Sushi Team Under Fire For Proposed Treasury Takeover

Sushi’s head chef said the proposal seeks to safeguard treasury assets from an ongoing ‘governance attack.’

By: Samuel Haig Loading...

Sushi Team Under Fire For Proposed Treasury Takeover

Sushi’s long-running governance saga appears to be coming to a head, with its controversial core Operations Team hastily moving to push through a governance proposal that would transfer the project’s treasury into the hands of a centralized Sushi Labs team.

The proposal is outlined in a March 27 blog post from Jiro, a core contributor, which argues for restructuring the project to a centralized “Labs model” akin to that of Uniswap.

Jiro said the restructuring would “enhance operational efficiency and accelerate protocol development” by eliminating “cumbersome governance” and “funding issues tied to bureaucratic processes.”

Controversially, the proposal requests that Sushi’s DAO transfer 25 million SUSHI ($37.7 million), $6.9 million worth of ARB received from the Arbitrum airdrop, and $8.6 million in other treasury assets spanning Ether, wrapped Bitcoin, and stablecoins to the new Labs team. It added that Sushi Labs would become the sole beneficiary of future airdrops awarded to Sushi by protocols and partners.

“Sushi Labs is an autonomous administrative, technical, and operational company, or group of companies, tasked with product development and management within the Sushi ecosystem,” Jiro said. “Adopting a Labs model, employed by other successful industry leaders, will provide the agility, focus, and resources needed to overcome these challenges.”

However, the proposal is attracting significant push-back from Sushi's community, with most of the comments on the project's governance forum opposing Labs gaining control of Sushi's treasury assets without oversight.

The price of SUSHI has underperformed relative to other cryptocurrencies in recent months, with the token up 33.6% since the start of the year at $1.67, according to CoinGecko. The token tagged a local high of $2.08 in early March, but has since tumbled 20% as infighting concerning the project's governance escalated.

SUSHI/USD price action during 2024. Source: CoinGecko.

“Hostile Takeover”

Naim Boubziz, a contributor to EverywhereFi and former Sushi developer, described the proposal as a “hostile takeover” aimed at “sidelining the DAO and seizing the entire treasury without consulting the community.”

Boubziz alleges that the ops team injected sizable funds into the platform's SUSHI-ETH liquidity pool to bolster their voting power ahead of an upcoming vote, with Sushi's SUSHIPOWAH governance mechanism rewarding liquidity providers with greater voting power.

A snapshot of the pool's holdings was then taken before the assets were withdrawn, appearing to ensure the team has outsized voting power before the proposal's critics could mobilize their own assets to accrue governance might.

Cryptolamer, a Sushi community member, posted that the assets in question were deposited for just two hours, accruing 3.6 million in SUSHIPOWAH in the process. “Slick move,” they posted on Sushi’s governance forum.

Boubziz also emphasized that a formal snapshot vote is already scheduled to commence next week despite a closely-contested preliminary signal vote not yet being completed — with 59% of votes in favor to 41% against and 24 hours remaining. The core Ops Team is currently the largest single voter, accounting for 39.3% of votes cast backing the proposal.

“They used Sushi assets to try to manipulate the snapshot voting and are trying to vote it through themselves,” an anonymous community member who is close to negotiations told The Defiant. “The Ops Team posted the implementation vote simultaneously with the signal vote, even though it renders the signal vote void in practice.”

Speaking to The Defiant, Jared Grey, Sushi’s head chef, questioned why the team's decision to briefly mobilize assets in line with the protocol’s governance rules is attracting scrutiny.

“Anyone can enter the Sushi Bar or the LP pool at any time,” Grey said. “There's no time requirement for any participant. Pools are permissionless. Why is this controversial?”

Sushi’s head chef responds

Grey described the proposal as intended to “protect the protocol and the DAO” for an ongoing “governance attack” while also moving towards an organizational structure “that has proven effective… in thwarting these types of hostile takeovers.”

Grey accused a group of SUSHI holders going under the moniker of SushiCitizens of coalescing with Humpy, a controversial whale, to co-opt the DAO as part of an ongoing governance attack that began in November — following SUSHI and YFI markets on the dYdX derivatives DEX suffering an oracle manipulation attack.

“I believe [Humpy] was likely the dYdX Sushi market exploiter at the end of last Oct when he added to his farmed SUSHI holdings,” Grey said. “The DEX liquidity for Sushi was thin then, and he likely bought spot while going long and then realized profit on the spike. My theory is that he delegated those holdings to SushiCitizens via a fresh wallet filled with ByBit. Once delegated, his primary wallet downvoted our tokenomics proposal.”

Grey said Humpy and SushiCitizens have pressured Sushi’s Ops Team to institute Vote Escrow (VE) tokenomics, increase token inflation to around 200% to 300%, allow them to “stack” the Treasury multisig by instituting a “High Kitchen,” and relinquish VE gauge control to the High Kitchen — some of which was outlined in an August 2022 proposal dubbed the Meiji Restoration.

“The SushiCitizens delegated wallet, which is a cohort of former Sushi contributors, most of whom were fired for one reason or another, have been trying to pressure the core team via half-truths and blatant lies,” Grey said. He added that the measures SushiCitizens is advocating for would effectively give Humpy free-reign over the inflation, which he'd likely use for low-performing pools to siphon the emissions away, as he did with Balancer.”

SushiCitizens and Humpy both rejected Grey’s characterization of events, with the former describing itself as a group of ex-contributors and long-standing community members that came together in a bid to “restore governance and implement a DAO community oversight committee.”

“We posted proposals and tried to achieve these simple goals,” SushiCitizens said. “This was met with extreme levels of censorship and hostility from the Ops Team. The term ‘governance attack’ is a smokescreen they use to shelter themselves… It is a huge stretch of the imagination to suggest we are colluding… to damage or attack Sushi.”

SushiCitizens added that the latest governance proposal would give the Ops Team “unrestricted control” over the DAO’s funds, which will be used to establish a private entity and “effectively end the Sushi DAO project.”

Humpy told The Defiant that Grey alleging he was behind the dYdX oracle attack is “totally unfounded,” adding, “Ask dYdX if any link can be established with any of my addresses, which can be found here:”

“I have owned considerable SUSHI tokens since its inception, making me a major representative of the DAO,” Humpy said. “The ops team intends to strip away most DAO assets to a private U.K. company without any scrutiny in return. The temporary acquisition of SUSHIPOWAH, having signal and implementation snapshot proposals both set at similar blockchain time, and not announcing anywhere an ongoing live snapshot, are some of the dishonest tactics employed by Sushi Ops Team to undermine the DAO.”

Humpy’s benevolence was called into question amid an eight-month-long battle between himself and Balancer, a top decentralized exchange, in 2022.

Humpy amassed 35% of veBAL tokens and used the assets to direct new BAL emissions to pools for which he controlled an outsized share of liquidity provider tokens. For example, Humpy directed $1.8M worth of BAL over six weeks to a CREAM/WETH pool that only generated $18,000 worth of revenue for Balancer for the same period.

Tensions spill over

The conflict started to come to a head in March when SushiCitizens decried the Ops Team’s deletion of three snapshot governance proposals and reconfiguration of Sushi’s governance process so that only Ops Team members could create new snapshot proposals. The team also took down Sushi’s governance forum on Feb. 29 and replaced it with an empty new forum on March 5.

Grey took to Twitter and accused SushiCitizens and Humpy of launching a governance attack against Sushi.

“Humpy's plan is simple, use his governance influence to execute a strategy to inflate the Sushi token by 300% to a total supply of 750M while siphoning a large portion of these new emissions to pools supporting his GOLD token,” Grey tweeted. “Because Sushi's governance is protected by the Core team presenting only binding votes, and not fully on-chain, unlike veBAL, he can only execute his strategy with our help.”

Grey said he had engaged in private discussions with Humpy in a bid to find a resolution that would not introduce heavy inflation for SUSHI, but failed to arrive at a compromise. “My responsibilities include safeguarding the Sushi protocol and governance process,” Grey added.

However, when asked about the team’s decision to delete snapshot votes spearheaded by SushiCitizens and restrict non-Ops Team community members from creating new snapshot proposals, Grey told The Defiant: “It seems you're missing the big picture here.”

Humpy tweeted that “any new tokenomics would have allowed pool allocation decided by SUSHI holders on equal footing.”

Long-term governance crisis

The latest proposal brings Sushi’s long-term governance woes to a crescendo, with many in the community decrying the Ops Team’s apparent efforts to consolidate Sushi’s community-built assets under their control.

Sushi launched in August 2020 and briefly emerged as the leading decentralized exchange after launching a vampire attack targeting Uniswap. However, the protocol suffered a blow one month later when its pseudonymous founder attempted a rug-pull.

Sushi solidified itself as a top decentralized exchange in early 2021 under the guidance of a new core team led by co-founder 0xMaki. But 0xMaki stepped down in September 2021 amid escalating infighting, with CTO Joseph Delong also resigning in December 2021. Attempts to restructure the project, including the creation of a formal legal entity, fell apart shortly after in early 2022.

Sushi struggled to regroup without clear leadership during early 2022, with community members working together to formalize budgets and establish a path forward in the project's governance forum. Divisions flared as Sushi’s investors sought to instill a new head chef enjoying an exorbitant pay package in Jonathan Howard, which was followed by Jared Grey’s election as head chef in October 2022.

However, under Grey’s leadership, Sushi has faced continued criticism for allocating excessive treasury assets to core team salaries, moving towards a centralized structure, and diminishing the role of Sushi’s DAO in governing the project.

“It is a really sad development for Sushi,” Mountain Goat, a long-term community member, told The Defiant. “At the beginning, Sushi was a community-driven project [where] most helping were volunteers. [The current] VC-backed team has failed to deliver on their roadmap, and they have scratched fundamental projects without governance votes.”

“They have censored the community and shown a disregard for the DAO,” Mountain Goat continued. “Essentially they are saying that the DAO funds would be better controlled exclusively by them rather than token holders.”