A series of unexpected trades in the last two days roiled the DeFi Education Fund set up by Uniswap token holders, leading to finger pointing and accusatory tweets as the newly formed lobbying organization struggled to fend off more controversy.
It started yesterday when Igor Igamberdiev, a research analyst at The Block, said on Twitter that Larry Sukernik, one of the individuals controlling the fund, sold $50K of Uniswap’s UNI token five hours before the Education fund itself sold a significant portion of its allotment.
Later the DeFi Education Fund, or DEF, said in a post that a committee member — an apparent reference to Sukernik — sold shares after its own sale of 500K UNI for USDC, not before. The organization said that from now on “committee members will not be permitted to make UNI transactions within a seven-day window of any DEF treasury activity.”
The DEF’s sale was worth around $10M, which is half of the fund’s 1M token allotment. Igamberdiev’s tweet triggered speculation that Sukernik had taken advantage of his position to execute trades ahead of the Education Fund’s sale.
The DEF today said in a post it had sold off half of its treasury as it expects “the vast majority of DEF’s expenses will be dollar-denominated.”
“Diversifying half of the 1M total allocation provides the DEF with a sustainable budget to weather any market downturns and allows the DEF to rapidly get to work,” the post said.
The proposal raises questions about how decentralized token-based governance actually is, when large holders are effectively calling the shots, with little opposition. It also highlights the importance of ensuring oversight on how these on-chain treasuries are spent and clarifying what responsibilities those controlling the funds have.
Chris Blec, founder of DeFi transparency initiative DeFi Watch, told The Defiant that Sukernik’s “personal UNI trade just a few hours before the 500K UNI sale is exactly the kind of behavior that a regulator would be looking for.”
Blec said that Sukernik should step down from the committee saying it’s a “red flag” for committee members to be “unaware of this kind of nuance.”
Going by the numbers, and regardless of intention, the DEF sold its UNI at an average price of $20.4 per token, according to its post.
Despite the timing, Igamberdiev thinks the transaction “really could be a coincidence that looks really bad [for] Larry,” as he told The Defiant.
“Personally, I (at the moment) don’t consider this to be insider trading,” Igamberdiev continued. However he added that Sukernik should have thought carefully before executing the transactions, and that Sukernik should give up his spot on the DeFi Education Fund’s committee in light of the situation.
Sukernik did not respond to requests for comment sent via email and Twitter.
He tweeted yesterday that he exchanged UNI to USDC when he saw he had received funds from a grant, and had then sent stablecoins over to others. He said he’s “waiting on people to share addresses.”
The episode blew back on Uniswap itself, which has been under fire ever since it launched the lobbying effort in May. Members of the DeFi community have criticized the project as a power grab from the few token holders who voted on the governance proposal to approve the fund.
The move has led to jabs from the likes of Mechanism Capital’s Andrew Kang, who joked on Twitter: “Uniswap governance (and that of many other DAOs) is as decentralized as the government of North Korea.”
Voting to allocate 1M UNI tokens from the Uniswap treasury, worth $1.85M at the time of writing, to create the DeFi Education Fund ended on June 29 with 79.68M of UNI holders voting for the fund’s creation and 15.04M against. Unlike prior stages of voting, the final vote page doesn’t display how many tokens each wallet controls.
However, the final vote did come before a Consensus Check, the second stage in Uniswap’s governance process. Over 96% of the votes came from only 10 wallets, the largest of which was controlled by Harvard Law Blockchain and Fintech Initiative, the writer of the proposal.
The sale of 500K of UNI tokens this week came as a surprise considering the initiative said it planned to allocate the funds over the next 4-5 years. One of the posts in Uniswap’s forum says the years-long timeline, “won’t have the same dilutive effect of selling 1M UNI all at once, which we agree would be a problem.”
Corrected July 16 to reflect DEF’s post that Sukernik sold shares after the organizations’s trades, not before, and its average sale price of $20.4O per UNI token.