Following the meteoric launch of the Balancer Labs governance token, the Decentralized Finance Protocol (DeFi) has quickly implemented changes to limit large players from exploiting the platform for mining BAL tokens, rather than for trade in cryptoactives.
A launch valued at USD 3 million tokens was made to users who store assets in the Balancer funds, and the protocol has encouraged the storage of assets in the exchange funds to reap the rewards of mining without significant commercial activity, which has been called „liquidity mining“.
On June 25, Twitter user „Predictions Exchange“ reported that the FTX of the crypto-derivative exchange was „playing“ with the BAL issue, estimating that the platform was „about to receive > 50% of this week’s distribution“.
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The Balancer Liquidity Mine
In response to the apparent „game“ in the system, Balancer Labs launched a community vote on its Discord platform, and discussions concluded that „a white list of eligible tokens will be applied“ to restrict the progress of distributions.
The team tweeted that the measure would address „attempts to gamble with the distribution process,“ while ensuring that changes to the mining rules are not retrospective.
The Balancer vote and settlement has been criticized by Sam Bankman-Fried, founder and CEO of FTX, who said the vote undermined the governance of the Balancer protocol through its BAL token, resulting in „a generic person-driven decision-making system.
He also warned that „making any modifications on the fly“ is „dangerous for a DeFI project,“ stating that „DeFi is about creating systems without permission that are not at the mercy of people’s whims.
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„That’s part of what makes DeFi so hard to do well: if you decide you want to change something, you often can’t, or you’re restricted in how you do it,“ he added.
Protocols must be adapted to survive
Kain Warwick, the founder of the DeFi Synthetix platform, tweeted that „every incentive that Synthetix has designed has been played in some way… that’s why we do small-scale testing and then iterate“.
Ultimately, Warwick predicts that the attack will prove „good in the long run for Balancer as long as they don’t change the rules retroactively and don’t make a knee move that is detrimental.
Twitter user „DegenSpartan“ echoed Warwick’s sentiment, stating
„The best way to look at this kind of attack is as a gift to improve Crypto Wealth and update your protocol. If these things happen now, it means you can patch it up to prevent a larger, scarier, more extreme version from happening in the future, which could have a significant impact.“