What a can of worms.
This weekend, Adamant Finance, a yield aggregator on Polygon, initiated a governance vote to “blacklist” wallets it said belong to Alameda Research, a crypto hedge fund that trades up to $10B a day in tokens and derivatives. The fallout has been fast and furious.
The action came in response to community concerns that a single entity controlling nearly half the Total Value Locked (TVL) in the platform posed an existential risk to the project. The entity’s outsized position enabled it to earn and dump a substantial share of ADDY token rewards.
The proposal gathered support, and Crypto Twitter quickly erupted.
The Adamant team, perhaps in response to the backlash, voted against the blacklisting proposal and ended the vote prematurely, an unusual move as far as governance votes go.
The original proposal and subsequent tweet have since been deleted, along with the spirited discussion that took place in the project’s Discord. But Adamant shouldn’t pretend it didn’t happen.
Contacted by The Defiant, the Adamant Finance team made this comment:
“Our statement and recap of the proposal is available on our Medium site.”
“The enthusiastic reaction from our community was exciting and we’re glad that Alameda chose to withdraw most of their funds without further action on our part. We have a number of anti-whale initiatives already in place and are working on further benefits to long-term ADDY holders even beyond the already ridiculously high dividends.”
“We’re looking forward to continuing to build and the future of Adamant Vaults.”
DeFi’s Whale Paradox
While many were quick to point at Adamant’s tokenomics as the source of the problem, this isn’t the first time that Alameda has been targeted by a DeFi community.
When asked about farming and dumping SUSHI tokens and reportedly shorting YFI on our podcast in November 2020, , Alameda chief Sam Bankman-Fried said his firm’s involvement in DeFi was motivated by short-term profits. He added that Alameda will not seek to have a long-term impact on protocols via governance.
Alameda’s sharklike reputation has also been bolstered by buzz that it is heavily farming Convex Finance’s CVX tokens.
Large investors like Alameda undoubtedly play an essential role in the crypto ecosystem and have done a lot of good work to bring attention to the space and foster adoption.
But when it comes to DeFi, should protocols take measures to protect themselves from ‘farm-and-dump’ tactics? Or is it a sign of things to come as more institutional investors enter the space, crowding out the humble yield farmer?
One thing’s for sure, there’ll be no shortage of whales challenging the mission and culture of myriad DeFi protocols in the months to come.
Disclosure: The author holds positions in most of the projects mentioned.