xBNT Governance Analysis: EDEN
Since we launched xBNT, users have been able to access the impressive returns of Bancor staking without the burden of high gas costs and heavy position management overhead, all while maintaining a strong voice in governance. This voice is expressed through Mandated Governance, which is the framework for applying governance that we have developed in collaboration with the community.
The xBNT product has been unique in the xToken ecosystem as having one of the most active and involved governance processes. The Bancor community is a highly involved and very technically competent DAO, and we have been very grateful to learn from and participate in their process. In that spirit of collaboration and transparency, we wanted to take a moment to highlight an interesting set of four separate, interrelated proposals, that have all come up for votes recently, and explain how we reached a conclusion in how to apply the Buchanan mandate in these votes.
The votes concern the whitelisting, co-investment, and liquidity mining programs for the Eden Network (EDEN) pool on Bancor.
When the EDEN token was proposed for a whitelisting, our analysis concluded that voting Yea was in-line with the fund mandate theme of emergent choice. This was based on two factors: first, that the Bancor community was already partnering with Eden to route volume through the Eden protocol and, second and foremost, the healthy DEX volumes that have been generated from swaps of the EDEN token.
Tracing the complications
While the initial pool was reasonably successful, a proposal shortly thereafter to raise the co-investment to 400k BNT — as well as institute a liquidity mining rewards program for the pool — raised several complications incongruent with the Buchanan mandate.
Firstly, the limited scope and process architecture themes both generally prefer governance actions that are as technically reducible and low friction as possible, and that any changes to governance should be as atomic as is feasible. Although it is common in the regular course of Bancor governance to propose a co-investment increase at the same time as a liquidity mining (LM) campaign, this introduces multiple changes at once. In those cases, each component of the proposal is evaluated separately on its own merits, making the bar for passage higher…
The second potential conflict we saw in Eden’s proposal, was that this LM program would run simultaneously — and therefore be competing with — another EDEN LM program already running on SushiSwap (WETH-EDEN). In examining the program on Sushi, we came to two conclusions: first, it wouldn’t be beneficial to compete with the Sushiwap campaign, and second, that the Sushi LM campaign was not incentivizing volume at a level worthy of the cost outlay, suggesting to us that an LM campaign on Bancor could see similar challenges.
Although the initial proposal for an LM campaign passed (despite xBNTa’s Nay vote), the issue soon came back up for discussion. About a month later, a third proposal was put forward suggesting that the DAO re-allocate the LM rewards solely to the BNT side of the pool, effectively cutting out EDEN stakers from the campaign. The justification for this was concerns about the effectiveness of the campaign, as well as questions as to whether the Eden team had followed through on certain commitments to prioritize Bancor transactions that would benefit the overall Bancor community. Finally, a fourth proposal was submitted to simply increase the co-investment limit in the pool to 2m BNT.
The fund determined that voting to re-allocate the LM rewards away from EDEN token holders made sense based on the previous analysis of program effectiveness and the updated concerns on EDEN’s commitment to Bancor. However, the mandate determined that the EDEN-BNT pool was still an active pool overall and worth providing IL protection for. Therefore although the fund voted to re-allocate LM rewards, it also voted to raise the co-investment limit.
Although these votes may have been somewhat confusing if viewed in isolation, we hope that this short explanation can better elucidate the thinking that goes into determining voting decisions based on the fund mandate, as well as serve as a point for further discussion with the community.
We look forward to continuing to update and engage with the community about this and other governance matters.