Some thoughts on [Redacted]
Moving forward from a chaotic market
After recent market volatility has put a damper on OlympusDAO’s growth and position in a burgeoning DeFi landscape, [Redacted] aims to resurrect its $BTRFLY token with some new strategies and implementations.
For the unaware, [Redacted] serves as a subDAO of sorts for Olympus, aiming to maximize protocol owned liquidity (PoL) and increase the value of governance votes in the current DeFi space. After bootstrapping over $100 million in its funding round, [Redacted] was able to gain control over significant amounts of CVX, CRV and OHM.
By implementing new ways to utilize PoL through governance, [Redacted] essentially created a proxy for measuring the value of a governance vote with $BTRFLY. Similar to how Olympus was able to accumulate PoL at a faster rate through the use of bonds, [Redacted] sparked a new means of gaining votes - one of the more crucial aspects of the Curve Wars and the overall DeFi metagame this past few months.
Despite the innovations made by the team and the success of the protocol, rebasing tokens have not fared well. Questions of protocols’ long term value and sustainability have been popping up more frequently, leading many on Twitter turning their backs on these novel protocols and spewing FUD. [Redacted] has had enough.
How does [Redacted] plan to right the ship and continue its path forward? Before we dive into one of their novel ideas to re-establish conviction amongst token holders, let’s outline what led to this point.
Unless you’ve been living under a rock, you’re aware that rebase tokens have taken quite the hit over recent weeks. After being the talk of the town and the subject of hundreds of forks, protocols like Olympus and Wonderland have fallen from glory and remain without a seat in the top 100 cryptocurrencies list. High speculation around rebase tokens and their stratospheric APYs led to this inevitable fall from the heavens, as could be expected in the short term.
Since these events have transpired, Olympus and Wonderland have announced that their old ways are through, and the bootstrapping of liquidity has been achieved. Both have accumulated well over 9 figures of PoL and are now facing a dilemma of how to effectively utilize this. Here’s where [Redacted] comes in.
[Redacted] plans on implementing a Harberger Taxation model to help assist in the concept of governance. To put it simply, Harberger Tax is an economic theory that aims to help even out the distribution / balance of power between private and public ownership in a market. This theory aims for the maximum efficiency of assets by putting them in the hands of those who can do the most “good” or achieve the greatest ROI. Let’s apply these principles to DeFi with the following example.
Let’s say you’re a rogue LP and want to accumulate as much CRV as you can to capitalize off of bribes. For those familiar with Convex, you know that the protocol swallows up veCRV to help take ownership of the Curve Gauge to allocate the most emissions to its pool. It’s a simple game of incentive alignment, as anyone would want to accumulate votes in this scenario to receive more money.
LPs take advantage of this market by receiving bribes on their veCRV and handing it over to Convex for juicy yields. On their own, they are but a small fish in a vast sea dominated by whales. This is the unfortunate truth for much of DeFi governance as it currently stands. Those with more money (whales) can control protocols and introduce proposals that benefit them. Those with less influence cannot do anything about this dynamic, as even if they allocate their entire portfolio to governing a protocol, it won’t be enough. This is an example of inefficient governance.
[Redacted] wants to reduce the amount of inefficiencies in DeFi governance, especially as it becomes more integral to a protocol’s success. The word decentralization is literally in the name - why spend time in a space where voting power is concentrated in the hands of a select few?
By transitioning from an unsustainable rebasing mechanism, [Redacted] can begin to further establish itself as a protocol that wishes to put down its roots and maintain a long term mindset. The Harberger model will force LPs to pay a small fee (in the form of burning position) to continue their farming activities.
By these definitions we have introduced, LPs not participating in governance can be seen as deadweight, a net inefficiency to the protocol as a whole. Through putting more governance votes (veTokens) in the hands of protocols that actually utilize them, efficiency in the DeFi is increased and more progress can occur over the long term.
Despite the ongoing market volatility crypto is experiencing, DeFi isn’t slowing down. The Curve Wars are still very much in season, even as token prices go down in the short term. If anything, these are good opportunities for protocols to increase their stake in the war for a cheaper price.
[Redacted] wishes to be seen, not as an OHM fork, but as a protocol of talented devs that are introducing novel ideas and expanding the DeFi landscape for the better. The main goal of [Redacted] is to democratize yield aggregation, something that can be improved with the implementation of a Harberger Tax.
By optimizing for what’s to come instead of panicking in current market conditions, [Redacted] can see through everything they’re working so hard to put in place. After all, a simple change in direction of a butterfly’s flight path can alter so much - just imagine what can change as [Redacted] evolves over the next few months.