Hello Cryptoworld!
In this post I am sharing my just finished assignment for Mastering Web3 course.
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Interactive Assignment for week 4 of Mastering Web3 by University of Nicosia.
Submission date: 6-April-2025
Governance Mechanism of Uniswap DAO
Uniswap: (p. 42, DAOs, Decentralized Social Media, and Digital Identity. University of Nicosia)
Uniswap is a decentralized exchange (DEX) that allows users to trade cryptocurrencies directly from their wallets using automated liquidity pools instead of traditional order books. • Its DAO governance model includes the proposal and vote system for its governance token. For users to submit a proposal for the platform, they must own at least 1% of the total issued governance token UNI.
Description of governance decisions in Uniswap-DAO..(Community Governance Process is updated-January 2023)
UNI is the native token which is the base for the token-based governance system. Holders of UNI can propose and vote on protocol changes.
The governance process consist of 6 stages:
* Discussion fase—where ideas are first shared on the governance forum.
* Temperature check is an informal pool to gauge community sentiments.
* The Proposal Draft is a formal specification written and discussed into the forum.
* On-Chain proposal requires a 1% of total UNI supply to submit the On-Chain proposal, it means 10M UNI.
* There is Voting Period with a 7-days voting window. UNI votes could vote Pour or Against.
* Last stage is Execution. If protocol change is approved the proposal is implemented and a time lock controller is implemented.
ASSESSMENT OF GOVERNANCE
- Assessment of Uniswap’s Governance Decentralization
The first thing I saw as a barrier was the minimum requirement to proposal: 10 m UNI, some 65M to 80M USD.
Well, lets see the governance structure.
ASSESSMENT OF UNISWAP’S GOVERNANCE DECENTRALIZATION
The token-based governance system works with UNI token, holders of UNI have proportional power voting to their amount of UNI. We could say this aspect shows decentralized aspect, but if we take a look on the percentage distribution we can see there is a concentration issues.
Token Distribution
Recent data reveals significant concentration issues. Big proportion distribution as follows:
In September 2020, 60% for users which inclusive 21.5% to team member (215M UNI), 17% to Investors (178M UNI) and 0.7% to advisors (7M UNI).
The actual whale concentration is on 100 addresses which control approximately 80% of all UNI.
Voting Participation is typically only 2 to 7% of eligible UNI tokens participating in governance votes.
PROPOSAL BARRIERS
As mentioned before, Quorum requirements for proposal passage are for holders of 40M UNI minimum, then few entities can participate on block governance.
High proposal threshold requires a minimum of 10M UNI.
ASSESSMENT OF GOVERNANCE
View to the description of token distribution, in my opinion Uniswap’s governance model has a limited decentralization achievement in practice.
The concentration of Voting Power creates a system that is more oligarchic.
The high minimum token to proposal submission mean that ordinary users cannot meaningfully participate in the proposal process if they don’t have significant capital or maybe large coalitions.
As illustration here we can see 3 Wallet with most of the UNI tokens, according to recent blockchaindata :
Uniswap Treasury (Timelock) - ~39.6M UNI
Address: 0x1a9C8182C09F50C8318d769245beA52c32BE35BC
Note: This is the protocol treasury controlled by governance
Binance Exchange - ~26.9M UNI
Address: 0x28C6c06298d514Db089934071355E5743bf21d60
Note: Represents combined holdings of many users
Coinbase Exchange - ~18.7M UNI
Address: 0x503828976D22510aad0201ac7EC88293211D23Da
Note: Custodial wallet for exchange users
We need to keep in mind that one user could have more than one wallet. The number of tokens can change as tokens can be moved.
(Here my question is how they manage to participate on Quorum if not 40M UNI)
That’s all for now my friends!
Thank you for your support!
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