Uniswap is currently the most popular decentralized finance (“DeFi”) protocol. It uses smart contracts to enable users to exchange ERC-20 tokens. It is considered decentralized because the protocol functions on the Ethereum blockchain and trades are executed automatically without any intermediary or central party taking custody of funds. However, if the essence of decentralization is censorship resistance, is Uniswap truly decentralized?
On September 3rd 2021, the Wall Street Journal reported that the United States Securities and Exchange Commission (SEC), an agency created in 1934 to enforce U.S. laws against market manipulation, was investigating Uniswap Labs, the primary developer group behind the open source protocol. If the SEC determined the group’s actions in developing or marketing Uniswap ran counter to the laws of the United States, and furthermore if the SEC or another arm of the U.S. Government determined the use of the protocol itself was in some way illegal, what could they actually do about it?
While the Uniswap protocol itself may exist in the “ether”, if you will, the developers behind it live in the real world and their names and profiles are conveniently available all in one place, on LinkedIn. Coercive pressure could be easily brought to bear upon the people behind the protocol, making the maintenance and evolution of the protocol very difficult, if not impossible. While the protocol is indeed open source and could be developed by others, who would step forward after the original team is made an example of? Furthermore, which implementation would be followed? Division of the community and the user base would naturally degrade the utility of the protocol significantly.
While the Ethereum blockchain itself may be nearly impossible to censor, user on-ramps to the Uniswap protocol are far more centralized and therefore vulnerable to censorship. Users access Uniswap through the url at https://uniswap.org/ The registrar of this url is CloudFlare Inc., a publicly traded American company based in San Francisco CA, USA. Users may also choose to access the so-called decentralized app more directly at IP address 18.104.22.168 but this server is hosted by Amazon, a publicly traded American company headquartered in Seattle WA, USA. Virtually any solution concocted to access the “decentralized” protocol will inevitably go through centralized points of control which can be censored by the U.S. Government.
Let us presume that a minority of users still remain, determined to break through the obstacles already described, continuing to maintain the splintered project and access the protocol via innovative, ever changing methods online. The problem remains that if using the protocol is made illegal, even the users themselves could be targeted. This is because the Ethereum blockchain is completely transparent and provides law enforcement with an immutable record of evidence that may be used to track down its users.
While users could argue the protocol itself would theoretically continue to exist, this would be a disingenuous argument, as the protocol developers, access and users could all be targeted by the U.S. Government, effectively shutting down Uniswap as we know it. Decentralization of a protocol is meaningless when such critical vulnerabilities exist that could severely hinder the use of that protocol.
Genuine decentralization can only exist when access is also decentralized and censorship resistant. Furthermore, a decentralized protocol or network can only thrive if the identities of its developers and its users are protected, thereby safeguarding them from coercion or harassment. Genuine decentralization exists today in the revolutionary peer-to-peer network known as the Utopia P2P Ecosystem. Users around the world are invited to explore what true decentralization looks like; help build the future of a censorship resistant internet.