Decrypting DeFi is Decrypt’s DeFi email newsletter. (Art: Grant Kempster)
If there’s a DAO, there’s a whale – and it’s probably vying for supremacy.
In this case, Balancer has taken an interesting pivot against a cryptowhale roaming its digital waters. After about eight months harvest of the popular DeFi Project Coin has Humpy agreed to some sort of peace treaty.
Yes, Humpy really is the name the community gave to this whale.
Balancer is a portfolio management tool that allows anyone to build a multi-token liquidity pool. Users can then assign specific weights to each token in the pool and automatically balance (hence the name) when traders exchange coins.
One of the protocol’s largest pools contains 80% BAL (Balancer’s native token) and 20% WETH (wrapped Ethereum). And if you are interested in participating in the governance of Balancer, you must join this special pool.
In return for depositing funds into the pool, you receive “Balancer Pool Tokens” which are a kind of receipt that your deposit is actually in that pool. With those BPTs in hand, you can then plug them back into the protocol in exchange for Balancer’s governance token: veBAL.
Easy enough right? (And for a quick look at Ve-Tokenomics, be sure to check out our previous coverage of all things Curve Wars.) Curve was one of the first projects to launch this type of token model.
Now, with veBAL in hand, users like Humpy can vote to increase the amount of BAL token rewards that are also distributed to different liquidity providers on balancers in each pool. Each pool on the platform has an APR, but this percentage is usually expressed in BAL (or some other DeFi the project’s native token). That is yield farming in a nutshell. But with veBAL, users can vote to increase that APR and have even more BAL distributed.
And that’s exactly what Humpy did. In a cycle of accumulation, locking, and voting, they have been able to continually leverage their sizable holdings to further increase the BAL APR for the specific pools they are yield farming.
How Humpy Farmed the Depths of Balancer
In one example, they created a pool of Cream Finance (CREAM) and WETH, set trading fees at 10% (pool owners also charge fees from traders using the pool) and then began using their massive veBAL voting power to up additional tokens to refer rewards in BAL to their pool.
Messari reported that “Over six weeks Humpy used the veBAL system to route $1.8 million in cumulative BAL emissions to the CREAM/WETH meter and back to Humpy.”
And critically speaking, Balancer only saw about $17,000 of that as log revenue.
This cycle was repeated again and again in several other basins. Each time the balancer governance rallied to make changes, voting against Humpy’s strategies and even forcing another very large veBAL holding entity (Aura) to step in to fight the whale.
The standoff ended with a peace deal in which Humpy agreed not to increase her veBAL position and “vote for pools that benefit Balancer’s long-term growth.”
With the dust settled and the whale tamed, the question now (on Crypto Twitter, at least) is: was Humpy actually a force for good?
On the one hand, one entity was just able to dominate the entire $1.5 billion governance process DeFi project and benefit significantly from their end result.
On the other hand, Humpy also pointed out the shortcomings in dealing with governance on balancers.
Like a white hat hacker claiming his reward, Humpy may have earned his rewards for playing Balancer to death.
“We’ve addressed stimulus misalignments, but we may feel that impact for years to come,” wrote Solarcurve, a Balancer governance delegate, adding, “Hard to say Balancer is better off without Humpy, but I’m optimistic.” , without his presence there would not have been an urgency to address the systemic issues.”
It’s a murderous crypto ocean out there folks. Swim safely.
Stay up to date on crypto news and receive daily updates in your inbox.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.