It's you're favorite cynic back to rip crypt purists another one. DAOs.
Decentralized Autonomous Organizations.
If you want a good primer on why this is like telling a 10 year old the tooth fairy doesn't exist, read other blog posts on on how whales are penetrating and skewing every facet of crypto, including DAOs.
If you recall from my Defi Intro guide, when you invest into a DeFi project, you get a token representing your stake in the project.
Quick review -You purchase Project X token 1 from any exchange (DEX or centralized).
Optional step 2 - You stake your Project X token 1 AND its equivalent value in another token. OR stake the tokens into LP pool. You get LP tokens.
Optional step 3 - You stake Project X token 1 into DeFi project and get Project X Token 2 (Usually have voting rights)
When you exercise optional step number 3, the project X token 1s are usually staked for a set period of time. Meaning, if you need to exit a position quickly, either you just can't or you're going to take a nice penalty for un-staking early on.
If I staked 100 Project X token 1s, I'd receive 100 Project X token 2's, PLUS more project X token 2s, as interest for locking up my tokens 1. I'm getting more project X token 2 as a reward for contributing to the TVL (total value locked) in the DeFi project.
What use do Token 2's have other just earning more token 2s as interest. They usually carry voting rights.
And just like the standard staking model, where the more you stake into a project, the more returns you reap. This is the same concept.
If the total value locked into a Defi Project is 1M, and you contributed 100K, you'll get 10% of the rewards.
Same thing applies to voting tokens. The more voting tokens you have, which is a direct result of how much buying power you really have, the more votes you get.
In the traditional world of finance, these are your basic stock votes. Each stock owner gets a vote relative to their holdings.
So what's the difference between traditional finance voting and decentralized voting? Well, in DeFi, there is no controller. There is no human element involved in the process. it is simply just a mechanism where the votes are tallied and results are spewed out. No humans are involved. That's it.
A lot of crypto enthusiasts will rave on and on about immutability, but I'll destroy that aspect of crypto later on. Can't burst every bubble at once after all.
If Joe Shmoe, once again, has only 10K for buying voting tokens, either directly or through staking, and Mr. Monopoly has 1M for same purpose, then Joe has 1% of the voting power Mr. Monopoly has.
Well, here we are again, in the same place we were when it came to staking in DeFi projects. The largest access to capital, has the largest profits, and voice now as well!
And just like our staking argument about early investors (VCs, institutions, etc) having such a large piece of the pie with respect to ownership of the total pool, same applies.
Well how can this go sideways? Allow my to recall one of the FAVORITE DeFi experiences.
I jumped into a DeFi platform around summer of 2020. DeFi was blowing up. This project was sky rocketing. They had a DeFi staking platform where you took the LP tokens from UniSwap, staked them into the platform, and got platform tokens as rewards. I think the average apy was 110% at the time. They had a few pools, based on where you added liquidity. So they had a UniSwap LP pool, BAL LP pool, and Curve LP Pool.
This was when the project had just begun. When the project was moved into its second stage, the actual DAO launching and allowing people to vote, they created a 4th pool. This was where you could stake into the voting rights token itself. And it offered a VERY generous APY for those willing to invest for a solid year. Around 414% apy I think. Needless to say, the majority of those involved in the project went into the 4th pool.
Now keep in mind, that each pool had a weekly emission (pay out) of about 35,000 project tokens. So if my total value staked into pool 1 was 10% of the total pool value, I would get 3,500 tokens a week as a reward.
When the 4th pool came out, one of the 3 original pools could either be shutdown. Or the rewards from all 3 pools would be reduced by X amount, and the 4th (voting) pool would get X from the 3 pool's reductions.
They voted to shut down one of the pools entirely. I noticed one account holder had over 33% of the vote. Once he voted in one direction, almost everyone followed suit.
This did 2 things. One it closed off an entire investor base from one of the staking platforms entirely (I think it was balancer). #2) it forced everyone in the BAL pool to un-stake, and exit their positions (remember gas fees? you would need time in any pool to recuperate gas fees you paid to enter).
Then came another vote, to reduce the token emissions of the two remaining pools, and add those tokens into the 4 pool again, thus boosting APY to attract more long term investors, and since everyone in the 4th pool had the most votes, guess which way the voted? To reduce the emissions of the last 2 pools. Once again, this made the last 2 pools even less attractive to investors.
By allowing one group of people, to have the bulk of the say, and even worse, one very large investor (i think it was the VCs fund's vote for 33%) and vote to just boost APY for their self interest, they doomed the project. I left and never looked back.
At it's height this project was over double digits, after the implementation of the DAO, it has crashed all the way down below a dollar, and rebounded to just over 2-3 tops. They've implemented so many "improvements" since then, all through the DAO. Price has still remained in lower 2's.
Why did the project go sideways? Because #1) it was not decentralized - at all. #2) even if it was, the project put the interest of those who just want APY above all else, even ahead of those who wanted adoption of the project. Not just for APY, but because they had a good product.
Make no mistake, DAO is just another buzzword the crypto linguists have forged to sucker you into believing you matter. You don't. The fact is if Tesla sells its BTC holdings (rumor has its the stock holders / board want Musk to dump BTC [no comment]), the price of BTC will tank. Despite how it is the ultimate hedge against inflation, that it gives people a chance to generate wealth, or in the case of DeFi, a voice in controlling how the project will grow.
Just be honest with token holders. They have a voice proportional the size of their wallet. Then we can all relax, and stop pretending DAOs are any different from traditional finance.
The Golden Rule - "He who has the gold, makes the rules" - In traditional finance, cryptos, DeFi, or DAOs.
Old Grey Fox
As always : THIS IS NOT INVESTING ADVICE. DO YOUR OWN DUE DILIGENCE AND RESEARCH. THIS IS JUST ME SHARING MY STORIES AND views / news updates.
Alphanova.crypto
Above is the .crypto address for anyone who wants to shoot me some cheddar for my thoughts. Please no BTC or ETH. Network fees are killer. Stick to LTC, XRP, ADA, or TRX. The last 3 are almost free in terms of network fees. Remember - no matter how much you send anywhere, choose a coin that's low in network fees. Anything besides ETH / BTC really...
And if you happen to be a Publish0X admin reading this, PLEASE CAN YOU GIVE US THE OPTION OF BEING REWARDED IN TRC-20 tokens vs only ERC-20 tokens? It's going to cost me $5+ to send the $1 which I have yet to earn from eth wallet to anywhere else.
PLEASE IMPLEMENT NON-ERC-20 tokens as rewards. THANKS!
