Apr 28, 2022 - Economy & Business

Uniswap, Celo and how DAO governance works

Illustration of a row of laptops with binary code, money and circles.
Illustration: Shoshana Gordon/Axios

Decentralized autonomous organizations (DAOs) might be this bright new future for how people organize each other, or they might be another way for rich people to manufacture consent.

Why it matters: DAOs present an alternative method for people to coordinate activity toward shared goals. It's a little bit democracy, a little bit oligarchy, and it's fluid. To decide the question above, it helps to understand how they work.

Driving the news: We are watching an important DAO decision go down this week on Uniswap. The industry leading automated market maker (a robot on the internet that's always game to make a trade) has a proposal live right now that would move it for the first time onto a non-Ethereum blockchain.

  • The proposal, written by the student group Blockchain at Michigan, is unlikely to fail at this point.

How it works: There's no one way. Some DAOs are more or less formal. Some have greater expectations of members. But the way Uniswap works is representative.

  • It requires discussion of any given proposal in a few different online formats, to gauge community support and improve the idea.
  • There are two votes, but one is loose, essentially a sound-check. The important one requires both a majority in support and a minimum amount of participation (a quorum).

It gets weird here: Uniswap is governed by the uni token. There are 691 million unis in circulation. People vote their tokens, so some people have more votes. Some voters even delegate their unis to other voters.

  • Quorum is 40 million uni. The current vote is 59,555,937 uni in favor and 1,470 against. So it has both passed quorum and the votes are by far in favor.

The biggest single voter was the wallet of Andreessen Horowitz, the venture capital firm, which holds 13.5 million uni. But lots of people with only one uni voted as well.

What is happening: Uniswap is voting on whether or not it should port its app over to the Celo blockchain.

  • The Celo blockchain is a proof-of-stake blockchain that aims to serve mobile users on the theory that doing so makes crypto accessible to the billions of internet users around the world who are 100% on mobile.
  • While some decentralized apps that started on Ethereum have been profligate about hopping to other chains (Curve and Sushiswap, for example), Uniswap has been very Ethereum loyal.
  • Uniswap has gone onto Optimism, but it's an Ethereum sidechain, viewed as broadening Ethereum's reach. Celo is a competing chain.

So why? The Celo Foundation has committed $10 million worth of its celo token to use as incentives for Uniswap users on the Celo blockchain.

  • Incentives usually take the form of regular emissions to users who put up funds to make a decentralized application work.
  • These funds are crucial. Such liquidity deposits give the automated market maker (Uniswap) funds to trade with. The more funds it has, the better trading partner it is.
  • Depositors will get these rewards on top of the trading fees they already earn from Uniswap.

Of note: The incentives have a special focus on what the foundation calls "green asset liquidity pools." These assets represent carbon credits or other tokens attached to real-world climate change mitigations.

Quick take: Experimental democracy is neat, but it just took 8 voting entities to get this vote to quorum. Once it did that: done deal.

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