Many people commented on the spirit of the proposal.
Adding my 2 cents, I agree that governance/DeFi is currently a bit unbalanced in favour of the former, and we can see it in TVL (total DeFi TVL is 210m$ despite including a huge amount of stablecoins and total DEX TVL is around 25m$, while governance TVL is 1.2B$!).
Also, I noticed that some people argue that DeFi doesn’t need it because it is doing pretty well now without being subsidized. Actually, it is significantly subsidized right now (via other, less sustainable means) and can barely compete.
But mostly, I want to focus on technical aspects here:
The proposal only talks about LP tokens on AMM DEXes. How is it going to work with other DeFi protocols? Very generally, there are 2 kinds of protocols:
- Ones which tokenize your positions, you deposit funds and receive tokens which represent your position. The most obvious example is DEXes which give LP tokens, but there are others, e.g. most synthetic derivatives protocols work similarly.
- Ones which use local storage to save info about your position. For example, in yield farming protocols, you can stake your LP tokens and continuously receive rewards. The amount of staked tokens will be saved in a smart contract, so you will be able to unstake later.
In Cometa, we are building both: Yield Farming which uses local state and LaaS, which will tokenize staked ALGO positions with tokens minted by the LaaS smart contract.
Now, after reading this proposal and interpreting naively, I feel like we are going to miss out. People are not going to use our services without additional incentives because they will not receive governance rewards for it.
To be fair, it is not changing the situation much, many great protocol designs, including LaaS cannot be competitive without additional incentives now and will not going to be after the implementation of this proposal.
So basically, this proposal just kicks the can down the road: DeFi was unable to compete “fairly” against governance, and now DEXes will be able, but not other DeFi projects.
Are there any plans to make this mechanism more general to be more inclusive for all DeFi projects, not just DEXes?
P.S. Honestly, from an economic perspective, it would be better to simply reduce governance incentives. It is just too much. It creates a lot of inflation and forces people to participate in governance just to avoid inflation. I feel like it is probably not going to happen, unfortunately.
TL;DR: it is a welcomed change, but implementation should be fair and inclusive.