The ticket type has reversed, but the considerations behind opposing the Uniswap investment in the Ekubo proposal are worth exploring

Author: Nan Zhi, Odaily Planet Daily

Yesterday, the Uniswap community voted to pass the temperature check proposal for "Investing in Ekubo Protocol", whereas previously the voting opposition rate exceeded 60%, with market makers Wintermute and Keyrock expressing strong opposition. StableLab co-founder even stated, "If this proposal is passed, I believe the Uniswap governance organization should seriously consider what the role of governance and accountability is."

Proposal Details

Moody Salem, founder of Ekubo Protocol and former head of the Uniswap development team, initiated a proposal on the governance platform on October 13, and started a temperature check vote on Snapshot on October 23. The specific content of the proposal is as follows:

• Investment Requirement: Ekubo proposes to collaborate with Uniswap DAO, with Uniswap providing 3 million UNI (worth about 12 million USD) in exchange for a 20% share of future Ekubo protocol governance tokens. The funds will mainly be used for engineering, auditing, and legal support. Ekubo will also provide knowledge-sharing authorization to Uniswap;

• Token Plan: Within one month after this proposal, a governance contract will be deployed on Starknet, which includes tokens representing voting rights for the Ekubo protocol. Uniswap will receive 20% of these tokens, which it can redistribute at its discretion;

• Background Advantages: Moody Salem stated that he left Uniswap because he believed in Starkware's technological vision and is committed to developing an AMM (Ekubo) on Starknet. The proposal claims that "Ekubo accounts for about 75% of Starknet's total trading volume, while its TVL only accounts for 5%," and it has "partnered with Argent, the largest wallet on Starknet."

Opposition Voices

Wintermute's Opposition

"We generally support such experiments and appreciate the opportunity given to the DAO. However, given the current state, we cannot support this proposal due to the requested 12 million USD funding and the implied 60 million USD valuation."

Wintermute CEO Evgeny Gaevoy stated, "In this case, I suggest that the voting representatives consider this proposal based on the merits of the transaction itself, rather than the label that may apply to Ekubo Inc. (i.e., not considering Ekubo's reputation, status, etc.)"

Considering the above circumstances:

• There is little or no information beyond the proposed use for Ekubo tokens, and plans for the remaining 80% of the token supply have not been provided.

• Uniswap DAO has not yet established a framework for financial diversification and investment decision-making.

• The above situation is further amplified by the scale of investment, which would place Ekubo above similar projects like Paraswap, IDEX, and QuickSwap in FDV ranking. These protocols exist on highly active chains and already have considerable trading volumes. (We believe it is not correct to directly compare Ekubo with these protocols, but it helps to determine approximate market pricing).

• Starknet's TVL is 152.8 million USD, which is 2.5 times Ekubo's implied FDV.

Ekubo appears to be an "amazing" DEX, having proven its ability to capture a significant share of DEX trading volume on Starknet. However, this decision requires the DAO to bet on both Ekubo and Starknet, which seems optimistic and overly forward-looking given the implied FDV and lack of information.

Market Maker Keyrock's Opposition

Without a framework or committee conducting due diligence (DD) for more than 2-3 weeks, we cannot justify any use of UNI for venture capital.

Ultimately, Ekubo should focus on building the DEX rather than holding an additional 2.5 million UNI delegation voting rights, and it needs to consider becoming an active governance participant. If proposals need to be created and promoted for future development, there are representatives with such capabilities that can be easily contacted.

In summary, the core points of opposition are:

• 3 million UNI is overvalued for this project;

• The project struggles to effectively govern with the voting rights conferred by the tokens.

Project Details

Official Documentation: The Ekubo protocol features centralized liquidity, singleton architecture, and scalability. It aims to fully leverage the Starknet architecture, with the goal of providing optimal swap execution and liquidity provider returns.

Project Features

• Gas Savings: Ekubo employs a model called "till," meaning all pools are managed within a single contract. When trading with pools on Ekubo, token transfers will be delayed until the transaction is complete. Users do not need to transfer tokens; aggregators can keep them in Ekubo for later use, completely avoiding costly token transfers. (Odaily Planet Daily note: similar to the singleton model that Uniswap V4 will implement.)

  As a result, users can perform many operations across multiple pools while only making the minimum necessary token transfers. The highly optimized and capital-efficient design combined with Starknet's low fees allows the Ekubo protocol to provide the best gas execution network;

• Centralized Liquidity: Users can provide LP within specific ranges; (referencing Uniswap V3)

• Scalability: Allows the creation of permissionless pools and implements features like limit orders and TWAMM. (referencing Uniswap V4)

Project Data

• TVL is not advantageous: According to DefiLlama data, Ekubo's TVL is 2.54 million USD, ranking fourth among major DEXs on Starknet.

• Expected Protocol Revenue:

(1) Trading Volume: The following are the daily trading volumes disclosed by the official source, with the lowest daily trading volume in the past month being 5 million USD and the highest being 15 million USD. Here we assume a daily trading volume of 10 million USD;

(2) Fee Rates: The trading fee rates for other DEXs on Starknet are all 0.3%, including JediSwap, mySwap, 10 KSwap, etc.

Ekubo offers 6 fee tiers, including 0%, 0.01%, 0.05%, 0.3%, 1%, and 5%.

From the official disclosed data, the fee rates are significantly lower compared to other DEXs, with the USDC-USDT trading pair estimated at a fee rate of 0.0015%, and the ETH-USDC trading pair at a fee rate of 0.0478%.

(3) Annualized Fees: Based on the official disclosed 24-hour trading volume of 11.739 million USD and daily fee income of 1,688 USD, assuming a daily trading volume of 10 million USD, the annual revenue for this DEX would be calculated as 1000 ÷ 11.739 × 1688 × 365 = 524,800 USD.

(4) External Comparison: According to DefiLlama data, the fee income for the several DEXs mentioned by Wintermute is as follows:

Paraswap: 6.19 million USD for the 12 months from November 2022 to present;

QuickSwap: 5.74 million USD for the 12 months from November 2022 to present;

IDEX: Not disclosed.

Conclusion

In summary, although Ekubo's trading volume is indeed significantly higher than other DEXs on Starknet, it is primarily attracting users through its extremely low fees rather than the characteristics and advantages of the protocol itself, making it difficult to generate effective revenue. The estimated annual revenue of 524,800 USD is indeed significantly insufficient compared to the 12 million USD investment.

Although the opposition rate for this proposal once exceeded 60%, the 8 million UNI votes from Jesse Walden directly turned the situation around (accounting for 38% of the supporting votes and 24% of the total votes). It is reported that Jesse is a co-founder and general partner of Variant. Jesse has led the company's investments in Uniswap, Phantom, Mirror, Flashbots, Foundation, and others. However, the opinions Jesse raised in the governance forum do not address the significant issues mentioned above:

"From a directional standpoint, if there is an arrangement that allows Moody/Ebuku to make core developer contributions to the Uniswap protocol codebase (over a meaningful time frame), I think it is worth clarifying.

This proposal does not adequately explain how it will work in practice, but it can be elaborated in subsequent governance proposals.

Additionally, considering the effort/skills required to build in Cairo, the idea of Ebuku becoming the 'official' Uniswap v4 deployment on Starknet is also intriguing."

Recently, Uniswap's application for 46.2 million USD in working funds and the initiation of frontend fees have also sparked considerable community controversy, but both have been successfully implemented. The unity and effectiveness of public opinion and project governance may still require further reflection.