Meta-DeFi protocols are becoming increasingly popular following the success of Yearn.finance. The project is essentially a yield farming hedge fund that lets people participate in complex strategies to farm the governance tokens, or GTs, of other protocols.
Yearn is just about business — it sells any tokens it obtains through its activity. But a new project wants to reverse that concept to focus completely on the governance power offered by these tokens. PowerPool is a meta-governance protocol project that seeks to concentrate governance tokens of all platforms under one roof. Developed by a group of anonymous developers, it is quickly gathering support in the business ecosystem, with firms like Delphi Digital entering a position.
Additionally, OKEx exchange announced that it would list PowerPool’s CVP token among other new tokens like Sushi and YFV, with primarily China-focused exchanges following suit. Jay Hao, CEO of OKEx, told Cointelegraph that the decision was motivated by the exchange’s “commitment to furthering the development of the DeFi space,” which includes supporting “up-and-coming high-potential DeFi protocols.” He emphasized that OKEx is not an investor in the project, however.
Cointelegraph also spoke to one of the protocol’s anonymous developers, who goes by the pseudonym “Leeroy,” to learn more about why high-profile investors are showing interest in the project. Indeed, the protocol was designed to attract both major ecosystem players and minor token holders alike.
How does PowerPool work?
The protocol works in a similar way to existing lending protocols like Compound or Aave. Users who are uninterested in governance can stake the governance tokens they own, like COMP, LEND, YFI or MKR, which can then be borrowed by other people — for example major stakeholders. To do so, they will need to pay interest, which can be interpreted as essentially trading votes for money. Leeroy, however, did not agree with that categorization, saying:
“Not exactly that. People can ‘delegate’ or ‘pool’ their votes in order to get interest rate or a loan. At the moment we have two use cases for GTs in our protocol: To lend or pool GTs to earn interest rate via a money market model, or to use GTs as a collateral to get a loan in other tokens — for example, stablecoins.
“So, by adding GTs in PowerPool users can expand the utility of their GTs by adding cashflows to their token holdings in the former case or getting a loan in the latter. In both cases they also earn CVP via a liquidity mining mechanism.
“So, they do not ‘trade’ their votes for money, they add tokens into the pool to earn interest rate — or a possibility to get a loan using their GT holdings as a collateral; and as they became CVP holders, they also ‘trade’ their votes for possibility to influence in votings in other protocols by owning CVP.”
Why the need to create a new project?
In many ways, the description matches what platforms like Aave and Compound are doing right now. This raises the question as to why PowerPool should exist as a separate entity when something similar can be done elsewhere. Leeroy highlighted the potential conflict of interest:
“For example, now Aave offers lending markets for GTs. They also decided to use the idea to use pooled GTs for voting. LEND holders decide how pooled GTs will vote. Let’s consider the case when the GT is COMP. So it looks like COMP holders will delegate their voting power to LEND holders — a competitor protocol!
“It is the same if JPMorgan delegates the board votes to Citibank. Weird and unsustainable. In our opinion, we need a separate project for that as it has to be a neutral platform, unrelated to any other protocol.”
What’s the purpose of delegating governance tokens?
The solution adopted by PowerPool seems similar to other protocols, but the purpose of the project goes far beyond simple lending, according to Leeroy:
“The ultimate goal of PowerPool is to form the meta-governance layer in Web3.0. If enough tokens are pooled, a wide community of Majority, Minority, and Protocol Politicians will participate in governance with CVP.”
“I mean, at least they’ll have a significant share of voting power during votes or be a ‘loud voice’ that is heard across the industry. They can influence the development of the whole industry, establish certain standards, for example, for collateral types, etc.
The goal is solving voters’ apathy, providing additional value to GT holdings and increasing capitalization of votes, as the more tokens are voting — the more secure is the voting system.”
How does this solve voters’ apathy?
On the face of it, pooling tokens just to earn interest is the opposite of solving apathy. But the project has another important feature that deals with this issue, Leeroy explained:
“Minority token holders aggregate their votes via pooling and de-facto delegate them to the community of CVP holders. They don’t delegate their tokens to the specific person — they delegate them to the community of CVP holders, to which they belong themselves, if they participated in the liquidity mining.
“Voters’ Apathy is solved as a lot of ‘passive’ token holders will convert their tokens to ‘actively participating’ by delegating their tokens to the pool. It will increase the vote capitalization, which is how many tokens participated.
“It is clearly a solution for Voters’ Apathy once a significant share of minority token holders supplied them to the PowerPool.”
How to deal with the plutocracy in blockchain governance?
Governance in blockchain is a complex topic, but existing experiments suggest that rich token holders drive the majority of the decision-making process. Proposals on protocols like Compound or Yearn.finance are often issued and voted on by major token holders. The system of “one token equals one vote” is in general a manifestation of plutocracy — a system where wealth defines power.
One possible concern of a system like PowerPool’s is that it could further exacerbate these issues — rich entities could gain an even larger slice of the voting rights by borrowing them. But Leeroy believes that the representation mechanism will have the opposite effect:
“Talking about plutocracy in blockchain governance, it exists in any of them — the majority of votes occurring in blockchain protocols are owned or manipulated by whales. We try to do the opposite and engage minority holders — whose tokens often aren’t participating in voting at all now — as well as whales and Protocol Politicians to establish social consensus around voting using pooled tokens.
“In our protocol people cannot ‘vote just using money’ — you need to buy a lot of CVP to really influence PowerPool voting. Here I mean the late stage of the protocol, when it matures, tokens will be mined by LPs, and capitalization will be high.”
“We named it the ‘Social consensus,’ as from some point of view it looks like consensus in blockchain. So we are not trying to trade votes for money, but to avoid that and create consensus around it.
Can one-party dominance be avoided?
The allure of capturing all tokens supplied to the protocol may incentivize protocol takeover attempts, meaning that users would still have little choice in how to delegate their tokens. The representation, delegation and borrowing features of PowerPool would be made useless if one particular faction took over the protocol. One possible solution is to fork a new protocol for each faction, but Leeroy believes this won’t be necessary:
“We think that specific factions in crypto will create unions on PowerPool, but we are already developing tools for that. It will work like small DAOs of CVP holders which vote together and can delegate their CVPs to DAO representatives.
“Regarding forks, we will make sure that our protocol will satisfy all requirements of different communities of GTs, but also we are aware that people will make at least several forks. The protocol is open-source, the idea is fresh and there are a lot of people in the DeFi space who want to make something based on forked code. The main point is community size, trust, liquidity and presence on the market, and it is not easy to achieve just by forking code.”
Governance is still nascent
The yield farming boom was mostly about existing protocols releasing their own governance token into the wild. The focus has been primarily on making money so far, but as the dust settles, the question of who controls the protocols is likely to become ever more prevalent.
DeFi is currently a very top-heavy ecosystem in which the average user commits tens of thousands of dollars to the protocols. PowerPool could effectively stimulate minority holders into making their voices heard and reduce the ecosystem’s wealth and power gap. But the playbook of governance representatives it adopted is hardly utopic — DeFi is unlikely to change the fact that most people are apathetic to direct governance.
Hao said that OKEx will be “watching keenly to see how the platform evolves and how this solution to governance turns out.” Not all of the many innovations introduced in DeFi will stick, he added, but the situation is promising: “The emergence of protocols tackling the issue of blockchain governance is a sign that the industry is reaching a new level of maturity.”
Bank of Korea Head Says Cryptocurrencies Have No Intrinsic Value
The head of the Bank of Korea, Lee Ju-yeol, said that Bitcoin and other major cryptocurrencies lack intrinsic value. However, he believes that all assets will continue to experience significant price fluctuations.
Price Surge Because of Pro-BTC Institutional Investors?
The chief of the Bank of Korea said cryptocurrencies, including Bitcoin, do not possess inherent value. In a recent news report, Lee Ju-yeol blasted the highly volatile nature of the digital asset industry.
“There is no intrinsic value in crypto assets,” said BOK Gov. Lee Ju-yeol at a parliamentary session on 23 February.
The news report quoted lawmakers asking BOK’s chief if the recent surge in the price of BTC is temporary or not.
“It is very difficult to predict the price, but its price will be extremely volatile,” Ju-yeol added.
The bank executive has also said that the recent rally in Bitcoin’s price followed by other significant digital assets may be led by multiple factors. Among them, Elon Musk’s Tesla – investing $1.5 billion. He highlighted that the latest price surge might be a continuation of institutional investors using Bitcoin as a hedge.
Ju-yeol also emphasized that BOK shouldn’t buy bonds issued by the country’s government directly. Otherwise, this would raise worries about fiscal stability and undermine the central bank’s trust.
Bitcoin Volatility Bringing Some More Hard Times For Investors?
The primary cryptocurrency’s volatility has been causing quite some troubles for both retail and institutional investors. This particular character of the digital assets has been a stumbling point for many, thus, causing some hesitations in whether to allocate funds in it or not.
BTC’s price managed to initiate another notable surge during the last couple of months, marking a consequent all-time high. Just a few days ago, it skyrocketed above $58,000, dragging other altcoins like Ethereum behind it for a while.
However, almost immediately after its upgrowth, BTC suffered a significant correction, settling unsteadily around $50K as per the time of the writing. As a result, the cryptocurrency market capitalization lost more than $300 billion in two days.
Interestingly, JPMorgan strategists said recently that Bitcoin’s illiquidity could bring more problems. Analysts from the US multinational banking institution argued that BTC is in a liquidity shortage, warning investors that the primary crypto-asset could suffer another price drop.
Featured Image Courtesy of WSJ.
Cross-chain bridges and DeFi integration are pushing these 3 altcoins higher
The cryptocurrency market is showing signs of progress following a multiday sell-off that saw the total market capitalization drop by more than $400 billion as Bitcoin’s (BTC) price briefly fell below $46,000.
While the majority of altcoins have entered a consolidation phase that includes a retest of underlying support levels, several projects have started to regain lost ground after new developments reignited investors’ optimism.
Cardano’s ADA started the year with a bullish spark that saw its price increase 624% from $0.165 on Jan. 2 to a high of $1.20 on Feb. 20. This week’s sharp correction pulled the price to a swing low at $0.80, but it is clear that traders bought the dip.
Since hitting a swing low at $0.80, ADA’s price rallied 30% to $1.05 following the news that community members at Venus Protocol had approved a proposal to bring ADA to the Venus mainnet.
— Venus (@VenusProtocol) February 23, 2021
VORTECS™ data from Cointelegraph Markets Pro began to detect a bullish outlook for ADA on Feb. 14, prior to the recent price rise.
The VORTECS™ score, exclusive to Cointelegraph, is an algorithmic comparison of historic and current market conditions derived from a combination of data points including market sentiment, trading volume, recent price movements and Twitter activity.
As the chart above shows, Binance introduced staking on Feb 10., and the VORTECS™ score for ADA rose to a high at 88 on Feb. 14
On Feb. 9 the Matic network rebranded to become “Polygon” as part of a strategic change to become a layer-two aggregator. The move was done in response to the growing momentum of Polkadot and a desire to build an interoperability protocol on top of Ethereum.
High gas fees on the Ethereum network have increased the need for layer-two solutions, and Polygon has emerged as one of the top solutions with projects like Aavegochi and Golem already operating on the protocol.
The rebrand helped lift the price of MATIC from $0.07 on Feb. 9 to an all-time high of $0.197 on Feb. 20 before the market downturn pushed it back down to $0.111 on Feb. 23.
Since that time the MATIC has recovered 62% to trade at $0.16 as the community and total value locked on Polygon continue to grow.
Stacks (STX) was the breakout star on Feb. 24 as the layer-one blockchain solution designed to bring smart contracts and decentralized applications to Bitcoin saw a record $166 million in trading volume that elevated STX to a new all-time high of $1.17.
Excitement for the project comes after the Feb. 23 announcement that STX holders can now participate in delegated staking from the Stacks wallet, allowing them to earn BTC rewards.
According to data from Cointelegraph Markets Pro, market conditions for STX have been favorable for some time.
As seen in the chart above, the VORTECS™ score for STX hit a high of 87 on Feb. 23, around 30 hours before the price increased 75% to its new high of $1.17.
Interoperability, cross-bridge solutions and staking have emerged as drivers of growth that help incentivize investors to hold their tokens and also attract new participants to old and new blockchain projects.
Following the recent market downturn, it’s clear that projects that offer tokenholders multiple ways to earn a yield and operate across separate blockchain networks are beginning to stand out from the rest of the field.
Former London Stock Exchange Group CEO Urges UK Government to Explore Cryptocurrencies
The former CEO of the London Stock Exchange Group, Xavier Rolet, has advised the UK government to look into cryptocurrencies and SPACs to minimize the adverse impact of Brexit. In a recent report, Rolet claimed that the UK has trailed behind other countries in both aspects.
The UK Should Turn To Crypto And SPACs?
Born in France, Rolet is a businessman and the Chief Executive Officer of the London-based credit-focused asset management firm CQS. Before assuming this position, though, he served as the CEO of the London Stock Exchange Group and was named as one of the 100 best CEOs in the world in 2017 by the Harvard Business Review.
In a report cited by Bloomberg, Rolet touched upon the potential consequences to the UK economy following the withdrawal from the European Union and the European Atomic Energy Community, better known as Brexit.
The executive believes that the UK has two viable options to consider if it wants to minimize the risks and help the nation flourish.
In the first one, he urged the government to “promptly consider the SPAC revolution.” Also referred to as “blank check companies,” these special purpose acquisition companies (SPAC) operate as shell corporations listed on a stock exchange with the idea of buying out a private company, thus making it public. Ultimately, this strategy eliminates the need to go through a traditional initial public offering (IPO).
While the US has seen significant adoption in the past year with a 10x increase in the raised funds compared to 2019’s results, the UK regulators have halted their progress on the London markets.
Rolet’s second advice involved digital assets as he noted that “all relevant UK government agencies should be resourced to thoroughly understand cryptocurrencies.”
With proper regulations, the crypto ecosystem could “place London and the UK at the center of a reputable and safe financial market.”
The UK’s Regulatory Approach To Cryptocurrencies
While UK’s regulators have hindered SPACs’ progress within the country, the nation’s financial watchdog, the FCA, has also been rather harsh against the cryptocurrency industry.
As of the start of this year, the Financial Conduct Authority banned crypto derivatives and exchange-traded notes (ETNs) to retail customers.
Additionally, the watchdog has issued several warnings to investors that they could lose all their funds if allocated in digital assets.
The regulator also announced that all UK-based digital asset businesses need to be registered with it but extended the deadline for applications to July 9th, 2021.
Featured Image Courtesy of TheGuardian
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