“All power tends to corrupt, and absolute power corrupts absolutely” - Lord Acton

Just a heads up: This post is just for education, and this post is not financial nor existential advice. I may hold tokens of some of the projects mentioned here. If you find yourself seeking world domination after reading this post, please contact me, because I think we may share similar goals (:

My deepest gratitude to @0x_kitsune, @0xindigo, and @0xSere for their patience and feedback after listening to me ramble about the ideas here.

TL;DR: Voting power is a weapon, and we should wield it carefully.

Power is forced while influence is voluntary, but if we gather enough influence, it is as good as power. I will be using the terms “power”, “influence”, and “voting” interchangeably.

We will use the Curve platform and its token, $CRV, as a case study into the important of voting power, and we will speculate on what this might mean for the future of DeFi.

Curve 101

Stable-swaps are a staple for DeFi, since we have many stablecoins (and pegged tokens). Curve’s AMM formula makes it suitable for stable swaps, because it allows for more liquidity when the price move in a narrow range.

As for why we have so many stablecoins in the first place? No one truly knows, but the market is saying there is a demand for multiple types (centralized vs decentralized, backed vs over-collateralized vs algorithmic).

The only important part to understand, for our purposes, is that different pools in Curve earn $CRV tokens, and $CRV token holders can vote on which pools get more or less $CRV rewards in the future (there’s a few steps to lock the tokens to get voting rights, but we’ll skip over that).

Imagine you’re a stablecoin whale, and you’re farming the $CRV token. Would you prefer a “valueless governance token” or “compound interest”? Of course rationality (read: greed) dictates you take value over valueless.

So there must be sufficient buying demand for the $CRV token, otherwise it becomes another farm token that gets dumped into the nether realms.

Why is $CRV desirable then?

For a stablecoin token to gain adoption, it needs to be “attractive” to use. Several attractive qualities include: Low slippage, high liquidity, high rewards.

In fact, all three qualities are tied together! When there is high $CRV rewards in a given Curve pool, whales and farmers are incentivized to LP here, which increases liquidity, which decreases slippage. Users and traders will quickly notice that certain stablecoins are better than others for all the above qualities, and this stablecoin will become rapidly adopted.

So we have the perfect Carrot and Stick setup. Controlling $CRV benefits a stablecoin, not controlling $CRV will hurt the stablecoin.

This means that $CRV is not a “valueless” governance token! And now, we have a way to price power. How much value would you place on becoming (and staying) the number 1 stablecoin?

Herein lies a chilling thought:

The stablecoin that dominates is not the most decentralized or has the best backing system, but the one that has the most influence.

Is veTOKEN accumulation end game?

Likely not! We have to remember that veTOKEN wars have only taken off since Convex launched in May 2021. And there are many methods of how projects can accumulate influence.

On the accumulation side, we have the Convex model, and we also have OHM-models, like Redacted, Lobis, and DiamondDAO. Their commonality is that they all seek to accumulate the veTOKENs in their treasuries and never let go.

I have also seen announcements for the development of voting power market places, from BribeProtocol and Rari fuse 2.0:

One thing that excites me is the announcement from Dopex saying that they will open options pools for vote gauges, which will allow you to generate yield from voting power. Since we can already use wealth to buy influence, now we have come full circle. Cue the perpetual motion (read: money) machine.

What types of things will become like $CRV?

Bridges are the first thing that come to my mind, as they are literally stable swaps but for the same token except cross-chain. If a stablecoin aims to have cross-chain dominance, they need to have high reward rates to incentivize high liquidity, low slippage. And stablecoins definitely do need to be cross-chain, because a stablecoin that cannot move around is a boring stablecoin.

You may have used or heard of several bridges, like Synapse, Allbridge, Multichain. But we may also extend the bridge analogy to liquidity hubs like Osmosis.

In fact, a useful mental model is that, when there are multiple pools of liquidity, we can add veTOKENomics to adjust the incentives for each pool, be it farm token rewards, fees, or other parameters.

So we can turn virtually any token into a veTOKEN, and all these veTOKENs become valuable “weapons” that other projects must seek out to stay competitive.

So under that umbrella of veTOKENs, we can fit spot dexes, derivative dexes, yield vaults, lending protocols, stablecoin issuers, etc. We also have tokens that govern other aspects of DeFi, such as $FXS to govern Frax issuance parameters and $TOKE to govern liquidity redirection of its deposits.

There seems to be a resurgence in governance innovations. Linearly weighted “One token, one vote” is probably not the best way to do things. However, I’m not an expert on this topic, so I’ll defer those interested to the writings of @ibansadowski, @0x_kitsune, and VB himself.

Food for thought

The below statements are not meant to be taken as truth. Please read these statements and question to which extent they may be true. I’d love to hear you tear these arguments to shreds.

1

“You need three types of power to control the world. One is influence. One is wealth. The third is… force.” – Ushiromiya George

These types of power act as checks and balances on each other in the real world. In the absence of “force” (physical violence, legal regulations), then wealth and influence become force. And wealth buys influence. Thus, wealth is all-powerful.

Should crypto become a place where wealthy equals mighty?

2

“No matter what your power is, no matter how strong your opponent, lose once and it’s over. That’s the kind of world that’s out there waiting for us. And once you lose, there’s no do-overs.” – Nagakura Imari

We may only get one chance to get the power distribution right. The future success (and doom) of many projects may depend on who is accumulating the most power now.

3

Power creates moat.

Power can be used to increase the barrier to entry to new projects. This is how legacy institutions are formed. Will institutions also form in DeFi? If so, what should they look like? Who should control them?

4

“Those with power, fear us! Those without power, seek us!” – Lelouch Lamperouge

We may scoff at the ridiculous amounts of “national security” budget of large nations, but doesn’t that just tell us that to a nation, having total domination is priceless?

So for the projects and VCs that are accumulating veTOKENs like crazy, is that actually the most rational action after all?

5

“I was dead until the moment I met you. I was a powerless corpse pretending to be alive. Living without power, without the ability to change my course, was akin to a slow death.” – Lelouch Lamperouge

Why do nations try to increase arms? Is it because the most heavily armed nation wields an advantage over others, even if they choose not to exercise their power?

For entities like Convex, which controls the majority of $CRV votes, will they act more out of their self-interest like a nation? Or more like a “neutral” third-party like the United Nations Peacekeepers?

Or perhaps, they are closer to arms-dealers.

6

Is it profitable to invest in arms-dealers?

Do the nations of the world tend to increase or decrease the sizes of their armamentaria? Also, see the defence companies stock indices (e.g. SPSIAD).

7

Is it ethical to invest in arms dealers? Is it ethical not to invest in arms dealers?

Yes, personally, I think we should, because as long as we participate in the governance of these organizations, we can shape how they develop. It is my hope that we would be able to see those with the most power act as peacekeepers rather than warlords.

A secret, for those who made it to the end

A little known secret, is that this article only contains half the magic. The other half of the magic needs to come from you, dear reader! I just know that we would have a blast when our ideas collide! Come @ me on twitter. Would love to see it!