Centralized Quick Fix Voted by Balancer to Stem Gaming System

Shortly after the incredible launch that was the governance token of Balancer Lab, a decentralized finance (DeFi) protocol, Balancer quickly started implementing changes. Particularly changed that allowed large players to exploit the platform to mine BAL tokens, instead of using it to trade in crypto assets.

An Exchange Gaming Balancer

An airdrop occurred, where more than $3 million in tokens were distributed to users that were storing various assets within Balancer pools. This protocol focused on incentivizing asset storage within the pools of the exchange in order to harvest mining rewards. They did so within the need to make any significant amount of trading activity. The protocol itself was aptly dubbed “liquidity mining” in light of this.

On the 25th of June, 2020, the Predictions Exchange twitter user issued out a report that the FTX crypto exchange was “gaming” the issuance of BAL, with the platform having gained an estimated 50%, more or less, of the week’s distribution.

.@FTX_Official is currently gaming $BAL distribution (on pace to receive >50% of this week's distribution).

Balancer uses @coingecko price feed to calculate liquidity in pools. Big players can create assets & price them as they wish to inflate numbers.https://t.co/zIESmky3NO pic.twitter.com/YE7tGV0Av4

— Predictions Exchange (@PredictionsExch) June 24, 2020

Countermeasures Put In Place

Balancer Labs responded to the apparent gaming of the system, launching a community vote on its Discord platform. This vote included discussions regarding the whitelisting of tokens that are deemed eligible, in order to try and restrict the distribution of it.

The idea is two-fold:

1) changes to the mining rules should not be retrospective

2) attempts to game the distribution process (questionable liquidity provisioning) should be dealt with by the governance as promptly as possible.

— Balancer (@Balancer) June 24, 2020

The team itself gave a tweet, explaining that this move would promptly address the attempted gaming of the distribution process, all the while ensuring that the changes to the mining rules do not become retrospective in its nature.

Protests From Involved Parties

Sam Bankman-Fried, the CEO of FTX, openly criticized the new vote and fixe of Balancer. According to him, this vote had undermined the governance of the Balancer protocol, which is done through the BAL tokens. This, Bankman-Fried claims, has rendered Balancer a “generic person-driven decision-making system.”

Bankman-Fried also warned against making any sort of on-the-fly modification, stating that it’s dangerous for the DeFi project at large. He asserted that the DeFi concept is all about the creation of a permissionless system, one that isn’t at the mercy of the whims of the people. He cited this as to why DeFi systems are hard to do well. He explained that even if you decided you wanted to do something, you can’t, often enough, or are majorly restricted in doing so.

Something to take note of is that the CEO of the exchange that gamed Balancer, to begin with, is decrying these changes. You don’t need to have a degree in law to see the conflict of interest Bankman-Fried chooses to ignore.