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Crypto is reaching a breaking point, and it has nothing to do with the Fed, Celsius, jpegs, or DeFi. It's us. We, the users, are destroying crypto. Let me explain:
Crypto is ultimately a tool for governance: Blockchains are only static if we decide to make them static, so far we have decided to make them static via governance and consensus.
Ultimately the unchangeable/immutable aspects of crypto have been provably valuable recently.
• No one can take away your tokens
• No government or institution can censor your ability to transact
• No one can stop you from trading at any time
• No one can reverse transactions
All of these things are things we value, things that are different in TradFi
Blockchains are often compared to countries because they operate as independent, walled economies. These blockchains establish rules that make people willing to invest and build on top of them.
1. Property rights give me confidence that my assets won't disappear
2. Censorship resistance means that someone else can't prevent me from participating
3. We can change blockchains with democracy
We vote with our money on what is important to us by participation.
People are often selfish, short-sighted, and unreliable, Governance is run by people. Thus, governance often sucks.
Three recent cases:
1. Tribe/Rari: In short, Rari was hacked for $80m, then voted to refund lenders who got funds stolen, then vetoed the refund vote. Basically, they put token holders over depositors. And now the SEC is subpoena-ing Coinbase for transaction data that has to do with the case.
Imagine if a bank got robbed and told depositors they were out of luck so that they could protect the wealth of the board of directors: that's kind of what's going on.
2. YGG/Merit Circle YGG invested in a metaverse project called Merit Circle; their investment has since then 30x'ed. Until the DAO decided that they didn't want YGG to have the SAFT anymore, and voted to cancel their seed investment.
What? Imagine if you wrote a check to a crypto project, they took the money to build the project, then ripped up the check after you were up 30x If this starts to happen, institutional money will never touch the space again.
3. Solend Now, Solana-based lending platform Solend has passed a governance proposal to take over a private account. A whale borrowed $108m in stablecoins against a $170m Solana position, if it gets liquidated it would tank token price and potentially crash the Solana network.
They plan to take over the account to mitigate risk, but you can't just take over someone's private assets like that. Think of what precedent it would set. Can whales now take over small retail accounts with a governance votes? Property rights must be enforced at all costs.
Let me interrupt for a sec - This thread is based on an article I wrote for my newsletter Crypto Pragmatist. If you're enjoying it, you should check it out:
Some other examples of governance disasters:
• A Juno Whale had $34m of $JUNO tokens confiscated
• Wonderland debacle prevented investors from having a 'treasury rage quit' option and continues to trade below treasury value
In the last few months, as we’ve seen notable centralized institutions in the crypto space fail:
• Lending platforms Celsius and Babel
• 3AC The building blocks of DeFi collectively have held up to the stress test. And now they're failing, due to a human component.
When people think of democracy in crypto, they think of: • 1 token = 1 vote Governance that can go back on a promise is equivalent to no governance at all. No; democracy is not a structure by which to change the rules, it is a structure by which to uphold the rules.
I'm not advocating for governance by autocrats or saying DAOs are a bad idea.
But we need solutions.
• Optimism has created a two-house voting structure that doesn't just take tokens into account
• Innovations with identity, credentials, on-chain reputation can help as well.
Dangerous precedents are being set right now, and crypto investors NEED to be paying attention.
Look for projects/founders that are aligned with the ideals that got us here:
• Permissionless design
• peer-to-peer networks
Look for founders who want to do right by their communities first, the token valuation will come second. Doing the right thing in crypto is the only chance we have–without it, the industry will end up in the rubble heap of history.
So now you know!