Controversy Over Uniswap $20M Grant To “DeFi Education Fund”, Failed Governance Model?

Controversy Over Uniswap $20M Grant To “DeFi Education Fund”, Failed Governance Model?

There has been a lot of debate around decentralized exchange Uniswap and the DeFi Education Fund (DEF).  This entity received $20 million or 1 million UNI, the protocol’s native governance token, to be lobby and increase the DeFi sector level of adoption. The funds are to be liquidated in 4 to 5 years.

The proposal to created DEF was introduced by the Harvard Law Blockchain and Fintech Initiative (HLSBFI), a student organization dedicated to developing this institution’s students’ knowledge on blockchain technology and the FinTech ecosystem.

About a month ago, the DEF sold 500,000 UNI ($10 million) aided by crypto exchange Genesis, via an Over the Counter (OTC) deal. After this tweet, all hell broke loose, and many went to said that the organization was “looting” Uniswap’s treasury.

With the help of @GenesisTrading, we sold 500k UNI for ~$10.2M USDC in order to fund the efforts of the Defi Education Fund.

In the next 24 hours, we will be sending 500k UNI to Genesis and receiving ~$10.2M USDC in return.

— Defi Education Fund (@fund_defi) July 12, 2021

In a Medium post, the DEF argued that regulatory Dynamic and the “state of global policy proposals”, should keep a level of flexibility and speed to spend the funds. Thus, they converted them into USDC. The money will still be used to begin their work and set up future operations, the organization said:

(…) we expect the vast majority of DEF’s expenses will be dollar-denominated, the UNI funds must be diversified into dollars. Diversifying half of the 1M total allocation provides the DEF with a sustainable budget to weather any market downturns and allows the DEF to rapidly get to work.

They claim that regulations in the U.S. and Europe are DeFi’s greatest threat. Thus, they are allegedly preparing for the possibility that regulators in these regions stripped DeFi protocols and their community from liberties to which they have “become accustomed”.

Has Uniswap And Other DeFi Protocols Governance Model Been Compromised?

Partner at Cinneamhain Ventures, Adam Cochran, summarized and expressed most of the concerns from the Uniswap and crypto community. Cochran classified the process as a “big botch” with failures in transparency and communications from the DeFi Education Fund.

In addition, he questioned the way that this entity liquidated half their funds and suggested that “DeFi savvy people” will find a better use for them. According to Cochran the $10 million are “sitting idle in a wallet” when they could lock the UNI in Compound, Aave, MakerDAO, or other DeFi protocols for a yield.

The expert added that the initial proposal should have included a vesting period for the funds. Cochran said:

Uniswap gave $20M to an unsupervised group, over which no one has any governance authority, who has already made questionable judgements, has poor defi practices, and even when called out provide unprofessional communications with weak arguments to their position.

Later, he concluded that the DEF has failed “so far” at core tasks, represent the Uniswap community, understanding DeFi, and in the proper administration of their organization. Cochran added:

This should serve as a call for all DAOs to seriously evaluate their governance models and should also raise into question the large delegations that VCs have given to student organizations.

In that sense, Cochran believes that DAO governance still has a long way to go to refine its voting and governance processes.

At the time of writing, Uniswap (UNI) trades at $18,05 with a 2.3% loss in the daily chart.