Flare Network: The Vote
On January 9, 2023, Flare Network completed its token distribution event, dropping 15% of its total supply to XRP holders who participated in the December 2020 snapshot.
Much has changed since Flare completed the XRPL snapshot in 2020: Flare launched Songbird Network, Flare’s “Canary Network,” some of the largest entities in the digital asset space dissolved overnight, exchanges filed bankruptcy, lawsuits were filed against influencers and industry leaders, NFTs and crypto became mainstream terms, digital ledger technology began to see enterprise adoption and fresh faces and organizations showed up to build. As all this change was occurring, Flare Network was building. As they built and the industry changed, so did their products.
As a participant in the 2020 snapshot, over the past two years, I have participated and studied Flare Network and its products. Many exciting possibilities took a back seat and other new and equally exciting ideas took center stage. In the end, Flare delivered a product described by project CEO Hugo Philion as, “The Google of blockchains.” Additionally, Flare Network launched a new website before their token distribution event which highlights their two flagship products: The Flare Time Series Oracle and The State Connector. Together these products acquire data from the internet and other blockchains and deliver that data to applications in a reliable way. Further can be found on the Flare Network website.
In addition to the above protocols and developer tools, Flare Network also has developed a voting systems that allows proposals to be put forth by the Flare Foundation and the Flare/Songbird token holders. Token holders then vote on proposals on the network. There are different requirements for proposals put forth by the token holders versus those put forth by Flare Foundation. Token holder proposals must first pass a vote on Songbird Network, which acts as the lower house of governance to Flare Network. Also, different voting thresholds must be met based on the type of proposal.
Prior to Flare Network’s launch, Songbird Network held their first network vote, voting to limit the max power given to an individual data provider from 10% to 2.5%. I participated in this vote and found the process to be intuitive, simple and quick. Also, the Flare Foundation announced that following the distribution of at least 66% of the initial token supply, they would be putting forth the first proposal on Flare. This proposal would be regarding the distribution of the remaining 85% of the token supply.
Upon reaching the 66% threshold, Flare announced that their proposal was live and voting would begin. As token holders began discussing the proposal, it became clear that the proposal was polarizing.
Originally, Flare Network intended to distribute the remaining 85% of tokens to snapshot participants via monthly airdrops over a three year period. The proposal put forth by Flare Network would make the significant change of distributing the remaining FLR to holders of the FLR token, meaning those who received FLR lose all future distribution rights if they sell their tokens and those not receiving FLR are included in future token distributions if they have purchased FLR. The distributions are based on total holdings, so those receiving FLR may also greatly increase their monthly distribution amounts by purchasing more FLR.
Per the proposal, to receive additional airdrops, in addition to holding the FLR token, token holders must “wrap” their FLR token to create WFLR. From my understanding, wrapping Flare tokens gives holders the ability to utilize the token for a variety of network functions. At this stage of network development, delegating WFLR to data providers in the form of vote power and voting on proposals are the main uses of WFLR. In the future, the use cases for wrapped FLR will increase. Leading up to the Token Distribution Event, Hugo Philion mentioned that he didn’t think there would be much FLR circulating in the future, as most would be “wrapped.”
This is a simplification of the proposal put forth by Flare Network. There are additional aspects to be considered and anyone participating in the vote should read the full proposal: FIP 01
As I mentioned, I believe both options are valid. I also believe the network will be successful regardless of the outcome of this proposal. I also believe there are additional options that could be explored. Instead of speaking much on one distribution method or the other, I would like to share some of my thoughts and some of the questions I have asked myself when considering how to vote.
There has been much discourse around what is “fair” for the XRP holders who were told they would be receiving the majority supply of FLR. If the network is not adopted or cannot scale as intended, the amount of tokens held and the distribution method which they were delivered will not matter.
This brings me to my first question: if the proposal is adopted, is there an entity/project building on the network that would be negatively affected by not receiving the additional FLR via the original method? Is there a DeFi project, for example, whose organizational model depends on receiving those monthly tokens to launch/incentivize their project? If so, is there a way to pivot to accomplish the same goals using the the new method? At this time, I am unaware of any organization expressing any operational concerns regarding this vote.
Secondly, there have been many issues with exchanges regarding this distribution, including: exchanges not distributing tokens, exchanges charging high withdraw fees and exchanges going bankrupt. The proposed method allows a second chance for those who did not receive their tokens to buy in and participate. It also allows those receiving tokens on an exchange to pay a one time withdraw fee to exit the exchange and take self custody. A reoccurring exchange fee to withdraw tokens monthly could create sell pressure for the recipient who otherwise would wrap and hold their token.
Some exchanges whose users participated in the snapshot, have since filed bankruptcy. Celsius, for example, is in bankruptcy proceedings now. They have petitioned the court to allow FLR tokens to be distributed to their rightful owners, instead of being held as part of the proceeding. Changing the distribution to a one time event would simplify the request being made to the court and avoid FLR tokens being involved in any future bankruptcy litigation. I do believe the added responsibility of monthly distributions over three years would decrease the likelihood of a favorable outcome.
Participation is critical to the success of Flare Network. By voting against the proposal, who is remaining tied to the network and who is being kept out? I have participated in most events Flare has hosted. Many times, the most knowledgeable and enthusiastic participants are not airdrop participants. Alternatively, I have spoken to many token recipients who do not understand anything about FLR beyond the current dollar value.
While the proposal outlines benefits for the holders and the network in the event of a yes vote, there is no mention of what will occur in the event of a no vote. Will the Flare Foundation put forth a new proposal? Will community governance be enacted, allowing community members to put forth proposals? Will the network default to the old distribution method?
It is also worth mentioning that some exchanges, including Coinbase, have yet to distribute tokens? Will they be allowed to vote? There is nothing in the proposal expressly prohibiting this. If so, it seems that exchanges have found a way to capitalize off an opportunity intended for their customers. Should such a major vote proceed prior to all holders receiving their tokens? If the exchanges refuse to distribute the tokens, could the community propose the tokens be burned prior to any network voting? If the vote passes and exchanges choose to wrap and delegate undistributed tokens, the majority of Flare Network, which is designed to be a community governed network, will be controlled by entities that were never intended to hold the token to begin with.
It is worth noting that there are many technical and economic considerations to be made as well, and I hope community members with expertise in these areas bring forth this information for consideration. There are also items in the proposal worth exploring which I will not be addressing here. As I recommended, everyone should read the proposal in its entirety.
If the idea of FLR is something special for XRP holders, 15% of the total supply and the opportunity of being introduced to Flare Network two years in advance is enough for me, personally. Anyone studying the network and voting on this proposal also has the opportunity of foresight to buy more if they see fit. Finally, if holders choose to cast votes based on what is best for Flare, I believe, they may end up with less tokens (maybe not), but will end up with more value.
Now, Flare token holders have a decision to make regarding the future of the network they now govern: will they keep the status quo or unlock the doors and open the playing field for all? Who knows? Maybe, they’ll propose something completely new. That’s the beauty of decentralized networks and on-chain voting after all.
Disclaimer: BLK MOON’s insights, strategies and priorities may not be best for any individual or enterprise. BLK MOON takes an exploratory, evolutionary and artistic approach to investment and finance management. All content created and distributed by BLK MOON should be viewed as entertainment, information and experimentation and should never be taken as financial advice. BLK MOON is not and does not employ, financial advisors.
