[Temperature Check]: Invest in Ekubo Protocol

Temperature Check
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Following the discussion in the RFC, we’ve integrated some of the feedback from the community in this updated version of the proposal by making clarifications to the proposal text.

Notably, we have not changed the valuation. We believe the proposed valuation is fair given the cost involved in executing such an arrangement (e.g. the tax and legal overhead), our unique ability to contribute to Uniswap protocol, the growth potential for Starknet and the early success of Ekubo. This temperature check will serve to validate the proposed valuation, but should it fail we will not be resubmitting with a lower valuation.

Summary

Ekubo Protocol is an AMM on Starknet with a singleton design, super-concentrated liquidity and support for extensions. The protocol is written in the Cairo language to take full advantage of Starknet’s architecture and reuses much of the same design philosophy as Uniswap V4. Since launch, Ekubo protocol has won approximately 75% of total volume traded on Starknet with only 5% of the TVL and no swapping interface.

Ekubo proposes a partnership with the Uniswap DAO in the form of $12MM contribution in UNI in exchange for a 20% share of a future Ekubo protocol governance token. As a result, the Uniswap DAO becomes a significant stakeholder in Ekubo protocol and vice versa. This alignment enables the development teams of Uniswap and Ekubo to collaborate. We at Ekubo, Inc. believe this is a important step in the decentralization of protocol development, effectively onboarding the Ekubo team as a contributor to Uniswap protocol.

Background

My name is Moody Salem (Twitter, GitHub), and I am the founder of Ekubo, Inc., the company developing Ekubo Protocol. Before starting the company, I was an engineer lead and Advisor on the Uniswap Labs team. I joined the Uniswap Labs in April 2020 as the 5th employee. As an engineer at Uniswap, I wrote much of the early Uniswap interface, created token lists, wrote the first swap routing algorithm for V2 and V3, committed about half of the V3 code, and finally led the design of V4.

In May 2022 I became an Advisor to Uniswap Labs and 1 year later I left the advisor role. I began working on an AMM for Starknet because I believe in Starkware’s technical vision: a ZK rollup optimized for throughput rather than EVM compatibility. I deployed the first version of Ekubo protocol 3 months after starting work on it. Since AVNU’s integration on September 14th and Fibrous’s integration shortly after, Ekubo has facilitated the majority of volume traded on Starknet entirely via the aggregators. Ekubo, Inc. has also partnered with the largest wallet on Starknet, Argent, in order to bring capital efficient market making to more users.

We believe Starknet with its rapidly improving programming language and infrastructure will soon be one of the most active L2s on Ethereum. Because it does not focus on compatibility with the EVM, it includes innovations such as account abstraction and, soon, volition that have the potential to greatly improve the UX of interacting with the blockchain and simplify onboarding for the next wave of users. If Starkware delivers on their vision, UNI holders need to have a stake in this market.

Budget

The purpose of the UNI is to continue the operation of Ekubo, Inc. for development and growth of Ekubo protocol, as well as collaboration and contribution to Uniswap protocol. The expenses include primarily engineering, audits, and legal support.

We believe this amount of UNI gives Ekubo the runway to grow Ekubo protocol into a sustainable product, meaning the revenue earned by the protocol is enough to maintain its position as the best place to trade on Starknet. It also gives Ekubo, Inc the capacity to contribute our improvements to Uniswap protocol, and collaborate with other Uniswap protocol contributors.

Much of the work will be to deliver public goods to the Starknet ecosystem, including standard token, governance, and incentives contracts written in Cairo, all of which are necessary to scale Starknet to the same level of usage as competing L2s. Other work will include delivering novel features to the AMM market by developing extensions, which for the most part can be reimplemented as V4 hooks.

Because this is an investment of liquid tokens in exchange for liquid tokens, the UNI will be spent at the discretion of Ekubo, Inc for operations, research and development, with the purpose of growing Ekubo protocol usage. The Ekubo tokens delivered to the DAO may also be spent or redistributed as the DAO wishes. We will deliver biannual reports of our progress to the Uniswap community via the forum.

Technical details

In order to fractionalize ownership of the protocol, we will deploy a set of governance contracts on Starknet including a token representing voting rights on Ekubo protocol within 1 month of this proposal passing. The Uniswap DAO will receive 20% of this token, which it can delegate or redistribute however it decides. The remaining 80% will be controlled by Ekubo, Inc. Any further distribution of the 80% of tokens held by the company will be determined on a future date solely by Ekubo, Inc.

As with Ekubo protocol, the token will be native to the Starknet L2. We will create a proxy on Starknet to hold the tokens on behalf of the Uniswap DAO to be transferred or delegated as the DAO pleases.

Sharing of intellectual property

The proposal will also update the Uniswap V4 license to include a grant to Ekubo, Inc. for unlimited use on the Starknet network. This grant mitigates any issues pertaining to the sharing of code from Ekubo, Inc. to the Uniswap community. Ekubo, Inc. employees will also sign a standard contributor license agreement before contributing to the Uniswap V4 protocol.

Allowing Ekubo, Inc to participate in governance

In addition to the UNI, the proposal includes a delegation of 2.5M UNI to a multisig controlled by Ekubo, Inc., using the Franchiser contract, so that Ekubo, Inc. can meaningfully participate in governance by creating future proposals even if it must sell UNI to fund operations.

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4 Likes
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So already shared my concerns against the proposal but saw this has been added. Most of delegates though they are active do not have much voting power, and this proposal not only gets a large sum of funding from Uniswap but also a significant voting power. If this proposal is passed, I think the Uniswap governance should seriously reflect on what is the role of governance and accountability.

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I don’t like to say this, but I’ll have to vote against, if this is evaluated as an investment proposal as Erin recommended. Main reasons:

  1. There’s no existing investment strategy for the DAO, no discussions about that have taken place. At the face value investing in another concentrated liquidity AMM does not help to diversify the treasury much, if that’s the goal.

  2. Even assuming the investment is strategically a good idea, the DAO has not had enough information & time to do an in-depth due diligence, proportional to the amount of money requested.

  3. From the information that is provided, it looks like the assumed FDV is several times too high.

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We are generally supportive of such experiments and appreciate having this opportunity presented to the DAO. However, in its current state, we cannot support this proposal based on the requested funding amount of $12M and the implied valuation of $60M.

As mentioned by @eek637

“With that in mind, I suggest that delegates consider this proposal on the merits of the transaction itself, rather than the labels that might be applied to Ekubo Inc.”

Taking into account the above:

  • There is little to no information about the Ekubo token, its intended use outside of a governance token, plans for the remaining 80% of the token supply, etc.
  • The Uniswap DAO has not established a framework for both treasury diversification and investment decisions. Which is unfortunate given this opportunity.
  • The above is further amplified by the size of the investment which ranks Ekubo above the likes of Paraswap, IDEX, and QuickSwap by FDV. Which are protocols that exist on highly active chains and have done significant volume numbers. (We don’t agree that directly comparing Ekubo to these protocols is the correct approach, but it helps with determining a rough heuristic of market pricing).
  • Starknet’s TVL sits at $152.8M ~ 2.5x the implied FDV of Ekubo.

Ekubo looks like an amazing DEX which has already proven to capture the majority of the DEX trading volume market share on Starknet. However, this decision requires the DAO to take a bet on both Ekubo and Starknet which at the implied FDV and lack of information is rather optimistic and forward-looking.

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We echo sentiment shared already on both discussions.

We simply can’t justify allocating any sum of UNI that is to be sold on the market for a VC investment while there is no framework or committee conducting longer DD than 2-3weeks.

We are against this proposal at the current stage.

Lastly, Ekubo should focus on bulding the DEX rather than holding an additional 2.5M UNI of delegated voting power and need to worry about being an active governance participant. If there is a need to create and push future proposals - there are a handful of delegates that have this ability and can be easily contacted.

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6

The below response reflects the views of L2BEAT’s governance team, composed of @kaereste and @Sinkas, and it’s based on the combined research, fact-checking and ideation of the two.

We’ll be voting against the proposal in the temp check for the reasons outlined below, and also pointed out by other delegates in the comments above.

  1. We cannot rationalise an investment in a token for which the only information that exists is that it’ll be the governance token of Ekubo.
  2. There is no framework for making such investments as a DAO. There should be a more holistic approach when assessing such proposals, and there hasn’t been any discussions surrounding that topic as of yet - at least to our knowledge.
  3. We cannot justify an investment of 12M in a DEX with just 2.3M TVL , and, as other delegates pointed out, a somewhat inflated assumed FDV.

We hope that this proposal can serve as a starting point for a discussion and eventually a framework for future similar proposals.

6 Likes
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Directionally, if there’s an arrangement that results in Moody/Ebuku making core developer contributions to the Uniswap Protocol codebase (over a meaningful time horizon) i think that is worth figuring out.

The details on how exactly this would work in practice are not sufficiently addressed in this proposal, but could be fleshed out in more detail in a governance proposal to follow.

Separately, the idea of Ebuku being the “official” Uniswap v4 deployment on Starknet is also interesting, given the effort/skill required to build in Cairo.

For those two reasons, I am planning to support the temp check on the assumption that further details can be fleshed out in a much more detailed long-form governance proposal.

4 Likes
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I think Uniswap should have a bias for action and bring in additional contributors when possible. And given Ekubo is deployed on Starknet, it is potentially more complementary to Uniswap vs forks on EVM networks.

That being said, I think the proposal is a bit underdeveloped and needs some revision before progressing to on-chain voting. Will pick out the most important points from my perspective.

Valuation seems pretty high given current traction of Ekubo/Starkware and execution risk. Particularly for a minority stake where Uniswap is likely able to be outvoted on any governance matters by core team (and governance has not even been deployed yet). Not a dealbreaker imo but makes the other points more critical because the valuation isn’t a clear slam dunk for Uni.

If the funds are all released up front and fully liquid, there’s no way for Uniswap to ensure performance of any of the “acquihire” part of the deal. Uniswap is aligned financially with Ekubo’s success (via holdings of an illiquid early stage project that can’t realistically be disposed quickly), but the same can’t be said in the other direction (Ekubo is likely to sell UNI immediately to fund operations, which makes sense but does not create concrete incentive alignment).

I get why Ekubo may not want to overcommit to a specific distribution plan so early, as it limits flexibility. But I think this is a bit of a negative from Uniswap’s perspective - for example, funds allocated to community treasury or liquidity incentives effectively accrue value to all other existing token holders, while funds granted to founders/employees/private investors do not. More clarity on this (even just broad strokes - minimum % that will go to the community via airdrop/treasury/liq mining) would be helpful.

I don’t really understand how the second statement follows from the first. Does Ekubo need the license grant for existing parts of the protocol? Is there a reason lack of Univ4 license would prevent Ekubo from making code contributions to Uniswap, or is this just considered part of the payment (along with UNI) for receiving Ekubo tokens? Is Ekubo considering formalizing a reciprocal grant of Ekubo IP in favor of Uniswap Labs / Uniswap Foundation / Uniswap DAO?

To sum up

I think the proposal is interesting and compelling, particularly how exposure to Starknet and broadening the contributor base can be complementary to the existing Uniswap protocol and ecosystem. And while I feel valuation is high, I don’t necessarily think this is a huge sticking point. I’m not viewing this in the lens of “treasury diversification” or “investment” per say, moreso as a strategic partnership.

But I think if the deal is supposed to involve mutual development contributions, then the financial incentives should be set up to support this. How can Uniswap ensure Ekubo’s performance of any commitments made under this agreement? How can we build in meaningful financial alignment over the long term? How will Uniswap’s voting stake in Ekubo fit into the wider token distribution?

I think milestone based payments and a bit more structuring in general are probably necessary for me to support this on chain. But giving it my support for temp check because I think it’s worth pursuing further.

6 Likes
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Starknet is very promising, and the DAO should prioritize having some form of deployment of Uniswap there. Due to the complexity of Cairo, it’s hard to imagine that Uniswap would be able to quickly deploy something there. It’s also unclear whether it would be worth the engineering resources to ask Labs engineers to learn Cairo and write a canonical version for Starknet.

This proposal allows the DAO to have a major stake in a protocol that has shown very quick growth, the capacity to gain a large market share, experience in AMMs, and proficiency in Cairo. Yes, the price might be high and the proposal is severely lacking more explanation on how it plans to spend the UNI (which should be clarified before the on-chain vote), but I believe this is a very shrewd investment for the DAO.

I’ve voted for it, I’m curious to see the on-chain proposal, and I would heavily recommend more details on the usage of the UNI. For example, I’d be more comfortable with the investment being made through a stream over 2 years that could be canceled if the development of Ekubo stopped.

2 Likes