Reviewing the Uniswap grant incident: What kind of organization is the DeFi education fund that made millions in profit?

This article is an original piece by Chain Catcher, authored by Gu Yu.

On July 13, an organization named DeFi Education Fund sold 500,000 UNI, making over ten million dollars in profit, sparking widespread discussion and attention in the crypto community. Previously, the organization obtained 1 million UNI from the Uniswap treasury, so why was it able to secure such a large grant? Where will these funds be used? Chain Catcher conducted a detailed investigation into the background and purpose of this organization.

1. What is the DeFi Education Fund?

The timeline of this sale dates back to May 28, when a user named "HarvardLawBFI" posted a "temperature check" poll proposal on the Uniswap governance forum. According to Chain Catcher, HarvardLawBFI is actually the Harvard Law School Blockchain and Fintech Initiative, which claims to be a student organization at Harvard Law School, with most team members being current PhD students at Harvard University.

According to the proposal, HarvardLawBFI suggested establishing a community-supervised organization to provide funding for existing and new political groups engaged in cryptocurrency policy lobbying. Its goals are: 1) To educate policymakers to proactively address regulatory, legal, political, and tax threats to DeFi; 2) To achieve regulatory clarity for decentralized finance and related activities; 3) To promote laws that support decentralized finance and decentralized governance; 4) To incentivize the governance communities of other DeFi protocols to contribute to this work (through this organization or their own organizations).

“(The DeFi industry) urgently needs such an organization because governments around the world are becoming aware of DeFi and are eager to regulate projects without a proper understanding of their benefits,” HarvardLawBFI stated. “This organization will help fund educational efforts for policymakers to achieve a more balanced legal framework globally. This will be similar to a group of funders that established the Media Democracy Fund in the early days of the internet, relying on experts to distribute funds among organizations advocating for a more decentralized and democratic internet.”

On June 1, HarvardLawBFI published a more detailed proposal on the Uniswap governance forum, stating, “If the governance of DeFi protocols is to exist in the long term, we need to actively participate in the ongoing policy discussions to ensure that the interests and positions of millions of DeFi users are represented.” HarvardLawBFI claimed, “The Uniswap community is best positioned to lead the work of protecting decentralized finance.”

The organization proposed an initial injection of 1 million UNI into an organization called the "DeFi Political Defense Fund," to allocate these funds over 4-5 years for thought leadership, legal analysis, policy advocacy, information dissemination, and grassroots efforts. “This entity will not replicate the important work of existing organizations such as Coin Center, the Blockchain Association, and DeFi Alliance. Instead, it will fund these organizations and others to expand their capabilities to more effectively protect DeFi.”

The initial members of the "DeFi Political Defense Fund" committee were also announced in the proposal, including Uniswap Labs Chief Legal Officer Marvin Ammori, Aave General Counsel Rebecca Rettig, Compound General Counsel Jake Chervinsky, Variant Fund General Counsel Jake Chervinsky, World Economic Forum Executive Committee Crypto Lead Sheila Warren, Brex General Counsel Katie Biber, and Reverie co-founder Larry Sukernik, most of whom have extensive experience in the legal industry.

In response to why such a high amount of funding is needed, HarvardLawBFI stated, “Top lawyers, lobbyists, and educational PR campaigns are very expensive. When the U.S. Treasury proposed the 'midnight rule' last December, blockchain advocacy organizations were forced to spend millions of dollars in just a few months on institutional comments and preparing lawsuits. Given the complexity and novelty of these issues, we need the best talent in the world, many of whom earn more than professional athletes.”

Also on June 1, the organization officially initiated a proposal vote on Snapshot for a "consensus check," with the topic being "Should 1 million UNI be allocated from the community treasury to protect the protocol and DeFi from legal and regulatory threats and help ensure the promise of DeFi?" On June 6, after nearly 50 million UNI were voted, about 73% of the votes supported the proposal, which officially passed the "consensus check stage."

On June 12, the user updated their proposal on the Uniswap governance forum, renaming the "DeFi Political Defense Fund" to the "DeFi Education Fund," adding dYdX Trading General Counsel Marc Boiron as a committee member, and the grant address was managed by a multi-signature of the seven committee members. A detailed budget will be published within 90 days after the proposal passes, with monthly public updates on community progress, fund allocation, strategies, etc.

At the end of June, the Uniswap governance page conducted a final vote on the proposal, which was officially passed with 79.68 million votes in support and 15.04 million votes against, with about 10.45 million votes cast by the HarvardLawBFI organization. On July 4, Uniswap transferred 1 million UNI to the wallet address disclosed to the organization.

2. Why did the proposal pass? Who are the supporters?

From the above information, it can be seen that the proposal was initiated by a student organization at Harvard Law School interested in blockchain, and its experience in DeFi participation is not extensive. So why did it manage to secure over ten million UNI votes? What other institutions and individuals supported this proposal?

Regarding the voting power held by HarvardLawBFI, most of it is actually related to Uniswap's delegated voting mechanism. Unlike most DeFi projects that only allow token holders to vote directly, Uniswap's governance mechanism allows UNI token holders to delegate their voting power to third-party agents, meaning that Uniswap's voting power could potentially be concentrated in the hands of a few delegating entities.

According to the voting delegation website sybil.org, the top 10 addresses with the highest voting weight on Uniswap currently hold about 50% of the voting weight, equivalent to 105 million votes. According to Uniswap's governance mechanism, any proposal that passes the "temperature check" and "consensus check" stages and enters the final on-chain voting stage can be successfully passed with 40 million votes.

In the final on-chain vote regarding the DeFi Education Fund, a total of 79.68 million votes supported the proposal, while 15.04 million votes opposed it, with the supporting votes far exceeding the required 40 million votes for passage.

Although the final voting page of Uniswap did not show which specific addresses supported the proposal, the voting during the "consensus check" stage on Snapshot displayed the specific voting situation, including the addresses that supported and opposed the proposal.

Among the addresses that supported the proposal, the top-ranked address (10.46 million votes) is HarvardLawBFI, which has been participating in the governance of DeFi projects like Uniswap since February of this year and is currently the fifth-highest address in Uniswap's voting weight, accounting for 5.6%.

The second-ranked address (10.25 million votes) is owned by Kenneth Ng, who served as the grant coordinator for the Ethereum Foundation for nearly two years and facilitated the first grant from the Ethereum Foundation to Uniswap in 2018. He also participated in drafting Uniswap's first successfully passed proposal, the "Uniswap Grant Program," last year and became the program's lead. He is currently the Chief Operating Officer of Slingshot Finance.

The third-ranked address (about 8 million votes) is owned by John Palmer, founder of Variant Fund, who was previously a partner at a16z and the founder of Mediachain (later acquired by Spotify). He co-wrote Uniswap's first successfully passed proposal with Kenneth Ng and is currently one of the reviewers for the Uniswap Grant Program. It is worth noting that the initial committee members of the DeFi Education Fund also include Variant Fund General Counsel Jake Chervinsky.

The fourth-ranked address (about 5 million votes) is owned by Blockchain at UCLA, an organization composed of students and faculty from the University of California, Los Angeles, specializing in law and business.

The fifth-ranked address (about 3 million votes) is owned by Penn Blockchain, a blockchain organization operated by students at the University of Pennsylvania. This organization has also participated in delegated governance voting for protocols like Aave and Compound, with delegated token value of about $140 million.

The sixth-ranked address (about 2.5 million votes) is owned by Blockchain at Columbia, a distributed ledger technology organization operated by students at Columbia University.

The seventh-ranked address (about 2.5 million votes) is owned by the Blockchain Education Network, composed of excited students and alumni from around the world, aiming to provide borderless blockchain education.

In addition to these institutions or individuals participating in the "consensus check" voting, some organizations have also publicly expressed their support for the proposal, such as Matt Corva, General Counsel of ConsenSys, who stated that the company would support the proposal.

“We believe it is crucial to provide understanding education to legislators at this moment,” Matt Corva said. “The first step taken by Uniswap may break the dam for other large treasuries supporting similar initiatives, and we will support this and have already communicated to our portfolio companies that we hope they will consider doing the same.”

Overall, the main supporters of the proposal are university blockchain organizations represented by HarvardLawBFI, as well as members of the Uniswap Grant Program like Kenneth Ng, with the former's total votes exceeding 23.46 million. However, compared to the votes in the "consensus check" stage, the final voting support votes exceeded by nearly 30 million, and the source of this additional voting power remains unknown.

So, why are there so many university blockchain organizations in the Uniswap governance? This is actually closely related to a16z's DeFi governance philosophy.

Previously, a16z stated on its official website that to increase the overall diversity of opinions in governance and reduce the concentration of voting power across the network, it decided to delegate most of its voting power in protocols like Compound and Uniswap to qualified participants, including university student organizations, such as HarvardLawBFI, Blockchain at UCLA, Blockchain at Berkeley, etc. The Penn Blockchain at the University of Pennsylvania also explicitly stated on its website that it received support from a16z.

As one of the major investment institutions in Uniswap and the lead investor in the Series A financing, a16z is expected to hold a significant share of the 18% investment institution stake in UNI, which gives it considerable influence in Uniswap governance. However, after delegating its voting power to universities, a16z has not further clarified the specific interaction mechanisms with these university organizations.

Snapshot voting records also show that Robert Leshner, founder of Compound, cast a dissenting vote with about 5.3 million votes, Uniswap community KOL "DCinventor" with about 5.2 million votes, and John Palmer, a member of the Uniswap Grant Program, with about 4.9 million votes.

3. Why is there skepticism about the proposal and the organization?

From the impressive committee members of the DeFi Education Fund and the high number of UNI votes received, it seems that the organization followed the rules in obtaining the grant. Additionally, the address receiving the UNI grant is managed by a multi-signature of seven committee members, meaning that the initiating party, HarvardLawBFI, cannot directly access the funds, which initially ensures the safety of fund usage. However, this does not fully convince the community.

In fact, during the proposal's public display and voting period, skepticism from the Uniswap community dominated, with major points of concern including: the grant size is too large, the work and budget plan are unclear, and applications should be made after demonstrating work; the committee lacks diversity, and it should not be a few lawyers deciding how to deploy lobbying funds for the rest of the community; the costs of policy lobbying and market education should be borne by the DeFi industry, and major DeFi protocols should participate equally, not just UNI holders.

Uniswap engineer Noah Zinsmeister also expressed that he would prefer to directly support mainstream educational organizations like Coin Center rather than create another entity with a lower reputation and unclear mission.

With the DeFi Education Fund selling 500,000 UNI on July 13, more skepticism and criticism emerged in the public discourse, mainly including the following directions:

First, there is a lack of transparency. Currently, the DeFi Education Fund still does not have an official website, and the outside world knows very little about the organization's work plan and mission, believing that the organization could have sold UNI based on actual usage needs, lacking specific explanations;

Second, there is a possibility of insider trading. Before the DeFi Education Fund sold UNI tokens, one of the committee members and multi-signature holders, Larry Sukernik, sold about $50,000 worth of UNI five hours prior, raising suspicions of having insider information;

Third, there is a situation of unfulfilled promises. In the explanation of the proposal, HarvardLawBFI stated that these funds are expected to be allocated over the next 4-5 years, so there would not be the same dilution effect as a one-time sale of 1 million UNI. However, the organization decided to sell all 1 million UNI tokens in two batches within 24 hours, undoubtedly harming the interests of UNI holders;

Fourth, it is suspected to be a16z's interest transfer behavior. Due to the aforementioned irregularities, industry observer Chris Blec, who has been tracking this proposal for a long time, suspects that the organization was actually promoted by a16z for its own interests, encouraging university organizations that delegate their voting power to support it, thereby benefiting its DeFi investment portfolio.

On a broader scale, this incident involving the DeFi Education Fund's grant has also prompted further reflection within the industry on voting governance mechanisms, such as how to prevent parties with voting power advantages from using their power and DAO structures for interest transfer? Is the voting power of Uniswap, as a leading DeFi project, too concentrated?

Regardless of the ultimate fate of the DeFi Education Fund, this incident will leave a significant mark in the history of DeFi governance.

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