The role of management in the burgeoning decentralized financial industry is still in its infancy, and key figures in the industry are constantly debating the purpose and what management might look like in the future.
Sam Bankman-Fried of FTX stated recently that the company’s involvement in DeFi would be “driven by short-term gains and does not want to have a long-term impact on protocols through governance.” However, he claimed to have used the DeFi protocols only for the intended purpose.
This is not necessarily the case. Some mining programs are created this way, and Bankman-Fried plays by the rules. If the project does not want this participation, it should develop the program accordingly.
Decentralized management is one of DeFi’s primary goals
DeFi hopes to create an open and accessible financial system for everyone in the world. Management icons are usually designed to serve two purposes. First, projects use them to decentralize decision-making. The more people involved – logically, the less likely he will be attacked or abused unilaterally.
To achieve the first goal, tokens are also usually designed to motivate their holders to participate and make profitable decisions for DeFi. Thus, management tokens can also be compared to the traditional stock system, which is essential to the success of capitalism, as it encourages shareholders to lend capital and run the company only for personal interests.
Since one of the goals is to decentralize token holders, the concentration of control token that many token holders have is problematic. However, this may be necessary in the early stages of the project.
Centralized decision making allows projects to move faster and change direction. For example, it was easier for MakerDAO to vote to introduce new security measures when Dai-stablecoin moved too far off the wand.
But in the long run, when the community is broadly involved in the implementation of the project, it is best to have a decentralized distribution of tokens, because whales can use control in a way that is beneficial to themselves, but not to all stakeholders. As a last resort, we might call it an attack, but even in the MakerDAO management system, we can see that the major MKR holders are voting against other stakeholders. Additionally, even unmanaged tokens benefit from a greater number of their holders, as they are encouraged to work for the project only to get an increase in the token price in return. For control tokens, this mechanism works more so that token owners can directly influence important product decisions other than just writing blog posts and shillings on Twitter.
Many projects are aware of this and are using a progressive decentralization approach. It’s a good idea to have a limited supply of control group brands because their holders are more predictably aware of their voting rights over time, making it more difficult for potential attackers to exploit.
Investing in high-yield crops
Profitable farming, or liquidity management, is a new way to earn rewards through holdings of cryptocurrencies using permit-free liquidity protocols as a concept – and it became popular in 2020 in the middle of the DeFi boom.
On the topic: Returns are a whim, but DeFi promises to change the way we interact with money.
Many management codes are released as income in these growth charts. The decentralized exchanges benefit from growing crops by raising cash and even increasing project financing to be used in growth strategies. On the other hand, users receive income in the form of a control token.
The question is how can this be sustainable? If users sell governance services, how can projects maintain liquidity and build a broad base of governance codes?
If we look at Uniswap, we find that liquidity has been depleted to a certain extent by the end of the board symbol. However, this was less than expected and far from harmful. An example of this is the distribution of UNI Uniswap management codes to their holders, which appear decentralized enough to be ready for long-term administration.
Uniswap had no control over before releasing the UNI code a few months ago. At that time, changes to the protocol were made exclusively by the Uniswap team.
Controlling can mean more independence, but is it better?
With so many examples of founders selling their corporate governance brands and leaving projects, there is growing concern that the symbols of governance are yet another investment dream that leaves project founders wealthy and users blank. As usual, there are exceptions. After a long summer with DeFi, we have seen worthy projects and plans on how to successfully start decentralized management. Uniswap is an example, but it seems even sweet opponent SushiSwap has found its place.