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Curve founder seizes 71% of Curve DAO voting power

decrypt.co 24 August 2020 20:50, UTC
Reading time: ~4 m

The “decentralized” part of decentralized finance came into question for Curve on Sunday when founder and CEO Michael Egorov took over 71% of the voting power on the platform’s DAO.

The Ethereum-based DeFi liquidity pool and exchange platform lets holders of its CRV governance token lock up their tokens to obtain a separate voting token, veCRV.

Holders can then use veCRV to vote on network proposals submitted through the Curve DAO, and those with a high enough veCRV can even submit their own proposals for consideration.

However, only a small fraction of CRV holders have vote-locked their tokens since the token’s launch on August 14, leaving a handful of addresses with a large amount of voting power. 

In fact, Egorov told Decrypt that only 6.7% of the nearly 10 million CRV tokens currently in circulation are vote locked right now—an indication of how few token holders are actually participating in the DAO.

This made it fairly easy for an address controlled by yield aggregating platform Yearn.finance, which runs a Curve liquidity pool, to obtain a significant proportion of the voting power (close to 58%).

In an apparent move to counter this, Egorov (who controls address 0x9b...36b029) extended a vote lock for a total of 621,860 CRV tokens (worth ~$1.7 million) under a single address, netting him 618,568 veCRV, or 71% of the voting power. He maxed out his vote time to 4 years.

Maybe too much,” he said.

So... @CurveFinance founder just took over 71% of the voting power;

And since founder rewards are significantly higher than LPs and other voters, pretty much locked everyone else out.

So guess voting is pointless now.

Have fun everyone. pic.twitter.com/xgkxNpbjUz

— Andre Cronje (@AndreCronjeTech) August 23, 2020

Egorov, who in the hours since holds about 60% of the voting power as the community edges him out, has full control over the outcome of any proposals submitted to the DAO.

Egorov said on Telegram that he ended up with majority voting power by trying to outweigh Yearn.finance and that it was an overreaction. “Terribly sorry. Let's fix that. I mean, I can abstain from voting but better to fix it in a proper way.”

Egorov told Decrypt that he doesn’t want to wield so much power and hopes his voting power will decrease over time as the system becomes more decentralized. 

“Right now, looks like everyone else [is trying] to add some more voting power. Which is... the eventual intent,” he said.

Meanwhile, if Egorov plans to hold back on voting—a promise, at best—that also means nobody else's vote matters either until the community resolves the issue or comes up with a more permanent fix, since a quorum of at least 33% is needed to propose a change, and above 50% is needed to pass an update.

Andre Cronje, founder of Yearn.finance, calculated that 150 million CRV—more than 15x the current circulating supply—would need to be locked up for a week to achieve the veCRV required to reduce Egorov's voting power to 50%. 

Quick CRV <> veCRV required to beat 600k veCRV;

Assuming people don't do 4 year lockups, and only do 1 week lockups;

You only need to lockup to 150,000,000 CRV to decrease the founder power to 50%. pic.twitter.com/xGoLacR2P9

— Andre Cronje (@AndreCronjeTech) August 23, 2020

The Curve team is optimistic that the balance of power will even out in the days ahead.

"Over the next few days, as governance kicks off and the vote locking boost is enabled, we expect to see a large growth of vote locked CRV to begin the process of decentralising the Curve protocol," Charlie Watkins, project lead at Curve, told Decrypt.

"Vote locking on Curve has barely started, [this] should give a chance to our users to vote lock,” he said. 

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

Commenting on the fragility of on-chain governance, Kain Warwick, founder of synthetic asset creation platform Synthetix, believes events like this are only going to get worse.

“DeFi TVL is going to drive all kinds of governance attacks and most protocols are woefully unprepared,” he tweeted, referring to the billions of dollars locked up in DeFi protocols. (Warwick’s protocol, Synthetix, last month devolved much responsibility to DAOs). 

So much for decentralized governance—for now, at least. 

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