‘Ops’ Curve Finance ‘Overreacted’ & Seized Nearly 80% Voting Power for First Proposal
Curve Finance, the decentralized exchange liquidity pool on Ethereum, is currently voting for its very first proposal. As per this proposal, the project is looking to introduce a new Compound COMP-enabled pool to Curve Finance with DAI and USDC. It also proposes to boost incentives for liquidity providers of COMP.
Additionally, the proposal further involves a suggestion to introduce a withdrawal fee of 0.02%, which would be used to burn CRV, governance token of Curve, for this pool.
To vote, users have to obtain a separate voting token veCRV. Those who want to vote through the Curve DAO have to lock their tokens and vote with veCRV. Having large amounts of veCRV means, one can submit their own proposals as well.
Interestingly, the voting power is affected by the length of the period, a maximum of four years, the token is locked. As such, the longer the CRV tokens are locked, the higher the voting power.
Launched less than ten days ago, only a small portion of CRV tokens has been locked up, just 6.7% of the 10 million CRV tokens, which has been because of the gas prices, making it difficult for smaller liquidity providers to claim and lock their CRV.
According to the Curve Finance team, the goal of its CRV token is to “incentivise liquidity providers,” and get the users involved in its governance.
CRV meanwhile is struggling as it currently trades 94.4% lower than its all-time high, hit the day of the launch. Unlike the token price, Curve Finance enjoyed a growth of 338% during the same period to surpass $1 billion in total value locked in its protocol. The project has also crossed $2.5 billion in cumulative volume.
Concentration of Power
The voting process for the proposal saw the founder of Curve Finance take over 79.8% of the voting power, noted yEarn Finance founder Andre Cronje. He added,
“Since founder rewards are significantly higher than LPs and other voters, pretty much locked everyone else out. So guess voting is pointless now.”
Cronje further shared that he doesn't mind any of this and thinks it's “good the founder has arguably the most control, and there is nothing wrong with that.”
Curve reacted to this with, “Ops. Too bad,” adding,
“That was a reaction to 0x431 taking 50%, but the founder overreacted. The founder will abstain from voting now until more people votelock.”
The community has until August 28th before the governance system is up. To decrease the founder's power to 50%, they only need to lock up to 150 million CRV.
Currently, in limbo, the project is waiting for a quorum to pass it, which is expected to be fixed in the coming days as voting power balances.
On-chain governance dumpster fires are going to get way worse soon. I had hoped Tezos would have proven this by now, but the stakes were simply too low for anyone to bother. DeFi TVL is going to drive all kinds of governance attacks and most protocols are woefully unprepared.
— kain.eth (@kaiynne) August 23, 2020
The decentralized nature of DeFi governance systems has been coming into question lately. The concentration of tokens in these systems is actually not better than the ownership structure in JP Morgan Chase or Bank of America, said TokenDaily in its report.
For instance, over 13% of voting power for Compound is controlled by the top 10 addresses.
This is because DeFi governance tokens offer a “unique opportunity to influence the direction of open protocols that are otherwise nearly impossible to control,” a power not unlike what is allotted to shareholders.