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How Balancer DAO Achieved Peace With a Clever Whale Named Humpy


Decrypting DeFi is Decrypt’s DeFi email newsletter. (art: Grant Kempster)

If there’s a DAO, there’s a whale—and it’s probably vying for domination.

In this case, Balancer has taken an interesting pivot against a crypto cetacean roaming its digital waters. After roughly eight months harvesting the popular DeFi project’s coin, Humpy has agreed to a peace treaty of sorts.

Yes, Humpy is really the name the community gave to this whale.

Balancer is a portfolio management tool that lets anyone spin up a multi-token liquidity pool. Users can then assign specific weightings for each token in the pool, auto-balancing (hence the name) as traders swap coins.

One of the protocol’s largest pools contains 80% BAL (Balancer’s native token) and 20% WETH (Wrapped Ethereum). And if you’re interested in participating in Balancer’s governance, you’ll need to join this specific pool.

In exchange for depositing funds into the pool, you’ll receive “Balancer Pool Tokens,” which represent a sort of receipt that your deposit is indeed sitting in this pool. With those BPTs in hand, you can then lock them back into the protocol in exchange for Balancer’s governance token: veBAL.

Simple enough, right? (And for a quick run through of ve-tokenomics, definitely check out our previous coverage of all things Curve Wars.) Curve was one of the first projects to launch this kind of token model.

Now, with veBAL in hand, users like Humpy can vote to boost the amount of BAL token rewards that are also distributed in each pool to different liquidity providers on Balancer. Each pool on the platform has an APR, but that percentage is usually denominated in BAL (or a different DeFi project’s native token). This is yield farming in a nutshell. But with veBAL, users can vote to increase that APR and have it distribute even more BAL.

And that’s what Humpy did. In a cycle of accumulating, locking, and voting, they were continuously able to use their substantial holdings to further boost BAL APR for the specific pools in which they were yield farming.

How Humpy farmed Balancer’s depths

In one example, they spun up a Cream Finance (CREAM) and WETH pool, set the trading fees to 10% (pool owners also collect fees from traders using the pool), and then began using their massive veBAL voting power to point additional token rewards in BAL to their pool.

Messari reported that “over six weeks, Humpy used the veBAL system to direct $1.8 million of cumulative BAL emissions to the CREAM/WETH gauge and, therefore, back to Humpy.”

And, critically, Balancer only saw about $17,000 of that as protocol revenue.

This cycle was repeated over and over in several other pools, too. Each time, Balancer governance would rally to make amendments, voting against Humpy’s strategies and even coercing another very large veBAL-holding entity (Aura) to step in to fight back the whale.

The standoff concluded with a Peace Treaty in which Humpy has agreed not to increase their veBAL position and would “vote for pools that are beneficial to the long-term growth of Balancer.”

With the dust settled, and the whale tamed, now the question (at least on Crypto Twitter) is this: Was Humpy actually a force for good?

On the one hand, one entity was just about able to dominate the entire governance procedure of a $1.5 billion DeFi project and significantly benefit their bottom line.

On the other hand, Humpy also pointed out the flaws in how governance on Balancer was handled.

Like a white-hat hacker claiming their reward, perhaps Humpy has earned his rewards for gaming the hell out of Balancer.

“We’ve addressed the incentive misalignments but we will feel these effects for years potentially,” wrote Solarcurve, a governance delegate for Balancer, adding, “Hard to say if Balancer is better off without Humpy but, I’m confident without his presence there wouldn’t have been the urgency to address the systemic issues.”

It’s a cutthroat crypto ocean out there, folks. Swim safely.

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