DAOs And Democracy

Defi is fun and high fives are exchanged and we are all friends voting for new proposals. Then comes the bear market. This morning I spend a couple of hours debating on a TG group about how a DAO close to its end should distribute the remaining assets.

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Blindex

With Blindex I provided liquidity to ETH/BDEU and BTC/BDUS -pairs. BDEU and BDUS are stable coins backed mostly with BDX which is the protocol native and governance token. Staking options ranged from unlocked to 5 years locked period.

Now everything happening with crypto in general and with other things like lack of marketing and not-so-known network(RSK), BDX began to lose its value going down from February ATH of $14.348 to its current value of $0.022.

We are now in a situation where we must decide where to go from here. To vote on what to do with the DAO. One very popular proposition is to close Blindex and do this:

Take the remaining non-Blindex funds (Meaning: RBTC, ETHs, XUSD, DOC) and divide them in the fairest way back to the community, this means that all the funds will be withdrawn and divided back to the community in a proportional way according to a Snapshot of each wallet's holdings.

At first glance, this seemed like the best and fairest solution to me but after a closer look and comparing it to my own positions, I began to have doubts.

You see, many of the Blindex LP pairs consist of BDX - the native token. There are pairs such as BDX/BDUS, RBTC/BDX, and also stable pairs like BDEU/BDUS which is backed mostly by BDX. Now in comes the impermanent loss which I'm very well aware of and I know that my RBTC/BDUS will heavily suffer from it. But the thing is that it won't suffer nearly as much as the BDX pairs* since BDX got totally rekt.

So pretty much anything that holds any value anymore are the BTC and ETH sides of the LPs. If and when the proposal goes through, these assets are used to compensate to everyone. The reason why I chose to go with the BTC and ETH pairs was that I considered those assets less risky than the native BDX.

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Bailing Out

With this proposal, the people who wouldn't take the higher risk will now cover the losses of those who took it. Is it just me or does this sound a bit weird at least? Let's say we are farming on PancakeSwap and suddenly CAKE goes almost to zero. "No problem, let's just compensate the loss by taking it from those farming in BUSD/BNB pool". I'm not sure that's how it was supposed to work...

Now back to our example DAO. So I made a proposition in which ETH and BTC sides would not be taken into consideration in the distribution of assets but instead just unlocked to users. From what I've read I noticed that many are with the BDX pools so probably my idea won't get that much support. And that's ok with me. I'm always prepared to lose everything and with this, I'm at least getting something. Could be worse.

Still, I got this weird deja vu feeling and it got me thinking about the 2008 economic bubble and the bailout of banks. On the Telegram group, this one guy said to me "why should you get more than your fair share?", again I might be wrong but isn't it the other way around? I can somewhat understand some of the arguments stating that we all invested in the protocol itself. True. But the risk levels are still not the same, BTC is still BTC.

It's a principal. The reason why I carried out the argument for so long was that to me it just feels so profoundly wrong. In what system do people who make wiser decisions get punished for doing so? Oh...

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It's Just Like Here

It made me smile when I realized that with the DAO voting we are probably going to end up in a situation where those who have more will then distribute their wealth to the less fortunate ones. It almost makes me feel at home. And for a while it made me feel rich.

I am from a nordic welfare country where the system is kept running by taxing the crap out of people. I'm pretty sure that in the not-so-distant future we can pay taxes to pay taxes. The majority has decided that the more you have, the more you pay.

However, with DAOs, it's not really like that. Sure it's democratic in a way but that democracy can be bought. In this Blindex case, the rekt BDX still holds value. And that value is in its governance properties. The more you have it, the heavier your vote is. This story is actually a good example of the power of governance tokens and here the BDX proved to be mightier than the BTC.

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Conclusion

I may add that I'm pretty sure the people behind Blindex did their absolute best till the very end. The idea was good and the support was great. Sometimes things just go this way. This bear market hasn't been kind to defi platforms.

But in my opinion, decentralization is always better than the alternative while it isn't the immediate salvation or answer to everything. Just like in our corrupted political systems there are those same ugly things lurking in the decentralized space too. Greed is one of them. I was talking about principals but it's very likely that I would have voted for the proposal if I had been on the BDX side.

Now that I got this off my chest I'm actually pretty cool with it. I'm still going to vote against it but I will accept the outcome whatever it may be. It's just like our democratic systems, sometimes it sucks that our guy didn't go through but an alternative could be much worse. It could be like a centralized system where one guy runs away with all the assets.

That was DAO for you, thank you for reading!