Update: CTO Resigns as SushiSwap Struggles, Arca Submits Restructuring Proposal

The Chief Technology Officer of SushiSwap Joseph Delong has resigned, according to a tweet he wrote on Wednesday. 

“In the interest of the Sushi Community I am resigning as CTO effective immediately,” Delong wrote. “I very much enjoyed the things that we built together and will look back positively on this moment,” he added. 

Blockworks reported earlier today that SushiSwap, one of the largest decentralized exchanges, was dealing with another round of ‘corporate’ infighting between Delong, and broader community, digital asset management firm Arca — an investor in SushiSwap — which proposed a comprehensive reform of the DAO’s governance structure to match that of a corporation. 

“I wish Sushi the best and am saddened that Sushi is so imperiled within and without. The chaos that is occurring now is unlikely to result in a resolution that will leave the DAO as much more of a shadow than it once was without a radical structural transformation,” Delong said in a follow-up tweet. 

Delong recommended the installation of an executive-level group outside of the DAO and said in another tweet that it should be, “wary of any self proclaimed leaders arising from the current core team.” 

The Backstory: Why SushiSwap Needs Reform 

Despite SushiSwap pushing out nearly $350 million in 24-hour volume, the DAO behind one of the biggest DEXs has been plagued with infighting since its inception. In September 2020, pseudonymous SushiSwap founder Chef Nomi was axed after selling off $14 million of ether earmarked for a development fund. An individual named 0xMaki was appointed the project lead, backed by investors like FTX’s Sam Bankman-Fried. 0xMaki has since stepped down from daily leadership and transitioned to an advisory capacity  — though allegations swirl that he was forced from the role by a clique of developers and other stakeholders. 

According to a report from Rekt, CTO Delong and core team members Omakase, 0xKeno, and Rachel Chu, were said to have initiated an internal vote to push 0xMaki out of a daily leadership position and into a passive advisory role. But in turn this clique, known as JOKR, faces derogatory allegations of its own: $9,000 dinners at NFTNYC, $5,000 tickets to mixers, and siphoning off funds raised from the BitDAO (an affiliated project) token sale. 

For his part, Delong took to Twitter to call the whole affair “absurd defamation” and threatened to leave the project if his team isn’t granted more autonomy and an increase in compensation. 

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“I am going to ship Trident [a new iteration of the DEX software], and if you do not give us the autonomy to continue operations, the capability to form leadership, and increase compensation across the board I will leave,” he tweeted.

If the community behind the DEX didn’t back Delong and his team, he said he would “peacefully transfer all the accounts and go and build something equally as successful, and you can find someone else to bully.”

Sushi’s governance token, SUSHI, has been on a steady slide since September 16, when it traded as high as $16. Now it’s under $6.

Arca’s Proposal 

For any investor or stakeholder of a company that generates as much revenue as SushiSwap, such infighting would be concerning and would likely dissuade any further investment. 

With that in mind, Arca, who’s Chief Investment Officer, Jeff Dorman once called Sushi one of the most undervalued tokens currently on the market, put forward a proposal to reform the DAO’s structure to make it more inline with that of an equally sized corporation. 

“This growth has been phenomenal but has led to natural growing pains that need to be addressed. In order to scale, each product line must be properly resourced to fully execute the community vision,” Arca’s Alex Woodard wrote.

“This proposal aims to adequately structure Sushi Ops DAO, and future DAOs developing Sushi, with a formalized entity, processes, structure, and community leadership in order to capture and capitalize on future growth.”

Arca proposes that the operational structure of SushiSwap’s DAO become more hierarchical with product teams reporting to a product manager (similar to any sort of software company), multi-sig on key decisions involving hiring, firing, and fund management — like how any corporation would need two executives to sign off on key decisions — as well as the incorporation of a legal entity to employ developers. 

Arca did not respond to a request for comment from Blockworks. 

Corporate Governance for the DeFi Era

For investors, corporate governance proposals are nothing new and have been around since the advent of venture capital itself. 

But what’s different in this era is that some of the hottest investment opportunities aren’t formally incorporated and lack a traditional executive-manager structure. Instead, influence on a project’s direction is all about who owns the most tokens and thus controls the votes. 

A16Z, an active investor in the space, has released a number of position papers that outline is position on DeFi project governance. Part of a16z’s position is that the investor sometimes doesn’t know what’s best for the project, and to help it scale there’s a delegation of tokens to partner organizations. 

“Delegates must be empowered to vote independently from the token holder. This is an essential property for any well-designed delegation program. At a minimum, this means that the token holder should not attempt to influence or dictate its delegates’ participation in any way, either explicitly or implicitly,” the company wrote.

All of this comes as the total value locked in DeFi protocols stays well above the $100 billion mark and serious institutional money eyes its way in.

Both Arca’s proposal for SushiSwap’s organizational reform and a16z’s broader view on DeFi governance aren’t without controversy. In the thread that followed the proposal from Arca, there are comments that call the plan to formally incorporate part of SushiSwap a “trojan horse”; Harvard Law’s student Blockchain association, one of a16z’s delegates, is also a recipient of treasury grants from Uniswap. 

If anything, this shows just how fertile the whole space is and will take some time to develop, just as best practices for startup governance emerged alongside the development of Silicon Valley.

This story was updated on Dec. 8, 2021, at 4:57 pm ET.

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