Casey Wagner

The SEC on Tuesday served a subpoena on Tuesday to decentralized crypto exchange SushiSwap — presumably regarding concerns over its native token, Sushi.&nbsp;



In a governance proposal released Tuesday afternoon, the DEX said it hopes to sell 15% of its treasury to fund legal defense efforts.&nbsp;



“The international regulatory environment for DAOs remains in flux, and the options for contributor insurance policies remain limited,” Jared Grey, Sushi head chef, wrote in the governance forum Tuesday. “Therefore, we propose Sushi DAO make available a legal defense fund of 3M USDT.



Sushi and Grey were both served, the forum noted.&nbsp;



“We’re cooperating with the SEC,” Grey said in the proposal. “We do not intend to comment publicly on ongoing investigations or other legal matters.”



The proposal received six votes in the first 30 minutes after being published, all of which were in favor of establishing the legal defense fund.&nbsp;



The subpoena is only the latest in a series of recent SEC actions to look into various crypto tokens and projects over concerns of unregistered securities offerings. Ripple has been fighting its case in court over accusations that its XRP token is an unregistered security for more than two years.&nbsp;



When a crypto company is served a subpoena, or a Wells notice, or an enforcement action — and <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">there have been no shortage lately</a> — they need to operate under the assumption that the SEC’s case is already decided, Stuart Alderoty, chief legal officer at Ripple, said.



“The fix is in, and do what you what you need to do to cooperate under the law but don&#8217;t fool yourself into believing that you&#8217;re going to curry favor with [the SEC] or that you&#8217;re going to be able to sway them, because you never will and their goal ultimately will be to crush you or destroy your business,” Alderoty said.&nbsp;



Grey declined Blockworks’ request for comment.



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SushiSwap Defense Fund Against SEC Subpoena Already in Works

Bessie Liu

David Canellis

SushiSwap DAO CEO Jared Grey has disclosed the operation’s Budget Snapshot for 2023, with more than $5.2 million slotted to maintain the decentralized exchange (DEX) next year.



The platform, stewarded by a DAO, will spend more than 80% of those funds across 15 salaries, including $500,000 in USDC to “head chef” Grey (salary recipient names were redacted on Twitter). That works out to be around $286,500 per team member on average.



The remaining DAO budget, about $919,000, will go towards SushiSwap operational overheads such as legal fees, subscriptions, freelance contributor compensation and social media management costs. 



One undisclosed freelancer is budgeted for $12,000 per month, just $500 less than the averaged monthly retainer for Sushi&#8217;s legal team.



Grey addressed the compensation-heavy budget and stated that transparency is a “critical component of a successful DAO.



“[For what it’s worth], any project is only as strong as its talent and community; talent requires proper compensation through grants or as a full-time contributor with a salary. The current team is dedicated and proven; 2023 will see Sushi deliver an innovative DEX model.”



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/12169307/embed#?secret=2epQy0v2QL" data-secret="2epQy0v2QL" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div></figure>



Grey’s tweet comes soon after SushiSwap <a href="https://twitter.com/jaredgrey/status/1602057430631940098" target="_blank" rel="noreferrer noopener">disclosed</a> a $30 million loss over the past 12 months. He said the protocol&#8217;s emissions-based reward strategy — which pays participants in native token SUSHI — failed to incentivize liquidity providers.&nbsp;



SushiSwap, which runs on Ethereum, competes with DEXs Uniswap and Balancer.&nbsp;Once one of DeFi&#8217;s largest protocols, much of SushiSwap’s dominance has slipped over the past two years due to <a href="https://blockworks.co/news/sushiswap-swaps-out-co-founder-0xmaki" target="_blank" rel="noreferrer noopener">leadership controversies</a> alongside allegations of improper spending, including $9,000 dinners and $5,000 tickets to industry mixers.&nbsp;



Its SUSHI token, which DAO participants must hold to vote on governance, has been hit hard by the bear market. SUSHI trades at $1.12, down more than 85% this year. For scale, bitcoin is down around 63% year to date alongside ether (ETH).



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">As I promised in Sunday&#39;s tweet regarding Sushi&#39;s Budget Snapshot for 2023, I am making the DAO operating costs public. Transparency is a critical component of a successful DAO. You can see most budget costs are salaries. 1/ <a href="https://t.co/rVHXEJSfLR">pic.twitter.com/rVHXEJSfLR</a>&mdash; Jared Grey (@jaredgrey) <a href="https://twitter.com/jaredgrey/status/1602701300520652800?ref_src=twsrc%5Etfw">December 13, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h3 class="wp-block-heading">SushiSwap DAO proposal for a sustainable business model</h3>



In an effort to get SushiSwap into shape, Grey recently <a href="https://forum.sushi.com/t/reinstated-increase-kanpai-treasury-allocation-to-100/11475" target="_blank" rel="noreferrer noopener">re-proposed</a> shaking up how the protocol structures its revenue flows. SushiSwap DAO <a href="https://www.bloomberg.com/news/articles/2022-10-03/defi-project-sushi-finds-a-new-leader-to-save-its-struggling-business" target="_blank" rel="noreferrer noopener">hired</a> Grey, a crypto entrepreneur and tech consultant, in October.



Dubbed the “Kanpai and Treasury Payout Ratio,” the move would allocate all protocol revenue (trading fees) to SushiSwap DAO’s treasury to pay budget costs. SushiSwap previously paid only 10% of fees to the treasury, and Grey said the DAO has around 18 months of runway as things stand.



If passed by token holders, the payout ratio will stay in place for one year or until new tokenomics are suggested and implemented. Projected revenue sits around $6 million (15% higher than its budget) and will be received by the treasury in the form of 50% ETH and 50% USDC. 



“The Kanpai proposal will reinforce Treasury diversification, secure its future runway and promote a successful pivot of the DEX business and token goals,” Grey <a href="https://twitter.com/jaredgrey/status/1602701303716651009" target="_blank" rel="noreferrer noopener">tweeted</a>. “Diversification allows Sushi&#8217;s Treasury to earn USDC and ETH without selling tokens.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Although tokenomics are a core part of restructuring the DEX business model, it&#39;s not the total solution. We&#39;ve redesigned how we bootstrap liquidity on the exchange; we no longer entirely subsidize liquidity with emissions but via a more equitable mechanism. 9/&mdash; Jared Grey (@jaredgrey) <a href="https://twitter.com/jaredgrey/status/1602057435530895364?ref_src=twsrc%5Etfw">December 11, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Despite a push for transparency, some community members believe SushiSwap DAO is overpaying its talent (the DAO <a href="https://thedefiant.io/sushiswap-votes-on-head-chef-salary" target="_blank" rel="noreferrer noopener">voted</a> in August to cut CEO $800,000 compensation by more than a third). Others have <a href="https://cryptoslate.com/sushiswaps-jared-grey-proposes-to-allocate-100-of-xsushi-revenue-to-treasury/" target="_blank" rel="noreferrer noopener">voiced</a> belief that SUSHI holders should receive a slice of the trading fees.



“Paying [$300,000] a year by employee without bonus just to add some effect on the UI, sponsoring a lot of crypto events around the world is not a good way to spend money,” pseudonymous DAO member GoldenNaim <a href="https://forum.sushi.com/t/reinstated-increase-kanpai-treasury-allocation-to-100/11475/22" target="_blank" rel="noreferrer noopener">wrote</a> in the proposal discussion.&nbsp;



Alex Shefrin, business development lead at SushiSwap, replied further down to suggest its core problems stemmed from past leadership decisions, which left the protocol without an underlying business model to “sustainably capture the value that we are creating.”



“[And] frankly we spend a lot of time here fighting this point,” said Shefrin. The Kanpai proposal currently has 97 voters, with 64% voting “Yes &#8211; Secure Sushi’s Future with Kanpai.”



A complete financial audit of Sushi can be expected in the first quarter of 2023, Grey said.



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SushiSwap DAO Budgets $5.2M, With 82% Going to Salaries

Jack Kubinec

<div id="highlights-block_63471cb7b6e52" class="highlights">
 <ul>
 <li>An investor in Jared Grey’s earlier DeFi project accused the head chef of mishandling hacks, though admitted to Blockworks his case was “speculative”</li>
 <li>Sushi’s native token dropped 10% following the allegations</li>
 </ul>
 
</div>



SushiSwap’s <a href="https://cms.blockworks.co/sushi-dao-holds-election-for-chief-executive/" target="_blank" rel="noreferrer noopener">newly-elected</a> top executive — or “head chef” — has been accused of mishandling wallet exploits at his prior employer. 



The allegations appear flimsy, but they still present a headache for the DeFi platform accustomed to <a href="https://cms.blockworks.co/update-cto-resigns-as-sushiswap-struggles-arca-submits-restructuring-proposal/" target="_blank" rel="noreferrer noopener">leadership drama</a>. And legal action is brewing. 



Jared Grey was elected head chef of SushiSwap on Oct. 3 via an on-chain election <a href="https://cms.blockworks.co/sushiswap-election-settled-by-goldentree-cumberland/" target="_blank" rel="noreferrer noopener">dominated by venture capital firms</a>, and the accusations came as Grey was still an unfamiliar figure to many in the protocol. 



The purported misconduct centers around Grey’s alleged negligence during a string of 2019 insider hacks at DeFi protocol ALQO, as then-CEO. Twitter user @YannickCrypto, who worked with Grey to stem the ALQO hacks in 2019, outlined the accusations on <a href="https://twitter.com/YannickCrypto/status/1579536678972436480?s=20&amp;t=vlj8SBTOnVPFuO14W95xvA" target="_blank" rel="noreferrer noopener">Twitter Monday</a>. 



SushiSwap’s native SUSHI token, which had already fallen 90% from its 2021 high, <a href="https://www.coingecko.com/en/coins/sushi" target="_blank" rel="noreferrer noopener">dropped another 10%</a> on the news. The token had trended up following the election.



ALQO (since rebranded as <a href="https://twitter.com/eons_finance" target="_blank" rel="noreferrer noopener">EONS</a>) allowed users to store cryptoassets using its wallet software, Liberio. In February 2019, Liberio users began complaining of suddenly-missing funds. At the time, Yannick released on-chain data suggesting one of ALQO’s developer wallets had been involved. 



Months later, Grey and ALQO concluded the account exploits were coming from ALQO’s chief technology officer Kevin Collmer. Collmer was fired soon after.



Yannick told Blockworks via Discord that Grey “knew about [the hacks] and did nothing” in the months between the withdrawals first being reported and Collmer’s firing “to milk the last dollars out of ALQO.” Pressed to provide evidence for his claims, the on-chain sleuth conceded his case against Grey was “speculative.”



One early ALQO investor told Blockworks that Yannick soured on ALQO following the hacks.



“You could almost say he was obsessed with [destroying ALQO],” the investor wrote.



In November 2019, ALQO published a <a href="https://eons-finance.medium.com/liberio-a-detailed-report-regarding-unauthorized-access-95b9e7641f5a" target="_blank" rel="noreferrer noopener">blog post</a> concluding “Kevin Collmer’s actions contributed directly to the loss of user funds on Liberio.” Collmer maintains his innocence, telling Blockworks that German law enforcement searched his belongings but found no evidence of his involvement in the series of hacks.



Grey insisted Collmer was behind the exploits, adding the ALQO co-founder was terminated when he made off with investor funds as ALQO planned to expand.



“He stole the money, ghosted us for [two] months, and then after we demanded the money back via a demand letter, he never returned it, and we fired him,” Grey said in a Twitter DM.



Grey is now suing, or about to sue, Collmer in Germany, according to sources familiar with the matter. Grey declined to comment on the lawsuit.&nbsp;



Several hacked ALQO users told Blockworks that Grey was transparent about the hacks and refunded their coins — albeit at a lower price — following Collmer’s departure.&nbsp;



Following the allegations, Grey fessed up to business failures <a href="https://twitter.com/jaredgrey/status/1579668810713296897?s=20&amp;t=NxqpbzdbhOqqItFDhaJptQ" target="_blank" rel="noreferrer noopener">on Twitter</a> but denied any specific wrongdoing with ALQO. On Wednesday, Grey penned a <a href="https://medium.com/@jaredgrey/3307be8e4a52" target="_blank" rel="noreferrer noopener">blog</a> rebutting each of Yannick’s allegations.



In his first week as head chef, Grey returned his earmarked severance package to the Sushi DAO treasury and <a href="https://twitter.com/jaredgrey/status/1579606884835024896?s=20&amp;t=NxqpbzdbhOqqItFDhaJptQ" target="_blank" rel="noreferrer noopener">teased</a> SushiSwap stable pools.



But for the top executive of SushiSwap, controversy seems to come with the territory.



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