Uniswap governance vote sparks centralization concerns

Decrypt.coFebruary 12, 2023

The decentralized exchange (DEX) Uniswap has recently faced centralization concerns. A new vote on whether Uniswap should deploy on the BSC chain showcased a small number of holders having excessive governance power. VCs such as A16z and Paradigm hold large allocations of Uniswap making them important figures in any vote. 

One of the major concerns of those opposed to such centralization is the potential for a16z, as a centralized entity, to influence and change Uniswap's governance structure, which would go against the principles of decentralization that have made DEXs such as Uniswap popular in the first place.

In the decentralized finance (DeFi) space, clear and transparent governance structures are crucial to prevent any single entity from having too much control and influence. The recent vote on the Binance Smart Chain (BSC) is an example of the problems that can arise when a few players hold a large number of tokens. The vote saw a small number of token holders sway the outcome, raising questions about the decentralization and fairness of the process.

Regardless of the division in the community, it is important to remember that Uniswap is still a decentralized platform and that the community has the power to make decisions about its future for now.  The controversy highlights the ongoing debate about decentralized governance and the balance between centralization and decentralization in the DeFi space. It also serves as a reminder of the importance of clear and transparent governance structures to ensure that the principles of decentralization are upheld. 

Uniswap has suffered from a token problem since the airdrop happened as the token's utility is quite low. Governance-only tokens have the issue of resulting in poor governance. Consider a small fish, medium fry, or even a shark contemplating holding the UNI token. All they can do is vote for proposals where their vote is unlikely to move the needle, resulting in a higher concentration of tokens in top-holder wallets. Fourstack thinks that tokens with more than one use case next to governance will perform better in governance as the token will be held in a more distributed way.