Governor Note: Uniswap Foundation

Key Insights:

• The Uniswap Foundation proposal requests 4% of the Uniswap Treasury to increase the distribution of Uniswap grant funding.
• Community sentiment, especially from Uniswap delegates, is positive about the proposed Uniswap Foundation team composed of Devin Walsh and Ken Ng, two high-profile members of the Uniswap Ecosystem.
• The $74 million budget equips the proposed Uniswap Foundation to maximize its social impact by growing Uniswap’s protocol activity, increasing and supporting Uniswap ecosystem stakeholders, reinvigorating the governance process, and acting as an advocate for the Uniswap protocol.
• The proposal passed the Temperature Check Snapshot poll with 35.2 million UNI cast in favor, representing 88% of the required quorum to pass the final on-chain vote. Delegates that have shown support for the proposal, but have not voted yet, account for 24.1 million UNI of cumulative voting power.

UF Proposal Details

The Uniswap Foundation (UF) proposal requests a total of $74 million worth of UNI tokens (4% of Uniswap’s treasury as of Aug. 3, 2022) for its grants and operational budgets as well as 2.5 million UNI to be exclusively used for governance delegation purposes from the Uniswap Treasury. The grant funding ($60 million) will be awarded to community members contributing to Uniswap via research, development, advocacy, or governance, and is expected to last at least three years. The remaining $14 million has been earmarked as an operational budget for Devin Walsh, the proposed executive director, and Ken Ng, the proposed head of operations, to build a 12-person team over a two-year period and compensate the team for three years.

Devin and Ken make for a reputable team with their strong crypto backgrounds. Devin recently resigned as Uniswap Lab’s chief of staff to propose the creation of UF without conflict. She has conducted independent research for MIT’s Digital Currency Initiative, led protocol and venture investments at CoinFund, and consulted for Edge & Node and cLabs. Ken has served as the lead of the Uniswap Grants Program (UGP) for the past year and a half, and he assisted in running the Ethereum Foundation ecosystem support program.

UF’s mission is to maximize its social impact by growing Uniswap’s protocol activity, increasing and supporting Uniswap ecosystem stakeholders, reinvigorating the governance process, and acting as an advocate for the Uniswap protocol.

The proposal is requesting $74 million split between two disbursements:

• $20 million worth of UNI (2.8 million UNI based on $7.04, 30-day Time-Weighted Average Price (TWAP) as of Aug. 3, 2022) to cover operating expenses for the next two years and grants for one year.
• $54 million worth of UNI, from the Uniswap Treasury in 6–12 months once the UF has established its legal entity.

Community Sentiment

The UF proposal has been polarizing within the Uniswap community and the broader crypto ecosystem. Many well-known Uniswap community members, including Uniswap delegates, have voiced their support for the creation of the UF. They spoke very highly of the proposed Uniswap Foundation team and the increased UNI grants budget. On the other hand, some community members are against the creation of the UF, arguing that $74 million is a poor use of Uniswap’s treasury funds, no value being driven back to Uniswap token holders, and potential sell pressure on UNI price.

Uniswap Grants Program V2?

With the UF requesting $60 million worth of UNI for grants, the community has questioned whether the UF is replacing the UGP and if the plan is to sunset the UGP. Although the two entities seem similar since they both aim to distribute UNI grants, they will actually be separate entities that support each other. The UF will now be the entity funding the UGP subcommittees.

The UGP has given $7 million worth of UNI to 122 grantees over the past 18 months, which can be seen in this UGP Retrospective. Arguably, it is difficult to measure the results of the UGP and all their grantees since the initial mission statement (“to provide valuable resources to help grow the Uniswap ecosystem”) did not outline any quantifiable goals. Ken acknowledges that it is difficult to measure the current impact of all the UGP grantees since most grantees are less than one year old and need time to develop.

The UF’s requested grants budget is more than 8.5 times larger than the amount of UNI grants the UGP has distributed. Although UF and UGP will be operating as separate entities, Adam Cochran, UniScott, and Shegen questioned whether grants from either entity are the best use of Uniswap Treasury funds. These comments have led to concerns regarding the efficacy of grant programs from either entity, especially at an expense of $60 million. Also, following similar debates around the DeFi Education Fund proposal last Summer, a community member has raised the concern that the Uniswap community hasn’t seen the benefits from the DeFi Education Fund proposal and is worried that this could repeat with the UF proposal.

The proposed UF team has provided a roadmap with clearer objectives than UGP’s initial mission statement. These objectives and snapshot votes for any grant proposals greater than $2 million will allow the Uniswap community to hold UF accountable and quantifiably measure UF’s effectiveness over the next three years.

Analysis of the $74 Million Budget

Another concern of the Uniswap community is the UF’s proposed budget amount. The requested $74 million represents 4% of Uniswap’s Treasury current value and 1% of UNI’s total market capitalization. Relative to the percentage of the tokens’ dollar value, the proposed budget amount is a smaller foundation allocation than what other foundations have received from their respective DAO.

Distinguishing the Uniswap Foundation and Uniswap Labs

Concerns were raised about the potential overlap of responsibilities between UF and Uniswap Labs, the primary contributor and developer to the Uniswap Protocol. While the proposal’s addendum tried to address this issue, it is still unclear how responsibilities will be divided and if UF creation is the first step to replacing Uniswap Labs.

To justify this revamp, Buckerino, a Uniswap forum moderator, highlighted a couple of times when the Uniswap DAO’s structure has failed. The failure occurred because it was unclear which Uniswap entity was responsible for representing the Uniswap DAO’s best interests: unclaimed $1 million Optimism token airdrop and $20 million Polygon liquidity mining incentives were not distributed by Polygon until the Uniswap community spoke up about Polygon delivering on the terms of the proposal.

Why Create a Legal Entity?

DAOs without a legal entity are often left in a disadvantageous legal situation. DAOs create legal entities to raise capital from venture capitalists, limit legal liabilities, or properly employ and compensate people. By creating a legal entity, UF and UGP will be able to sign contracts and provide grants to universities and academic research institutions. Being a legal entity will also provide greater clarity around tax liabilities when the UF and UGP want to diversify from UNI.

The UGP’s contribution to the Uniswap ecosystem over the past year and a half has uncovered grant funding obstacles that have led to the proposal to create the UF. If the UF proposal succeeds,  the UGP and UF can work together to maximize the impact of Uniswap’s Treasury funds for the benefit of the Uniswap Community.

Potential UNI Price Impact

With potentially $74 million worth of UNI token supply being released from the Uniswap Treasury, some Uniswap community members are worried about the potential negative impact on UNI’s token price. To avoid this impact, the UF has already stated that it plans to convert the requested first disbursement of $20 million worth of UNI into stablecoins through brokers or private sale options. In response to those concerns, the UF team has committed to including a Foundation Treasury Diversification Report prior to requesting the second disbursement of funds.

Next Steps

The UF proposal’s temperature check passed on Aug. 10, 2022, after a majority vote of 35.2 million UNI votes already representing 88% of the required quorum to pass the on-chain vote. The proposal will now be discussed during the community call the same later today. Even though the issue of the proposal now leaves little doubt, a consensus check poll went live. If this poll reaches the 50,000 UNI yes-vote quorum, there will be an on-chain vote via the Uniswap governance portal.

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