Consensus Check - UNI should fund a political defense organization for decentralized finance

Am seeing a lot of conspiracy theories - would be nice to keep the discussion factual and on topic. As noted in the post, this would go to a multisig of the proposed committee members which includes the CG at Compound Labs, GC at Aave Companies, GC at dydx Trading, and CLO at Uniswap Labs.

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The proposal outlines that these funds are anticipated to be allocated over the next 4-5 years, so it wont have the same dilutive effect of selling 1M UNI all at once, which we agree would be a problem. We think it is important that the board has enough to work with so they can react quickly to regulatory threats without being hamstrung by the long governance process for every decision they make.

The issue with this proposal is that it’s a general purpose proposal that’s not specifically tied to Uniswap. It’s for the benefit of the entire Crypto space. Some of the people assisting include Compound Labs DYDX Aave. That’s good. But the proposal should be brought to a governance vote for all of these other major protocols (Aave DYDX Compound Maker Yearn) to vote to equally participate in this effort. If it passes for all i’d be open to supporting it for uni if not then I don’t support it.

Also, with the deal making that goes on in politics I’d hate to see photo-ops or press releases showing UNI support based on this initiative for some legislative measure that represents a compromise to what many people think the law should be.

Finally, what issues/gaps need to be filled that the other associations you reference (Blockchain Association, Crypto Council for Innovation, etc.) aren’t already addressing? I understand you’d support them but you also mention other organizations. How much financial support are these other organizations getting from other companies compared to what you’re asking UNI to allocate? (total figure not just percentage). Where/how did you come up with 1 mill UNI? It sounds like a one time allocation that you “expect to be allocated over 4-5 years.” Why do you need upfront funding for 4-5 years as opposed to getting a smaller allocation at first? Then, we can see what you’ve been working towards and then you can come back to the community for another vote for more funds every year.

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I think I´ve made it clear in my response that I do not specifically state that the UNI will be sold at once. The argument stating that the amount of dillution could be spread over multiple projects stays. If one proposal does it (grants), its fine, but if you go down the rabbit hole to propose a 20x bigger amount for the next project…where does that leave us?

Soon, we will have 10 proposals going through all of them arguing that their allocation of UNI is not dillutive. While it might be the case individually, as a whole it will have a significant impact. This is an extremely overlooked variable of your proposal and I urge strong caution.

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I will probably vote against this proposal for the following reasons.

Budget / Proof of work

For the current stage of this project, I believe the budget is exorbitantly high. Before supporting a proposal of this scale, I think it would be worth seeing a lot more proof of work.

A classic lesson from startup investing or even the early ICO era is that projects should be funded in correlation to their progress thus far, then given more funding as they prove their ability to use the capital to fuel success. This project requests a massive lump sum of cash despite not having done significant work besides writing a proposal.

Reassessment and evaluation

The Uniswap Grants Program was initially funded for only 2 quarters, and subject to reassessment and renewal after that amount of time. For a program with 10x the budget, I’d expect to see the same: evaluation after some initial period to determine if this is a success worth continuing.

I think it would make a lot more sense to move forward with a structure similar to the beginning of the Uniswap Grants Program: provide a smaller initial budget to fund this work for 2 quarters, then fund it at a larger scale based on the progress up to that point.

Additionally, this proposal anticipates that these funds will be allocated over 4-5 years, but there is no formal structure in that regard. Even with full approval, I’d hope to see these funds distributed over time, not sent all at once.

Team structure and payment

This proposal anticipates that the compensation across the entire committee combined will not exceed $150K, and the proposal positions this as a benefit. I see this as a huge weakness.

In my experience, committees and multi-sig wallets can experience coordination problems when signers are not properly incentivized to participate. In the case of this proposal, I believe the problem is compounded by the fact that most members of this committee have demanding full-time roles that demand their attention, and where they are paid and assessed by their organization.

For me to support this proposal, I’d prefer to see a different team structure. First, I would like to see at least one full-time, paid lead of this committee who is responsible for organizing and building consensus when funds need to be allocated.

Second, I’d actually prefer to swap out some members for legal experts who have more time on their hands to dedicate to this effort. It’s hard for me to imagine that people with some of the roles above will have the spare time available to read applications, evaluate talent, and allocate $27M dollars worth of funds effectively.

Team buy-in

The proposal states that all of the members listed have expressed their willingness to be on this committee. Do they actually want to be on the committee? What’s their level of excitement?

I’d like to see every member of this committee commenting here on the forums and describing their motivations and plans for this group. Again, a committee with 1M UNI worth of funds should consist of members who are determined to use that capital effectively.

For me, it would also be helpful to see writing or other work these members have done related to DeFi’s legal defense.

Conclusion

These are my initial concerns with this proposal. I believe there are significant structural changes that should be made before this moves forward.

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The two major concerns we see so far are 1) 30M is a lot of money to begin with, and 2) Uniswap shouldn’t need to pay for this initiative on their own.

  1. We understand that $30M is not insignificant. As mentioned above, we anticipate that this will be allocated over 4-5 years. However, we think this amount is necessary up front in the event of emergencies. We want to impress upon you the urgency of this situation. Right now, if regulators decide to take action, we are left with very few options. Governance will not be able to react quickly enough to alleviate misguided action. We have seen how rash and quickly regluators can act (i.e., midnight Bitcoin rulemaking a few months ago). And once laws are set in motion, it becomes astronomically more difficult to change them later. With a fund set aside to protect us, the board will be able to react swiftly and appropriately.

To address a tangential concern here, the board is excited and extremely supportive of this proposal. For example, see Jake Chervinsky’s tweet. We anticipate you will be able to hear more of their specific thoughts soon.

  1. We actually 100% agree that Uniswap shouldn’t need to pay for DeFi defense on their own. However, given the urgency of the situation, waiting to coordinate all platforms at once would be a mistake. We will get to work on it ASAP, but in the meantime having something that can be used is better than being emptyhanded.

Furthermore, this Uniswap board can and will condition the release of these funds on matching contributions from other platforms. For example, if the board decides to fund a project, they can condition their contribution on recieving a commensurate amount from other platforms that will benefit from their action. One of our board members is the Chief Legal Officer of Uniswap (Marvin Ammori), and as someone primarily interested in the success of Uniswap, he would not allow freeriding beyond what is necessary.

Lastly, we can always adjust after the fact. We think given the urgency of the situation it is best to get funds in the hands of people who can protect us as quickly as possible, and adjust as needed going forward.

We are trying to address as many concerns as we can, and we appreciate your participation.

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But the cost of 30M is too HUGE no matter the argument. The opportunity cost of it are way too much to justify it by any means. This would effectively mean that we have to sacrifice other proposals which require grants otherwise the sell pressure from all of the proposals combined would utterly destroy the treasury´s value. How is this not even worse than strict regulation??

I feel like you want to promote this sense of urgency to force people into hastily decisions. This is just by NATURE not the right approach to handle such a large sum of money. It does in fact display some elements of nefarious behaviour.

To your second argument, this concerns all of DeFi…why should UNI holders bear the cost for everybody??? Just because you arbitrary decided that it has to happen ASAP? Meaning that UNI holders have to be the lawyer fund for all of DeFi??

You are not reasonable with your proposal and you do not want to compromise…

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y not just use coin center?

do these people have any experience with policy and regulatory?

coin center has done quite an incredible job. the uniswap protocol itself series A was WAY under $30 mm and now were just gonna destroy the uni price for lawyers? i dont think so.

the board? literally this is a decentralized protocol

jake chervinsky im sure is a nice guy but is new to crypto, was not involved in 2013 when it rly mattered… this is a similar situation so u should bring in the people that successfully dealt with it

this literally stinks of kids wanting to make a name for themselves

leave us alone, go raid someone else’s treasury.

EXPLAIN WHY COIN CENTER SHOULD NOT BE DOING THIS?

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Hayden,

  1. I love u, and am your biggest fan.

  2. I am a lawyer and was involved in crypto when FinCEN tried to make all miners and node operators obtain a MSB or else. Coin Center handled this incredibly well and allowed the p2p protocol to thrive in its form today (BTC).

  3. You are a legend, but you are only 26. I dont think you were heavily involved in crypto back then. We all acknowledge this is a threat, but its best to give people w real experience that have successfully done it before AS OPPOSED to just crypto lawyers who also were not around in 2013.

This is really important and you are a genius for getting these student groups involved bc thats the future … but this needs to be handled by OGs w/ deep experience not people that entered the game in 2017-18.

With much love and endless gratitude,

Peter

Leave the gun, take the cannoli.

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Defi is in part an experiment same with Bitcoin and it’s working. Governments can’t shut down BTC if they tried. If they could then the experiment fails. BTC lives not by the grace of governments but despite them. Similarly, Defi protocols will survive for the same reason. If it could be abrogated by government regulation then there’s something wrong with the protocol and its “decentralized” nature. It won’t be because we didn’t lobby for more favorable regulation. However, that does not mean we want to see unfavorable regulation that makes our lives more difficult. It appears to me that you’re asking for too much because we need to hire lobbyists, politicians, and attorneys to write persuasive articles and “strategically” litigate and create favorable legal precedent. Despite referencing the other crypto advocacy groups you make it seem as if they are not doing anywhere close to enough. You’re not making the case that these other advocacy groups aren’t doing enough and why. You want us to show you the money? Show us the proof they’re not doing enough.

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Thanks for the thoughtful comments, @jcp. I’ll address of few of your points and wrap into it some thoughts on other points laid out in responses above:

1. Payment and Commitment

Each member of the committee was asked whether he or she would like to participate as a member of the committee with an understanding of the time commitment and responsibilities. Speaking only for myself, the issues that this proposal seeks to address are issues that I deal with on a daily basis, whether in my job as General Counsel of dYdX or voluntarily because of the impact the current regulatory status has on the space. That eliminates the time commitment that it would take to understand the issues. Instead, the time commitment is one that would involve assisting with the proper formation of a 501(c)(4) in addition to properly evaluating uses of funds based on the knowledge that I have and continue to acquire on a daily basis. Thus, while the time commitment is meaningful, my job supplements it in a way that reduces the time commitment as compared to many others who could be part of the committee. The same is true for many, if not all, committee members.

Similarly, getting paid would not change my time commitment as these are issues that are important to me personally as someone who wants to see DeFi grow without the regulatory burdens that have existed and continue to get worse in addition to as General Counsel of a DeFi company who wants to see companies developing DeFi protocols able to do so without the current risks and lack of clarity that exists.

2. Budget / Proof of Work

A request for what is currently $30M is significant. It is very difficult to determine an appropriate budget at the outset but it is clear is that a smaller amount like $5M would not cut it. The scope of the regulatory/political matters that need to be addressed in DeFi is significant. Not only are we talking about risks in US securities laws, commodities laws, AML laws, the OFAC sanctions regime, banking laws, lending laws, and consumer protection laws, we are facing the same risks outside of the US. In some cases, those efforts are coordinated across the US and internationally, such as with FATF. There are other regulatory regimes where that coordination is happening as well but privately. Addressing these issues is no small task and, frankly, requires a war chest. I’m sympathetic to a potential request for a smaller amount than $40M but that will curtail potential efforts, which are multi-year efforts (more on that point below).

3. Reassessment and Evaluation

The efforts that the political defense organization would undertake will not be something that can be assessed over a short time period. Likely the shortest time period to see a real impact, that can be objectively measured, is over a 2-year time period. Certainly, there may be small wins in the meantime, but it would be difficult to measure the success of the organization over less than a 2-year period. So, the question then is whether a reassessment should exist following a period of 2 years or more. That would be a reasonable position to take. I think the proposal contemplates the fact that these types of political/regulatory efforts play out over a long period of time and in a fluid and continuous fashion. It is much harder to scope out small uses of funds for clear deliverables as is the case with the Uniswap Grants Program. Ultimately, this point is a reasonable one that I sympathize with while also understanding the purpose of a commitment that is to be used over 4-5 years.

4. Other Projects

As the proposal outlines, the hope is that other projects will participate in this effort. But, if Uniswap, the most well-funded and best-recognized project in the space, does not show a commitment to it, then it is very difficult to receive a commitment from other projects. Although I’m not sure anyone is in a position to ensure other projects will commit to this effort, I’m quite confident other projects will attempt to participate in these efforts as it is in the best interest of all of DeFi.

With other projects requiring similar proposals to be passed, it is impossible to obtain certainty at this stage that the other projects will be able to successfully pass a proposal. If we wait for them to pass proposals, then we’ll have a chicken and egg situation. One project needs to be the first to commit and hopefully bring the others along, and I believe Uniswap is best positioned and likely has the greatest interest in creating an organization of this nature.

5. Motives

Several posts as part of the Temperature Check and here as part of the Consensus Check appear to question the motives of those involved in the proposal or that funds may be used in a way that does not further the objectives set forth in the proposal. First, the proposer, @HarvardLawBFI, will not be receiving any benefit or influence (and the same is true for Harvard itself) from the proposal. I do not see anything in the proposal that even hints at that possibility. Second, the proposal contemplates that a 501(c)(4) be established. To establish a 501(c)(4) a specific purpose needs to be identified and that purpose has been outlined in the proposal (though I suppose the precise language could differ in some ways without changing the gist of it). Once that purpose is specified, board members have a duty to act with care and in the best interest of the organization and remain loyal to its purpose, as opposed to acting in their own interest. So, board members would be exposing themselves to a real risk of liability if they misuse the funds. Lastly, no single board member could take any action on behalf of the organization and I think it is fair to say that, objectively speaking, the board members are incentivized the use the funds in the way it is outlined in the post.

In sum, no proposal is perfect. The DeFi community as a whole faces significant regulatory risks, which include risks as users and token holders, that most people just aren’t able to identify and, thus, do not appreciate. There currently are no major efforts to protect DeFi against regulators and incumbents’ political efforts, which puts DeFi participants and projects at a huge disadvantage against those regulators and incumbents. While some believe that DeFi can survive regulatory and political attacks, I do not believe that is true for most DeFi projects at this time and, for those that can survive it, there will be a significant impact on users and those governing projects.

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I appreciate the reply. As for item #4 with other projects getting on board. The proposals do not need to pass all at the same time. It could be Uniswap’s proposal could be passed first but no fund become available unless 3 out of 5 other protocols also pass it (something along those lines). In other words, the proposal is only implemented once other protocols pass and if they don’t then Uniswap’s proposal essentially dies with it. This proposal was broached on the community not long ago. It could just as quickly be brought up with the other major protocols.

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These are really strong points. Thanks for bringing them up @jcp. I can’t speak for the other committee members, but here’s how I think about these points.

Budget // Reassessment and Evaluation
I completely agree with your take about startup funding needing to be milestone-based. The proposal, however, isn’t to form a startup. Rather, it’s to form a non-profit entity that engages in funding research, individuals, and entities that assist in protecting defi from regulatory uncertainty. In short, I don’t think traditional startup wisdom directly applies here.

I don’t have a sense for what the “right” amount of funding for this organization is, but I suspect it will be an amount far larger than what we think it should be. It’s possible I’m overestimating the cost, but on this front, I believe it’s better to be safe than sorry — if the difference between success and failure is funding, then we should go with the conservative number: 1M UNI.

Team Structure and Payment // Team Buy-In
I mostly agree here — people tend to do better work when they’re motivated, and fair, performance-based compensation is a good motivator for most people. That said, I don’t think this group is “most people.”

We’re all intrinsically motivated to make defi work in a compliant and regulatory-friendly way, and many of us share a mutual destiny on that front. Reverie, for example, is a company I formed with @derek to work with DAOs. But doing so hasn’t been easy, mostly for legal and tax reasons. I am extremely motivated to be on this committee — even with no compensation — because it directly benefits the work Reverie and other DAO contributors do.

What I also like is every member on this committee has significant skin in the game, which in my mind, is the best membership qualifier. The inverse would be far worse: a committee of individuals who sit on the committee primarily for compensation, suffering no downside risk and capturing all of the upside!

Finally, I think having a full-time committee member is an excellent idea. My sense is we can probably form the committee without a full-time member and then recruit/find one if the organization needs to ramp beyond the capacity of the existing part-time structure.

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It is good to have a diverse group on the board. From the looks of the professional experience of each member, it looks like there is a broad span of political views: from more conservatives to more liberal. Financial inclusiveness spans all political leaning’s.

Regulation is happening for the Defi space, and it is happening quickly. It is best uniswap has a voice in the room. The group proposed here can speak on different area’s of the Defi space and ethereum, while also creating bridges to the traditional finance space.

In May (just last month) Michael Hsu was appointed by Janet Yellen as acting OCC (office of the comptroller of the currency) and is a former associate director in supervision and regulation at the federal reserve of governors. He has made remarks of fintech and digital currencies reminding him of the pre-2008 financial crises, has created a sprint team to work on regulating digital tokens, and has designated it his appointment focus, while leaving wall street and tradFi alone.

I trust the nominee’s designated out in this proposal to be better advocates and more knowledgeable about the potential of the Ethereum ecosystem, than those “sprinting” to regulate a nascent technology.

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This proposal is a trojan horse and Im highly suspicious of it. Why is a WEF crypto lawyer involved? Furthermore, why is Harvard involved? Research the WEF, and how their plan is how youll own nothing and be happy. Not my words, theirs.

Personally, I think you should leave and never come back. Hopefully voters do the right thing and vote this down HARD.

Again, the only thing we should be pushing for is NO regulation at all for at least 10 years. Defi is still in the early stages and any regulation now will kill some of the growth. Governments shouldnt have a problem with this as long as they get their tax revenue which will be plenty.

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Its pretty simplistic to write off things as conspiracy theories. Thats a rather easy way to dismiss someone isnt it. The WEF literally said their goal is to have people own nothing. Am I a conspiracy theorist for saying that?

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There are a few things I don’t like about this proposal:

  1. It is still very loosely defined for how much money is being requested. There is no check-in with governance to assess progress and request more funds.

  2. This should not JUST be funded by Uniswap governance. This is essentially a public good for DeFi and I believe any DeFi protocol that wants to considered as a leader in this space should be expected to contribute.

What I like about this proposal:

  1. The authors are dreaming big! For months I’ve heard people say “Uniswap has xxx huge treasury, what should they do with it?”, this is 1). big thinking, 2). legitimately needed and 3) backed by the right people.

  2. The amount of UNI being requested is not crazy. The request is for 1 million UNI, let’s remember the initial liquidity mining rewards were 5 million. Typically, DeFi WAY over pays for capital and way underpays for everything else. If we are willing to give 5 million UNI to people farming and selling the token why is 1 million for ensuring the perpetuity of the industry crazy?

  3. The committee is very solid. People who are questioning the integrity or alignment of this group have not been in DeFi very long.

  4. I believe this proposal is needed. I can’t post links or images here but look at Jake Chervinsky comments on it (proposed committee member and Compound Labs GC). Jake said,

“The days of DeFi flying under the radar are over. Policymakers worldwide are paying attention. Now’s the time to allocate resources to education & advocacy, & this is the right way to do it.”

Let’s read between the lines here. It’s safe to assume Jake knows a lot of public and non-public information about the regulatory environment surrounding DeFi. Jake isn’t prone to hyperbole. He isn’t saying “the days are coming to an end” he is saying, “it’s over”. Right now our risk with this proposal is probably that it is too late not too soon.

Also, Uniswap GC is on the committee, do you think they would’ve joined if they felt this wasn’t needed?

Summary:
I’ll vote for the proposal. I’d like to see the proposal adjusted to include:

  1. commitments from the other leading DeFi protocols
  2. some sort of check-in before the full 1 million allocation is disbursed

But even absent those changes I would still support this on the grounds above.

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Very well stated sir.

Completely disagree with you about this, and considering it has NOTHING to do with Uniswap I’d ask you to leave this culture war stuff out of the discussion.

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