The hidden race for Power accumulation in Ethereum

The hidden race for Power accumulation in Ethereum

@cryptotroublemaker

The bubble has just started to inflate

The last two months were pretty saturated by the events that immediately got a “legendary” status in Defi. It started with Compound mining, followed by the skyrocketing of $YFI (hit $12,000 btw). Finally, it became really crazy, when hundreds of millions of dollars of liquidity were provided to an unaudited protocol like $YAM. It crashed the next day. No worries - the new $PASTA project is on the way. Liquidity mining is striding across the planet!

All this bubble is about governance tokens. No matter what a project does - they will surely have a governance token. You can check out dozens of Defi projects - tokens of almost all of them have governance functions. Why? It is evident. It is the easiest way to implement a token inside any dApp or protocol.

The actual capitalization of governance tokens is ~$5bln (the number depends on the methodology of calculation), while the fully diluted one is x5-10 times higher. Looking into several indicators, like the DeFi Google trend, and overall market capitalization we are not on the top of the bubble. This is just a small bamboo that can grow another 10 times really fast.

So, future capitalization of governance tokens can be assumed as ~$100bln, taking into account growing caps of current projects and a lot of upcoming ones.

The DeFi World Whale Government

Last days I thought about all of this. The trend is obvious. Governance is cool, but how to control this system?

The answer is pretty simple. You need to concentrate governance tokens in one protocol (pool them) and then control this protocol. The necessary condition to make this idea live is to motivate holders to pool tokens into the protocol. Bingo!

But how really pool A LOT of governance tokens into one protocol? The answer is simple - you need to give people money and FOMO them by solving their problems.

The problem + solution + FOMO

In fact, the majority of such tokens are really useless for the retail token holders. No cashflow or any other income source. Just voting. But, what is the value of a chance to participate in “voting”? Zero value. Votes de-facto are owned by whales. Retail user is like a little penguin who watches Antarctica melt due to global warming but can do nothing about it.

But, if you can lend your useless tokens, get money, and also get another token by doing this (Hello, liquidity mining!) - it’s a Bingo. You will be drawn into it like a funnel.

They are already doing it

Fast research revealed that this process has already started. Somebody creates it and does it fast. There are two projects, already developing such a system: Cream.finance and Powerpool.finance.

Digging deeper, I came across a lot of “funny” coincidences. 

The Cream.finance started as a Compound fork. It got support from Robert Leshner himself and his team as a technical advisory really fast. Multisig participants: Leshner, Peter3pan, and other trusted guys. Fully diluted capitalization is almost $1bln. My friends checked out the code - it is a generic fork of Compound. But, there is a rumor that they raised $10 mln from the China market. From my point of view, it is an overheated project. But, who knows?

Another project is Powerpool.finance. Really strange project. They also working on a Compound fork, but the main differences from Cream are:

  1. An upgraded token model. Their governance token is not like a Compound token. It has all Compound functions + a special function that allows collectively decide how unclaimed tokens in pools would vote (I will talk about this further)
  2. They are working on an interchain solution, combining Ethereum, xDAI and Matic chains

Why a strange project? Here are my observations:

  1. The project is rather new (all info was published last 2 weeks), but already got significant attention
  2. The team is completely anonymous. Nobody wants to take public credit for the project.
  3. Twitter is followed by Robert Leshner, Jake Brukhman, and a lot of other high-profile guys and VCs
  4. No sales at all.
  5. There is a staged testnet where people can earn tokens, but it is impossible to enter it. Several of my friends tried, including myself. No chance. Also, I have a piece of information that several tier-1 VCs asked testnet allocation or buy some tokens, and all requests were denied.
  6. So these guys don’t need money (at least now).
  7. I have rumors that only selected whales were accepted to the testnet: the top holders of governance coins
  8. Discord is almost silent, not many questions there. So, almost all testnet participants asking questions in DMs only. Seems that they don’t want to violate their privacy and want to stay in the shadows
  9. Integration with xDAI/Matic chains is targeted on holders with little bags. They cannot afford high gas costs on Ethereum (in some cases your yield wouldn’t cover that), so it is a solution for them. Ethereum version is targeted on whales. 

What I can conclude here:

  1. Somebody is understanding the potential of governance tokens
  2. They create a project to pool governance tokens using simple incentives
  3. They don’t allow anybody besides whales/big guys to get in and participate in token distribution to control the initial supply
  4. They have really strong devs, which claim to develop interchain DeFi solution and cover 3 networks in one product. One guy said to me, that devs team are Ethereum contributors and they know shit

It’s a whale game, guys. The $YFI was a whale game, but this is a whale^2 game.

What to do:

The protocol designers have to think about how to make their governance systems safe. If Powerpool will collect enough tokens it can become a real force in the governance of each protocol. We will all be affected. Whales of governance tokens, take this into account.

Best regards,

The Friend

Report Page