- Cosmos Foundation leadership comes under fire over governance vote
- ICF commits to greater transparency following restructuring.
- It’s not the only blockchain-based nonprofit to be accused of financial opacity.
A Swiss nonprofit organization that supports the Cosmos blockchain is facing a vote of no confidence over suspicions that its leaders mismanaged funds intended to promote Cosmos’ development.
Like most blockchains, Cosmos has been backed since its launch by a nonprofit organization: the Interchain Foundation, or ICF, based in Zug, a Swiss hub for crypto businesses.
And like foundations that support other blockchains, the ICF has been criticized.
In addition to a vote of no confidence, Grace Yu, the author of the proposal, is demanding that the foundation release years of financial records.
“The ICF has manifestly failed to meet its fiduciary duties to ATOM investors and the Cosmos Hub,” Yu’s proposal states, referring to the blockchain at the heart of the Cosmos ecosystem and its native token.
ATOM has fallen more than 60% since January 1, reaching a four-year low.
Split validators
As of Thursday morning, Yu’s proposal had divided Cosmos Hub validators, with just under 36% voting in favor, while 32% voted against or “vetoed” it, indicating that they considered the proposal spam.
Thirty-two percent of respondents voted “abstain,” meaning their vote counts toward the quorum without taking sides. Voting ends Friday just after midnight New York time.
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Cosmos is designed to be the “Internet of Blockchains,” a network of interconnected blockchains with the Cosmos Hub at its center.
The distributed network of computers that verify and order transactions on Cosmos Hub, called validators, collectively manage the blockchain, with their owners proposing and voting on changes.
In an interview with DL NewsYu, a strategy consultant and longtime critic of the ICF, noted that some reliable voters remain on the sidelines. Still, her supporters believe they have already made an impact.
“We had a crisis of leadership and things had to change.”
— Josh Cincinnati, ICF
On Aug. 15, a week after Yu released a draft of his proposal, the ICF released its 2023 annual report, detailing the previous year’s finances as well as future initiatives.
ICF leadership had promised to release the report in early 2024 and attributed the delay to leadership changes.
“We had a leadership crisis and things needed to change; I am working to change them,” ICF President Josh Cincinnati wrote on X amid a spat with foundation critics, including Yu.
“There needs to be more transparency, but this clumsy attempt to force disclosure is not going to help, it is going to distract,” Cincinnati said.
Cincinnati also said the foundation undergoes annual audits and is in good standing with Swiss regulators, though it declined to release financial statements shared with those regulators, citing the practice of other Swiss-based crypto foundations.
Cincinnati declined to comment when contacted by DL News.
“Total transparency”
The ICF is not the only foundation to come under fire in recent weeks.
Earlier this month, the Ethereum Foundation came under fire for its failure to publish its financial reports on time. Its members were quick to assure critics that an update was in the works.
In May, the company announced it was working on a formal conflict-of-interest policy after an outcry over a pair of prominent researchers’ lucrative ties to EigenLayer, a hot new protocol.
The ICF raised $17 million in 2017 when it launched the Cosmos ATOM token. It was created to fund the continued development of the technology behind Cosmos and to distribute grants to developers building applications on it.
“I have no score to settle with the ICF.”
— Grace Yu
Last year, Notional, a validator led by Jacob Gadikian — another frequent critic of ICF leadership — submitted a vote to its peers on Cosmos Hub, asking them to “formally request full financial transparency from the Interchain Foundation.”
“The ICF… has not published a report to the Cosmos community on its activities in nearly two years,” it reads. “Many current and former ICF-funded teams have come to Notional to express their distress.”
The vote passed, but to the frustration of its supporters, the ICF paid no attention to it.
Turbulence in leadership
Since then, the foundation’s leadership has been in near-constant rotation. President Ethan Buchman, a co-founder of Cosmos and CEO of software development company Informal Systems, stepped down from his position to Brian Crain, then vice president. (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 board voted against renewing his presidency.
“A deep conflict has emerged between different parts of the (board) and between some parts of the (board) and the ICF leadership,” he wrote on X.
In his own thread about Crain’s departure, Buchman acknowledged tensions within the foundation’s ranks.
“Let’s be realistic, the ICF still faces major challenges,” he wrote. “And we may need even more radical changes in the future to address them.”
Buchman did not return immediately DL News” request for comment.
Board member Fernando Pedone became interim president of the foundation. A month later, Pedone resigned, and the foundation announced that Cincinnati, a former director of the Zcash Foundation, had been elected president.
A week later, CEO Maria Gomez, who had held the position for three years, stepped down.
Cincinnati said transparency would improve under his leadership as ICF president.
“The ICF believes that being proactive, comprehensive and constantly updated will improve the visibility of our work, operations, purpose and goals,” he wrote on X last month. “Such initiatives are long overdue.”
Settle scores?
Renewed calls for financial transparency this year have received a mixed reception.
Attorney Joseph Axisa, founder of a blockchain consulting firm and contributor to other crypto cooperatives, said his firm shunned Cosmos due to “gross mismanagement” of “various initiatives.”
“These elements have naturally discouraged us from allocating time, resources and human capital to this ecosystem,” he wrote at the Cosmos Hub governance forum.
But others saw something else at play.
A leading validator considered the vote inappropriate for a cooperative “intended to guide… the chain.”
In addition to her role as an independent strategy consultant, Yu spent three months as head of growth and strategy at All in Bits, a software development company led by Cosmos founder Jae Kwon.
Last year, All in Bits sued Yu for allegedly disparaging the blockchain network in violation of the terms of his contract. Kwon eventually withdrew his complaint, according to court documents, and Yu said the skirmish had nothing to do with his criticism of the ICF.
“This initiative should come from anyone but you two,” one user wrote, referring to Yu and Gadikian. (Yu and Gadikian deny that he was involved in the proposal.)
“Neither you nor Grace are doing this in good faith,” they continued. “You are constantly settling scores with former colleagues, much more than you are acting for the good of the community.”
Yu said his proposal was part of his role at the Atom Accelerator DAO, a cooperative funded by the Cosmos Hub. The DAO is responsible for driving up the price of ATOM, and Yu has served on its oversight committee since May.
“I have no quarrel with the ICF,” she said. “I’m not an infrastructure provider, I’m not qualified to be a person who… it’s not because I didn’t get funding.”
A leading validator considered the vote inappropriate for a cooperative “intended to guide the technical and strategic direction of the chain.”
“A proposal for internal governance of @interchain_io goes beyond the scope of the chain,” validator Imperator wrote on X.
“Even if adopted, this proposal would have no binding power on the ICF, as it is governed by Swiss law and regulatory bodies.”
“Directionally correct”
Others want to give newly installed Cincinnati time to get its act together before trying to force a major change of course.
So far, the new ICF president has rejected Yu’s invitation to voice her concerns at the Cosmos Hub governance forum.
“You are absolutely right 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.
“Either I will present an improved CIF, or I will fail and resign, and you can judge as you wish.”
Aleks Gilbert is DL News” DeFi correspondent based in New York. You can reach him at aleks@dlnews.com.
