligent and inclusive approach that would truly embody the community’s sentiment. 

The beauty of supporting Meta-Delegates is the internal checks and balances that need to be applied in order for a decision to be made. A DAO could not appoint itself as a delegate without taking into account the leaning(s) of the community. By enabling the formation of DeFi Political Parties, we may see more engagement both internally (within each respective meta-delegate) and externally throughout the protocol’s ecosystem. As a natural extension of this, the emergence of MD2MD SubDAOs (Meta-Delegate-to-Meta-Delegate SubDAOs) may become a reality - where the protocol allocates an agreed upon allotment (in the form of a budget) to the SubDAO comprised of multiple Meta-Delegates to carryout a specified objective/activity.

Final Thoughts

  1. Uniswap’s Governance model is in need of a major restructuring in order to truly attain a maximal viable participatory community and resolve its Principal-Agent problem.
  2. Voting Vaults are crucial for the expansion of governance inclusivity and engagement.
  3. The deprecation/minimization of individual delegates and the endorsement of Meta-Delegates would contribute to the sustainability of a democratic and scalable governance ecosystem with an explicit emphasis on community ownership.
  4. Experimentation will likely yield long-term value capture from governance contributors.
  5. Information Symmetry is paramount.

Outstanding Questions

  1. How will these solutions benefit the Uniswap community?
    1. what would be a functional first step to engage greater delegation and decisioning, especially if there’s not enough governance discussions happening? 
  2. How can Uniswap, holistically, improve from the suggested solutions?
    1. what would be a functional first step to engage greater delegation and decisioning, especially if there’s not enough governance discussions happening? 

Response to the first question:

I think it would be an interesting use case for which the community will decide how to best exercise. Yes, bribing is not ideal but it does exhibit community participation/engagement. The larger question would be: “Will it benefit the protocol?”By observing Curve and Balancer, one would/could argue that yes it does benefit the protocol.

Response to the second question:

I think someone or something (a DAO perhaps?) would have to take action and simply do it by being the first mover. IMO Uniswap is just the start.Aave, Compound and other blue-chip protocols are still afflicted by this traditional delegate model.Yearn, Balancer, and Curve got the proverbial ball rolling with veTokens.Meta-Delegation + veTokens + Voting Vaults = the arrangement of one robust “collective” ecosystem.The proposed initiative would benefit the protocol because:

  1. It furnishes inclusivity within the meta-delegate as well as raises a sense of representation & ownership amongst the protocol’s community.
  2. It could be used as a form of funding (as seen recently with the Curve Wars)

To extend this even further - using Bribe protocol as the example - imagine a party (meta-delegate) that has a sizeable  amount of voting power. Internally a proposal would be submitted to lend out this VP to Bribe in return for some funding.This acts as a perpetual funding mechanism for the party itself.The caveat is the monetization of VP which could result in potential manipulatory gaming.The benefit is the stimulation of constant, collective engagement - contrary to the singular model today.

Rather than individuals unilaterally voting on behalf of delegators (and affecting the community at large), these meta-delegates are to be seen as DeFi Parties. Parties could then employ the forum as a campaigning discussion board.

Related Reading

Resources

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