Protocols are forever, but DeFi can be censored?
When a permissionless alternative to banks can fall victim to regulation, it casts a dystopian shadow of doubt on the industry.
On the morning of July 23rd this year – one year after the start of the legendary DeFi summer – a tweet from Uniswap drew attention to a centralized point of failure in an otherwise robust system: “we have started restricting access to a small number of tokens”, the tweet read, linking to an official announcement on the Uniswap Labs blog.
The tokens removed from the official UI were 129 tokenized stocks from derivatives platforms like Synthetix. According to Decrypt, this move is most likely in reaction to Binance’s delisting of tokenized stocks in the wake of a report by German regulator Befin which questioned their legality.
When a permissionless alternative to banks can fall victim to regulation, it casts a dystopian shadow of doubt on the industry. Uniswap is the largest Ethereum-based decentralized exchange.
With a decentralized system, there’s no throat to choke. How can it be censored?
The good news is that it can’t. Uniswap and other DeFi projects can only be regulated so much. Once protocols for pools and exchanges are published, they join the blockchain and become immutable. No matter the power of any government, a protocol allowing the exchange of a token is no more possible to delete than a transaction record is possible to alter – both are just as permanent, just as replicated on the systems of all miners, and just as impossible to censor. Front ends, though, are a different story.
When Uniswap – a US-registered company, fearing US regulation – pushed changes to the official UI which hid the offending stock tokens, they essentially did all that is in their power. With the UI being open source and the protocol immutable on the Ethereum blockchain, this power doesn’t go very far. Even if the UI filters stock tokens from the list of available swaps, what’s stopping transactions from taking place? In the case of the Uniswap UI change: nothing.
Along with SushiSwap, PancakeSwap, Synthetix and others, Uniswap’s UI from before the censorship patch is available forever on the Arweave permaweb. On Permadapp, it’s possible to access Uniswap as it existed on the 24th of January 2021.
Arweave is a censorship-resistant, permanent and immutable home for any data. While DeFi protocols can be stored permanently on the Ethereum blockchain, the UIs that provide users access are almost always centralized.
UI storage is the hidden point of centralisation in the crypto ecosystem.
— Sam Williams (@samecwilliams) June 30, 2021
This means they can be taken down by governments, altered by corporations, or even become 404s altogether. Arweave hosts copies of DeFi frontends to mitigate the risk and keep these protocols usable and uncensored for at least the next 200 years – a claim no other host could make.
What isn’t perfect right now is that unofficial UIs ask the user to trust that the provider has not injected their own code, and that the code running is exactly the same as what is shown on the app’s GitHub. While we may inherently trust a person or organization that does the service of hosting an uncensored DeFi UI, it is besides the point of trustless and permissionless systems.
This is why Arweave currently has a $21,000 bounty to anyone who can create a continuously updated, constantly available permanent record of DeFi UIs that are verifiably identical to what can be checked on GitHub.
Bounty is at $21K! 😄🥳 https://t.co/pEzihBmrea
— Arweave Memes (Community Page) (@ArweaveMemes) July 25, 2021
This is a weapon we all have in our arsenal to secure the future; a weapon which has already proven to be powerful in an increasingly uncertain world.