SushiSwap Migration Ushers in Era of ‘Protocol Politicians’

SushiSwap, the community-owned automated market maker (AMM), now has a new set of leaders. Nine signers of a multisig wallet controlling the project’s funds have been elected to govern SushiSwap through full decentralization.

On Ethereum, a multisig has worked out to be something like a board of directors in the analog world, such that it takes any six of the nine members to approve changes to the SushiSwap code or to spend its development funds.

These new leaders were chosen through a process largely inside the SushiSwap Discord server following the departure of two of the project’s three co-founders. Some stumped for a spot and some sailed through by name recognition within the community, reflecting a campaign-like process we are likely to see more of in the future.

For context, cryptocurrency projects approve actions using signatures by private keys. Properly signed statements authorize the Ethereum blockchain to take the actions it is directed to take. By allowing multiple-signature setups – where actions can be approved by a few of a larger set of authorized signers – smart-contract-based protocols can create a board, but without the face-to-face meetings.

In the SushiSwap election, 2,143 wallets participated, each able to vote for as many candidates as they wanted. Participants could also vote against specific candidates. Voting ended at 14:00 UTC on Sept. 9. 

Users had to have liquidity provider (LP) tokens in the SUSHI/ETH pool on SushiSwap to vote, rather than simply holding SUSHI. 

Voting dynamics

Newly elected multisig member Mick Hagen, a founder of crypto startup Genesis Block, explained to CoinDesk, “The people who have the most skin in the game, their SUSHI and ETH actively at stake, should have the loudest voice and most voting power.”

Newly elected multisig member 0xMaki pointed out that this setup protects against people borrowing SUSHI to impact a vote. 0xMaki, the remaining SushiSwap co-founder, added that more advanced participation schemes such as quadratic voting will be floated to the community soon.

The newly elected members are Sam Bankman-Fried (FTX), Robert Leshner (Compound Labs),  0xMaki, Larry Cermak (The Block, who is sometimes credited with inspiring SushiSwap), CMS Holdings (an investment firm launched in November), Matthew Graham (Sino Global Capital), Hagen, Adam Cochran (DuckDuckGo) and Zippo (the pseudonymous creator of the SushiSwap dashboard).

CoinDesk has not yet managed to confirm directly with all nine of the elected members as to whether they will take their positions.

Thus far, Leshner, 0xMaki and Hagen (tentatively, pending counsel) have confirmed directly that they plan to take the role. Based on statements on Twitter, it seems clear that Bankman-Fried, CMS Holdings, Cochran and Zippo will as well.

Seriously, campaigns?

Politics is coming to crypto.

Crypto entrepreneur Ric Burton has been well ahead of the trend of people taking leadership roles in protocols, first stating his intention back in January, during discussions of the DigixDAO token buyback, to be a “protocol politician.” The idea is to enable smaller holders of governance tokens to delegate their clout to protocol politicians as a countervailing force to crypto whales and the big venture capital firms with large token holdings.

The SushiSwap process hewed closer to a traditional political campaign than some others have, though in much more modest ways. Several candidates posted statements of various kinds in the “multisig-interviews” channel on the SushiSwap Discord, for example.

There, Cochran wrote a lengthy statement, including the following:

Hagen told CoinDesk that when the multisig was first floated, a lot of anonymous accounts and influencers started making noise about it on Twitter, but that quickly became pointless, from his perspective. 

He wrote in an email, “The only semi-influencer that became a signer in the end was journalist Larry Cermak. But all the other signers are serious builders/operators/investors in crypto/defi. The interview channel in Discord was mostly only used by candidates who were desperate for attention.”

Cermak has not replied to repeated requests for comment from CoinDesk since the nomination, though he has retweeted some positive mentions about his election. He told CoinDesk via email on Sept. 1, “I am not involved in any way and have no stake whatsoever,” though he did provide a fair amount of feedback early on in the Discord.

Distant parallels

When EOS was launched, a similar attitude prevailed, but then “block producer” roles were quickly overtaken not by builders but by larger holders. However, Hagen noted that the plan now is to make the multisig a temporary situation, a matter of months, not years.

Aaron Wright, co-founder of the ConsenSys-backed OpenLaw, wrote on Twitter that multisig members could get themselves in a hairy spot with regulators:

Leshner replied to Wright, saying, “DeFi is reinventing the board of directors.”

Hagen concurred but noted, “This multisig is only temporary. It’s progressive decentralization. It’s not perfect, but it’s much better than having Chef Nomi or [Sam Bankman-Fried] having full control.”

Burton declined to actively pursue a role in SushiSwap. As an ongoing observer of roles like these, however, he told CoinDesk:

Migration update

Today SushiSwap extracted over $800 million from Uniswap, though nearly all of that had only been placed in Uniswap for the purposes of earning SUSHI ahead of the extraction. In fact, at the end of the process, Uniswap has come out ahead in terms of liquidity, at least as of this writing.

The SushiSwap token migration is complete, according to Bankman-Fried. DeFi Pulse shows Uniswap liquidity dropping from well over $1 billion in crypto assets to $430 million as of 18:00 UTC.

Uniswap had $285 million in total value locked on Aug. 26, the day SushiSwap was first announced by the now exited creator, NomiChef, on Medium.

SushiSwap does not currently have an accurate portal to check total value locked and it is not yet tracked by DeFi Pulse. Based on the estimates prior to migration, it should have something like $300 million more in liquidity than Uniswap, though representing many fewer tokens.

It remains to be seen how many liquidity providers will maintain their stakes now that the liquidity mining rewards in SUSHI have dropped from 1,000 per block to 100, however.