What Kind of Organization is the DeFi Education Fund that Gained 1 Million UNI?

On July 13, an organization called DeFi Education Fund sold half a million UNI pieces for a profit of more than $10 million, causing widespread discussion and concern in the crypto community. Previously, the organization had received 1 million UNIs from the Uniswap vault. Why did it receive so much funding? Where is the money being spent? ChainCatcher has conducted a detailed investigation of the organization’s background and purpose.

Author | Yu Gu

01

What organization is the DeFi Education Fund?

The sell-off dates back to May 28, when a user with the name “HarvardLawBFI” posted a proposed “Temperature Check” poll on the Uniswap governance forum. HarvardLawBFI is the HarvardLaw School Blockchain and Fintech Initiative. The organization describes itself as a student organization of HarvardLaw School, and its main team members are Ph.D. students at Harvard University.

According to the proposal, HarvardLawBFI proposes the creation of a community watchdog organization to fund existing and new political groups engaged in cryptocurrency policy lobbying. Its goals are 1) to educate policymakers to respond preemptively to the regulatory, legal, political, and tax threats of DeFi; 2) Achieving regulatory clarity for decentralized finance and related activities; 3) Promote laws that support decentralized finance and decentralized governance; 4) Motivate other DeFi governance communities to contribute to this effort (through this organization or their organizations).

“Such an organization is urgently needed [by the DeFi industry] because governments around the world are aware of DeFi and rushing to regulate projects without proper understanding of its interests.” Harvard LawBFI said, “The group will help fund the educational work of policymakers to achieve a more balanced legal framework worldwide. This will be similar to the group of funders that founded the Media Democracy Fund in the early days of the Internet, which relied on experts to distribute funds among organizations advocating a more decentralized and democratic Internet.”

On June 1, Harvard LawBFI published a more detailed proposal in the Uniswap Governance Forum, saying, “If the governance of the DeFi protocol is to exist in the long term, we need to actively participate in the ongoing policymaking discussions to ensure that we represent the interests and positions of the millions of DeFi users.” “The Uniswap community is in the best position to lead the effort to protect decentralized finance,” says Harvard LawBFI.

The group recommends an initial infusion of 1 million UNI for an organization called the DeFi Fund for Political Defense, with the funds allocated over four to five years to fund areas such as ideology leadership, legal analysis, policy advocacy, information communication, and grassroots. “The entity will not replicate the important work of existing organizations, such as Coin Center, the Blockchain Association, DeFi Alliance, etc. Instead, it will fund these organizations and others to expand their capabilities so that they can protect DeFi more effectively.”

The initial members of the organizing committee of the DeFi political defense fund were also announced in the proposal, including Marvin Ammori, chief legal officer of Uniswap Labs, Rebecca Rettig, general counsel of Aave, Jake Chervinsky, general counsel of Compound, and Jake Ammori, general counsel of Variant Fund Chervinsky, Sheila Warren, head of cryptocurrency at the World Economic Forum’s Executive Council, Brex General Counsel Katie Biber and Reverie co-founder Larry Sukernik. All have extensive legal industry experience.

Responding to the reason for the need for such a high level of capital, Harvard LawBFI said: “Top lawyers, lobbyists, and education public relations activities are very expensive. When the Treasury in December last year proposed rules of” midnight “, blockchain advocacy groups are forced to spend millions of dollars in just a few months for agency review and prepare for action. Given the complexity and novelty of these questions, we need the best people in the world, many of them are paid more than professional athletes.”

On June 1, the organization officially launched a proposal to vote on Snapshot for a “consensus check” on the topic “Should 1 million UNIs be allocated from community vaults to protect the Agreement and DeFi from legal and regulatory threats and help secure DeFi’s commitments?” On June 6, after nearly 50 million UNI votes, about 73% of the votes were in favor of the proposal, which officially passed the “Consensus Checkout Stage”.

On June 12, the user updated his proposal on the Uniswap governance forum, changing the name of the DeFi Political Defense Fund to the DeFi Education Fund, adding Marc Boiron, general counsel of DyDX Trading, and the grant address to be managed by seven more committee members. A detailed budget will be released within 90 days after the proposal is passed, and community update progress, allocation of funds, and strategies will be publicly released monthly.

At the end of June, a final vote was held on Uniswap’s official website governance page, and the proposal was officially passed with 79.68 million votes in favor and 15.04 million against. About 10.45 million votes were cast by Harvard LawBFI organizations. On 4 July, Uniswap transferred 1 million UNI to the wallet address published by the organization.

02

Why did the proposal pass? Who are the supporters?

According to the above information, the initiator of this proposal is a student organization at Harvard Law School that is interested in blockchain, and DeFi has not had much experience in participating in it, so why does it have more than 10 million UNI votes? What other institutions and individuals are supporting the proposal?

Most of the voting weight held by Harvard LawBFI is tied to Uniswap’s proxy voting system. Whereas most DeFi programs only allow token holders to vote directly, Uniswap’s governance mechanism allows UNI token holders to delegate their voting rights to a third-party proxy, which means that Uniswap voting rights are likely to be concentrated in the hands of a small number of trustee entities.

Currently, the top 10 addresses in Uniswap have about 50 percent of the vote, or 105 million votes, according to polling proxy website Sybil.org. According to the Uniswap governance mechanism, any proposal that goes through the “temperature check”, “consensus check” and reaches the final on-chain voting stage can be successfully passed with 40 million votes.

In the final on-chain vote for the DeFi education fund, 79.68 million votes were cast in favor of the proposal and 15.04 million against, far exceeding the 40 million votes needed for passage.

Although the Uniswap final poll page does not show which addresses voted in favor of the proposal, the proposal’s “consensus check” vote in Snapshot shows the specific votes, including those for the proposal and those against the proposal.

The №1 address (10.46 million votes) supporting the proposal was HarvardLawBFI, which has been involved in the management of Uniswap and other DeFi programs since February this year and is currently the fifth highest Uniswap voting weight at 5.6 percent.

The №2 address holder (10.25 million votes) is Kenneth Ng, who served as the Ethereum Foundation’s grant coordinator for nearly two years and pushed the foundation to award its first grant to Uniswap in 2018, He co-wrote and led Uniswap’s first successful proposal, the Uniswap Grants Program, last year, and is currently Chief Operating Officer of Slingshot Finance.

The №3 (about 8 million) is owned by Variant Fund founder John Palmer, former a16z partner and founder of MediaChain (later acquired by Spotify), who co-wrote Uniswap’s first successful proposal with Kenneth Ng. He is currently one of the Uniswap Grants Program reviewers. It should be noted that the initial committee of DeFi Education Fund also included Jake Chervinsky, Variant Fund General Counsel.

The №4 largest address (about 5 million votes) is owned by Blockchain at UCLA, a Blockchain group of law and business students and faculty at the University of California, Los Angeles.

The №5 address (about 3 million votes) is owned by Penn Blockchain, a Blockchain organization run by a student organization at the University of Pennsylvania. The group said it has also participated in proxy governance votes for agreements like AVE and Compound, which are worth about $140 million.

The №6 address (about 2.5 million votes) is owned by Blockchain at Columbia, a student-run distributed ledger technology organization at the University of Columbia.

The №7 address (approximately 2.5 million votes) is owned by Blockchain Education Network, a global group of students, alumni, and others who are excited about Blockchain and aim to provide border-free Blockchain Education.

Consensus General Counsel Matt Corva, for example, has stated that Consensus will support the proposal in addition to those who voted during the Consensus Check phase.

“We believe it is critical to provide an education of understanding to legislators at this time.” “Uniswap’s first step could break the floodgates of other large vaults supporting similar initiatives, which we will support and have communicated to our portfolio companies our desire that they consider doing the same,” said Matt Corva.

Overall, the major proponents of the proposal were university blockchain organizations such as HarvardLawBFI, which received more than 23.46 million votes, and members of the Uniswap Grant Program such as Kenneth Ng. But the final vote outnumbered the “consensus check” vote by nearly 30 million votes, the source of which remains unknown.

So why are there so many university blockchain organizations in the Uniswap governance body? This is closely related to the DeFi governance concept of a16z.

Previously, a16z wrote on its official website that to increase the overall diversity of views in governance and reduce the concentration of voting rights in the entire network, it has decided to delegate most of its voting rights in Compound and Uniswap agreements to qualified participants, including university student organizations. Examples include HarvardLawBFI, Blockchain at UCLA, Blockchain at Berkeley, etc. Penn Blockchain from the University of Pennsylvania also confirmed support from a16z on the official website.

As one of Uniswap’s major investors and the lead investor in the Series A financing, a16z is expected to have a significant share of UNI’s 18% share of investment institutions, which gives it a strong voice in the governance of Uniswap. However, after allocating its voting rights to universities, a16z did not further clarify the specific interaction mechanism with these university organizations.

The Snapshot voting record also shows that Compound founder Robert Leshner, with about 5.3 million votes, Uniswap community KOL “DCInventor” with about 5.2 million votes, and John Palmer, member of the Uniswap Grant Program, with about 4.9 million votes, voted against.

03

Why does the outside world question the proposal and organization?

Judging by the luxurious committee membership of the DeFi Education Fund and the high UNI votes it received, the organization’s procedures in securing grants were in order. At the same time, addresses receiving UNI grants are managed by seven members of the Committee. The sponsor, HarvardLawBFI, does not have direct access to the funds, which initially guarantees the security of the use of funds. But that is not enough to convince the community.

In fact, during the presentation and voting of the proposal, questions from the Uniswap community dominated: the grant was too large, the work and budget plan were not clear, and the application should be made after proof of work; Committees are not diverse enough that a few lawyers should decide how to deploy lobbying dollars for the rest of the community; The cost of policy lobbying and market education should be borne by the DeFi industry and the major DeFi agreements should be equally involved, not just UNI holders.

Noah Zinsmeister, an engineer at Uniswap, also said he would prefer to directly support mainstream educational organizations like Coin Center rather than create another entity with a lower reputation and an ambiguous mission.

With the sale of 500,000 UNI by the organization on July 13, more doubts and criticisms emerged in the public opinion market, mainly in the following directions:

First, there is the situation of information opacity. Currently, DeFi Education Fun still has no official website, and little is known about the organization’s work plan and mission. It is believed that the organization could have resold UNI based on actual user needs, without specific explanation.

Second, there is the possibility of insider trading. Before the sale of UNI tokens by the DeFi Education Fund, Larry Sukernik, one of the committee members and one of the multi-signer holders, had sold about $50,000 worth of UNI five hours earlier and was questioned about his tainted behavior after being tipped off in advance;

Third, there are cases where promises are not fulfilled. In its explanation of the proposal, Harvard LawBFI had stated that the funds were expected to be distributed over the next 4–5 years and therefore would not have the same dilution effect as selling 1 million UNI in one go, but now the organization has decided to sell 1 million UNI tokens in two installments over 24 hours, Unquestionably to the detriment of UNI holders;

Fourth, it is suspected to be a16z’s interest conveying behavior. As a result of these anomalies, Chris Blec, an industry watcher who has long tracked the proposal, suspects that the group is a self-interested lobbying fund pushed by a16z to benefit its DeFi portfolio by agitating for support from the university institutions that represent its voting rights.

On a larger scale, the DeFi education grant has also prompted further reflection on voting governance mechanisms in the industry. For example, how to avoid the use of power by the dominant parties and the DAO structure to deliver benefits? Is Uniswap’s voting power too centralized as a DeFi head project?

Whatever the ultimate fate of DeFi’s education fund is, the incident will leave a profound mark on the history of DeFi’s governance.

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