Balancer DAO’s Treasury Is Rapidly Diversifying Across DeFi

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The Balancer community has begun integrating itself with other decentralized finance protocols by trading its governance tokens for those of other DAOs, also known as treasury swaps.

This could be the start of a larger trend of DAOs taking a more active role in other DAOs, using the strength of their holdings to trade for influence across decentralized finance (DeFi). Holders of Balancer’s governance token, BAL, are considering two proposals now, from mStable and PrimeDAO, following a successful proposal from the algorithmic stablecoin project, Fei, that closed on November 12. 

“For now we (BLabs founders/investors) don’t vote to avoid any influence on the community’s opinion. However we are very excited about these swaps that generate long term alignment between other DAOs and ours,” Balancer Founder Fernando Martinelli wrote in the email.

What does it mean when lots of DAOs all own little pieces of each other and participate actively in each other’s governance process? It was one thing when NuCypher and Keep merged their encryption protocols because that was a clear case of two becoming one. With proposals like this, however, DeFi is becoming a blockchainified rat king of endeavors. It’s anyone’s guess where that leads, but at least all the alignment will be viewable on-chain.

“Likely, another proposal, for MIST (the token behind the DAO that built copperlaunch.com), is coming,” Martinelli wrote in an email.

Balancer is a protocol that rebalances indices of multiple tokens. In a bull market, a WBTC/DAI pool would sell WBTC for DAI as the price of Bitcoin went up, taking profits all the way up. It only gets more complicated from there. It’s large and complex enough that Balancer is also able to function as an automated market maker, using traders on the open market to enable the rebalancing of its indices.

Fei

With Fei, the Balancer DAO voted to trade 200,000 BAL from its treasury for equal parts of Fei’s two tokens: FEI, its stablecoin, and TRIBE, its governance token. This deal directly benefited Balancer because Fei committed to make a BAL deposit into Balancer’s BAL/WETH pool, using its own supply of ETH to match the BAL, which would increase the total liquidity available on Balancer.

The deal enables Balancer to lock in some of its treasury value with a stablecoin (which is insurance against a downturn), and to earn yield using Fei’s incentivized staking program, should it choose to do so.

mStable

The stablecoin yield platform mStable wants Balancer to become an active part of its governance process and to advocate for BAL holders. To that end, mStable has proposed a trade between the two projects treasuries: 20,000 of Balancer’s governance token, BAL, for MTA, mStable’s governance token, of equal value ($322,000 as of later afternoon Wednesday in New York). The idea would be that Balancer would then participate in mStable governance with its MTA tokens.

So far, over 313,000 BAL have been voted in support of the proposal, with a negligible amount opposed.

Soon, mStable will release its own version of the gauge used by the decentralized exchange for stablecoins, Curve. Curve uses the gauge to decide how much of its daily CRV emissions go to depositors in its many  liquidity pools. The proposal says that mStable has 35M MTA (approximately $37M) to distribute over the next five years. MTA rewards are already set for two of Balancer’s pools (MTA/WETH on Ethereum and MTA/WETH/WMATIC on Polygon). With MTA tokens, Balancer’s DAO could vote to keep rewards to those pools high.

It’s sort of like if Kansas and Missouri convinced the residents of a few different towns to trade places, so that each state would have at least some voters who kept the neighboring state in mind on election day.

PrimeDAO

Meanwhile, PrimeDAO wants to get Balancer directly involved in its operations.

PrimeDAO is a project with various products geared toward DAO-to-DAO cooperation, so it’s natural that it would seek treasury swaps of this nature. In its proposal to BAL holders, it writes: “Both DAOs will actively share DAO operational learnings and workflows,  starting with a bi-monthly knowledge-sharing session covering three topics relevant to both DAOs.”

This is the most complex deal. PrimeDAO is asking for 25,000 BAL ($405,000) which it will use for a pool with equal parts of its token, PRIME, and BAL on Balancer. Then it will return half the liquidity provider tokens for that pool to the Balancer treasury, so they will each benefit from trading fees and BAL rewards on the pool.

PrimeDAO further commits in the proposal to strike similar deals with other protocols for jointly owned liquidity pools on Balancer.

And 156,000 BAL have voted for this proposal with a negligible amount opposed.

Both the PrimeDAO and mStable proposals close voting on December 10.

Balancer is a protocol that can do several things, but at its core it creates indices of multiple tokens. In that sense, it seems natural or at least unsurprising that the Balancer community would come to view its own DAO as a sort of index and diversify its holdings.

The question is: will others follow, and what will happen if they do?

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