Cosmos foundation critic’s call for no confidence vote roils ‘internet of blockchains’

A Swiss nonprofit backing the Cosmos blockchain is facing a vote of no confidence over suspicion its leadership has mismanaged funds meant to promote Cosmos’ development.

Like most blockchains, Cosmos has been supported from launch by a nonprofit: the Interchain Foundation, or ICF, which is based in Zug, a Swiss hub for crypto ventures.

And like the foundations that back other blockchains, the ICF has come under fire.

In addition to a vote of no confidence, Grace Yu, the proposal’s author, is demanding the foundation release years of financial records.

“The ICF has observably failed to uphold its fiduciary duties to ATOM investors and the Cosmos Hub,” states Yu’s proposal, referring to the blockchain at the heart of the Cosmos ecosystem and its native token.

ATOM has fallen more than 60% since January 1, hitting a four-year low.

Divided validators

As of Thursday morning, Yu’s proposal had split Cosmos Hub validators. Just under 36% had voted in favour, while a combined 32% had voted in opposition or to “veto,” signalling they believed the proposal was spam.

Another 32% voted “abstain,” meaning their votes count toward a quorum without taking either side of the debate. The vote ends Friday just after midnight New York time.

Cosmos is designed to be the “internet of blockchains,” a network of interconnected blockchains with the Cosmos Hub at its centre.

The distributed network of computers that verify and order transactions on Cosmos Hub, known as validators, collectively manage the blockchain, with their owners proposing and voting on changes.

In an interview with DL News, Yu, a strategy consultant and longtime ICF critic, noted some reliable voters were sitting on the sidelines. Nevertheless, her supporters think they’ve already had an impact.

‘We had a leadership crisis and things needed to change.’

—  Josh Cincinnati, ICF

On August 15, a week after Yu published a draft of her proposal, the ICF released its 2023 annual report, detailing finances from the previous year as well as future initiatives.

ICF leadership had promised to publish the report in early 2024, and attributed its delay to leadership changes.

“We had a leadership crisis and things needed to change; I’m working on changing them,” ICF President Josh Cincinnati wrote on X amid a back-and-forth with foundation critics, including Yu.

“There needs to be more transparency, but this ham-fisted attempt at forcing disclosure isn’t going to help, it’s going to distract,” Cincinnati said.

Cincinnati also said the foundation submits to annual audits and is in good standing with Swiss regulators, though he declined to publish the financial statements shared with those regulators, citing the practice of other crypto foundations based in Switzerland.

Cincinnati declined to comment when contacted by DL News.

‘Full transparency’

The ICF isn’t the only foundation to come under fire in recent weeks.

Earlier this month, the Ethereum Foundation was criticised for its own failure to publish timely financial reports. Members rushed to assure critics an update was in the works.

In May, it said it was working on a formal conflict-of-interest policy after an uproar prompted by a pair of prominent researchers’ lucrative ties to EigenLayer, a buzzy new protocol.

The ICF raised $17 million in 2017 when it launched Cosmos’ ATOM token. It was established to fund the ongoing development of technology behind Cosmos, and to distribute grants among developers building applications there.

‘I have no score to settle with the ICF.’

—  Grace Yu

Last year, Notional, a validator run by Jacob Gadikian — another frequent critic of ICF leadership — put a vote before peers on Cosmos Hub, asking that they “formally request full financial transparency from the Interchain Foundation.”

“The ICF … has not issued any reporting to the Cosmos community on its activities in nearly two years,” it read. “Numerous current and former, ICF funded teams have come to Notional to voice distress.”

The vote passed. But to supporters’ frustration, ICF paid it no heed.

Leadership turmoil

In the months since, it has faced near-constant turnover in its leadership. President Ethan Buchman, a co-founder of Cosmos and CEO of software development firm Informal Systems, ceded the role to then-vice president Brian Crain. (Buchman became, and remains, the foundation’s vice president.)

Crain didn’t last a year. In May, Buchman and two other members of the foundation’s five-member council voted against renewing his presidency.

“A deep conflict emerged between different parts of the [council] and between some parts of [council] and the ICF leadership,” he wrote on X.

In his own thread on Crain’s departure, Buchman acknowledged tension within the foundation’s ranks.

“Let’s face it, the ICF still faces major challenges,” he wrote. “And maybe we’ll need some even more radical change in the future to face them.”

Buchman did not immediately return DL News’ request for comment.

Council member Fernando Pedone became the foundation’s interim president. A month later, Pedone stepped down and the foundation announced Cincinnati, a former head of the Zcash Foundation, had been elected president.

A week later, Managing Director Maria Gomez, who had served in that role for three years, left.

Cincinnati has said transparency will improve under his leadership of the ICF.

“The ICF believes that being proactive, comprehensive, and constant with updates will improve the visibility of our work, operations, purpose, and goals,” he wrote on X last month. “Such initiatives are long overdue.”

Settling scores?

Renewed calls for financial transparency this year have drawn a mixed reception.

Attorney Joseph Axisa, the founder of a blockchain advisory firm and contributor to other crypto cooperatives, said his firm had avoided Cosmos due to “blatant mismanagement” of “various initiatives.”

“These have naturally served as a disincentive for us to allocate time, resources and human capital to this ecosystem,” he wrote in the Cosmos Hub governance forum.

But others saw something else at play.

One major validator thought the vote inappropriate for a cooperative ‘meant to guide... the chain.’

In addition to her role an an independent strategy consultant, Yu served a three-month stint as head of growth and strategy at All in Bits, a software development firm run by Cosmos founder Jae Kwon.

All in Bits sued Yu last year for allegedly disparaging the blockchain network in violation of the terms of her contract. Kwon eventually withdrew the lawsuit, according to court documents, and Yu said that skirmish has nothing to do with her criticism of the ICF.

“This initiative should come from anybody but the two of you,” one user wrote, referring to Yu and Gadikian. (Yu and Gadikian deny he had a hand in the proposal.)

“Both Grace and you are not proposing this in good faith,” they continued. “You’re settling scores again and again with former colleagues waaaay more than act for the good of the community.”

Yu said that accountability within Cosmos is among her “ongoing concerns.”

Since May, Yu has served on the oversight committee of Atom Accelerator DAO, a cooperative funded by the Cosmos Hub and tasked with driving the price of ATOM.

“I have no score to settle with the ICF,” she said. “I’m not an infrastructure provider, I don’t qualify as someone who — it’s not because I didn’t receive funding.”

One major validator thought the vote inappropriate for a cooperative “meant to guide the technical and strategic direction of the chain.”

“A proposal targeting the internal governance of the @interchain_io is beyond the chain’s scope,” the validator, Imperator, wrote on X.

“Even if passed, this proposal would hold no binding power over the ICF, as it is governed by Swiss law and regulatory bodies.”

‘Directionally correct’

Others want to give Cincinnati, newly installed, time to right the ship before attempting to force a major course correction.

So far, the new ICF president has rebuffed the Yu’s invitation to address her concerns in the Cosmos Hub governance forum.

“You are directionally correct that people deserve more transparency, but I have played the ‘angry internet forum’ game before, and I am honestly too old to play it again,” Cincinnati wrote on X.

“I will either deliver on an improved ICF, or I will fail and resign, and you can judge however you want.”

Update, October 11: This story was updated to clarify that Grace Yu proposed the vote of no confidence in her personal capacity, not as a member of Atom Accelerator DAO’s oversight committee.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.