Allowing LP tokens to vote in Snapshot

I think rewarding people with a proportion of registration fees in order to compete with aave/uniswap etc, provided the user has delegated, is potentially a more elegant solution that would require much less code. With the right amount of revenue share most users would keep their tokens in their wallets sidestepping the whole issue. This would also lay the foundation for rewarding other kinds of participation.

2 Likes

This this this. At BanklessDAO, we make it viable that if you’re providing liquidity on Uniswap, Sushi, or Balancer, your LP tokens are weighted to count in voting in the same way that straightforward BANK tokens in a wallet would. Providing liquidity is NOT the same as selling, and we need to be clear on that point. Holding tokens for the sake of governance and not putting them to use for any other reason defeats the benefits that have been created via DeFi. If we want DAOs to continue to proliferate, if we want greater adoption of crypto, and if we want to find success for the members of the DAO, inclusivity of any and all forms of support for the token should be accounted for.

5 Likes

I think this statement is heavily dependent on how you define “best interest”. From my current perspective it is in my best interest to uphold and maintain the legitimacy of the ENS DAOs Governance as this will be the most profitable long term strategy. Not just for myself as an individual but for the entire Ethereum Community. I don’t think that offering LPs the ability to vote is just catering to speculators, it potentially weakens the ENS tokens ability to maintain 1 token 1 vote.

I think the most likely people to participate in governance are the individuals who have a long standing history with the project or are people who find value in participation. I think the ‘rich people’ you are referring to where once poor and got into a good project early enough to see tremendous gains. Imagine how loyal a governor you would be if you bought Maker at $6 and held long term. I am neither rich nor a lobbyist and I check the ENS forums daily because I want to participate in the governance of a protocol that has tremendous long term value.

This would make snapshot voting essentially useless and make ENS governance even harder for users to participate in.

Couple different problems offering LP’s voting power:

1.Tokens are not held in static amounts. If I deposit 100ENS and 1 Eth into an x+y=k liquidity pool I will have 80ENS and 1.3ETH sometimes and 120 ENS and .8 Eth other times.

2.This is a constantly changing variable as LP tokens don’t represent individual tokens but rather are representative of a users position in the pool. So ENS would need to maintain dedicated oracles to constantly monitor LPT=ENS ratio.

The problem here is that by offering users multiple options to participate in voting you weaken the token as a tool of governance. Let alone offering up the protocol to governance attacks like the one you illustrated in the AAVE example. (great example and tbh a pretty decent solution)

I understand your point of wanting to include as many people as possible in governance and I agree that offering options for people staking or borrowing on their ENS tokens would solve that issue, but if that comes at the cost of weakening the integrity of the governance process of ENS it must be avoided at all cost.

ENS is a pure governance token and if people want to participate in governance they need to have custody of their tokens.

6 Likes

This is an interesting idea, and potentially doesn’t infringe on the ENS Constitution, but that would turn $ENS into a coin that isn’t strictly for governance, right? I am not sure that’s the direction that anyone wants to go, but I’m interested to hear other perspectives on incentivizing governance.

This seems like something that needs to be debated and agreed upon, because I don’t share that sentiment. Shouldn’t we be encouraging the broadest possible coalition of participants to ensure that we have diversity of thought in our governance process? At a fundamental level, why should someone who stakes their $ENS on Aave have to give up their ability to participate in governance?

One of the core philosophies of Web3 is composability, so it stands to reason that we should embrace (or at least address) composability as part of our governance process.

2 Likes

Totally agree, this is just my position and as it currently stands the industry norm for governance tokens.

Absolutely, encouraging users to participate in governance will only strengthen the value of any D.A.O.

Because they do not have custody of the token that represent the right to participate in governance. We are all engaging in the experiment of tokenized governance together and a good starting point for participation would be to maintain custody over the token that represents your right to vote.

While composability is a fundamental design tenant of Decentralized Finance and has created the most opportunity rich environment in human history, it also creates potential negative externalities that go largely undressed by the space as a whole.

Personally I think that the crypto ethos of move fast break things is starting to look pretty immature considering that we are capturing value more effectivley than any market in human history. We as users need to start valuing stability over breaking new ground and in this current discussion I think that creating derivatives that represent voting rights is being presented as a no brainer and the reality is that creating derivatives of governance tokens is an insanely complex endeavor. (CurveWars , Governance Extractable Value )

Our main concern should be the overall stability and future of the governance process of ENS and from my perspective the ideas outlined in this post would potentially undermine ENS governance with very little (if any) upside potential.

“The primary purpose of registration fees is as an incentive mechanism to prevent the namespace becoming overwhelmed with speculatively registered names. A secondary purpose is to provide enough revenue to the DAO to fund ongoing development and improvement of ENS. ENS governance will not enact any fee other than for these purposes.”

The only 2 purposes of fees are clearly laid out in the constitution and offering users a share of revenue generated by ENS would be in direct conflict with Article II.

Just my thoughts tho, happy to be here with you all to discuss these topics.

1 Like

I think this is at odds with ENS’s position as a public good and a nonprofit, and I also worry something like this would signal a hard right-turn to being extractive rather than collaborative.

A more defensible approach would be to offer ENS token bonuses to those who delegate to active governance participants and ‘stake’ those tokens; this is giving more voting power to those most involved in the governance process.

Perhaps I should have instead said “I don’t think it’s sound to ask people to act counter to their economic incentives”.

That’s not a problem for vote-counting.

This can be done offchain simply by looking at the reserves for a given pool at the time of the snapshot block.

1 Like

Providing an incentive (conceptually I like the token bonus idea that Nick brought up in the post above) is not contrary to Article II if it it leads to the ongoing development and improvement of ENS. Work would have to be done to explore whether such a system could be supported without any additional registration fees (which I would personally be opposed to).

Incentivizing governance is probably worthy of its own discussion, so I would recommend that we move that to a different thread. I think there’s potentially some great work that can be done on that avenue.

I think this is exactly right, and I worry that not including holders who stake or LP will actually decrease the amount of participation and concentrate voting power. If there’s no significant technical limitation to including the widest possible definition of “holder”, I don’t see a strong rationale for exclusion.

I don’t think its your phrasing that i’m disagreeing with. Its not clear to me that holding ENS token in a wallet for the use as a governance token is counter to anyone’s economic best interest. In fact I personally think that is the optimal strategy for not only myself but everyone involved with ENS, an equilibrium of sorts.

Just because we can stake and receive an APY on our assets does not guarantee that its the most profitable strategy. By transferring custody of tokens to a smart contract users expose themselves to risks that do not exist if they are just holding.

Could you elaborate on the technical specifics of how providing liquidity and having a variable number of tokens that a user has claim to is not a problem for vote counting. I admit my technical ignorance here and I am probably missing something simple. Also would this example produce a divergence between snapshot and on-chain voting?

I guess the point I am most curious to get you opinion on is regarding custody of tokens.
If we are all collectively engaged in the On-Chain Social Experiment of Tokenized Governance where are the boundaries for participation?

If I am borrowing against my voting rights can I vote?

Providing Liquidity?What if I’m providing liquidity and staking my LP tokens to earn additional yield?

How about Flash Loan Voting? Which could happen in a situation where AAVE puts ENS on the books.

All in all a great topic for discussion, thanks for the time and energy you put into ENS.

Agreed I think staking and rewarding with voting power is a good idea in the short term but we will run out of tokens eventually and I’m not a fan of inflating the supply. So then the question would be are those tokens better off in the DAO treasury or out in the wild.

I think you’ll find that a lot of people will do exactly that, demonstrating that they, at least, think it is in their best interests. My point is that saying “you shouldn’t want to do that” will be ineffective.

As long as we can come up with a coherent way to describe an account’s voting weight as of a given block, we can write a Snapshot strategy to implement it.

If we implement it only as a Snapshot strategy, it would create a divergence between Snapshot and onchain voting power. If we implement it using a(nother) wrapped token on chain, it would not - but options for that are a little more limited.

That is something that would need to be resolved in any system that allows staking tokens to have voting power.

Not a risk, because both onchain and offchain voting relies on snapshots as of a given block, so you can’t vote with flash-loaned tokens.

Not that I’m advocating this - but the DAO could choose to use treasury funds to buy back ENS tokens if it were running out.

1 Like

Agree to “We can’t easily allow LPed or staked tokens to vote onchain” because if allowed, could cause to weaken ENS’ dao voting power…

3 Likes

Can you explain what the implications of this are? Both positives and negatives?

2 Likes

Well, very simply it means that the “soft power” and “hard power” of the DAO would be different groups of people. A simple example would be that an executable proposal’s initial vote might pass easily on Snapshot, then fail miserably onchain when a different set of voters have their say; in that situation Snapshot is no longer a good representation of community sentiment. More subtly, the DAO might be reshaped and redirected by social proposals and constitutional amendments that don’t require onchain voting, when those same changes would be rejected by onchain voters. Or vice-versa - those who have onchain power might become unable to affect social change.

1 Like

I see. Do you think this has short-term implications? My assumption is that onchain and offchain will run fairly close to each other for some time, and that this won’t become an issue until further down the line as delegates change. Do the short-term benefits of running both in parallel outweigh the negatives over the short-term (assuming also that the DAO will adjust governance over the long-term as needed)? IMO the benefits of opening up governance and allowing more participation outweigh the negatives of potential bad behavior here, but I’m also making a lot of assumptions.

2 Likes

One major issue with this is uni V3. with concentrated liquidity, the amount of $ENS one holds in an LP can fluctuate significantly trade to trade. I would agree with @daylon.eth here that If someone places their $ENS in an LP they have essentially agreed to sell their ENS. The complications of a solution may outweigh the benefit you’re attempting to achieve.

As for AAVE et al, again I’d argue user’s are giving up their rights to vote by depositing there. Especially so in this situation as the main reason a user would borrow ENS would be to gain voting privileges. It becomes a slippery slope designing voting power to a user who is attempting to lease out their voting power. Not sure why that is a desired capability.

I wrote a skeleton of an idea here which is an attempt to create a basis to build upon for incentivizing participation by both users delegating their votes, and delegates voting with the power of their “constituents”. The idea is to incentivize average users to delegate and earn, as well as incentivize delegates to both participate, engage, and perform actions to encourage more users to delegate to them. I believe it has a basis for creating an engaging organization, though the game theory of any incentive plan will require much deliberation and forethought to avoid as much collateral damage and unintended consequences as possible - though any amount of deliberation will still require constant adjustments and tweaking to guide the desired behavior.

2 Likes

I strongly agree that LPs should be allowed to vote in Snapshot.
Liquidity Providers are willing to hold all the tokens of the pairs (I own ENS and LP on ENS/ETH => I am willing to sell ETH for ENS and vice versa), they are also the ones letting new comers become holders with less slippage on entry price.

While I like the idea in principle I fear it adds too many complications for it to be worthwhile. Issues raised before, as the dinamically changing ratio of tokens per LP, the fact that it could allow some unforseen schemes in which you get to have extra votes, etc.

Also, ideally these issues should be fixed by the AMM markets themselves. Vote delegating is becoming a standard issue with tokens, and therefore newly created staking contracts should simply have their own governance process to decide how to delegate the votes.

What would happen if we start counting votes but then in Uniswap V4 pools have their own delegation method that LP vote or maybe new Balancer pools start delegating ens tokens to the Balancer DAO? In that case would we have to keep updating the snapshot methods?

4 Likes

So the premise here is that “we” as a community want to include more users in governance by allowing people borrowing on their tokens or users providing liquidity the ability to participate in voting.

To do that you are proposing creating a scenario that would likely result in a divergence of off-chain/on-chain voting populations. Dividing a fledgling community exploring a new form of governance so that users with large holdings can profit and exert control over ENS governance.

This sounds so bad.

I think you would probably alienate existing participants who are engaging in governance for the first time. Users who vote on snapshot because they cannot afford gas would be less likely to participate if snapshot voting did not reflect actual community sentiment.

I see a lot of potential downside to creating provisions for LPs to engage in governance.

You discourage small holders from participation by de-pegging off-chain/on-chain community sentiment so that large holders can provide liquidity or borrow on their assets, I think you would create a net loss in participation.

Some really solid ideas in this post. Gonna be adding some comments to this soon.

3 Likes

I’m also part of Bankless DAO and this works very well. $BANK has remained very stable while adding avenues for members to invest. Having that liquidity available makes it easier for others to join our community.

If the voting system is simply one token = one vote, at a very simplified level, isn’t locking your tokens into a LP smart contract quite literally selling your votes? Particularly in the case of Uniswap, which is all I have personal experience with as an LP. Like if the other asset paired to your ENS depreciated significantly against it, wouldn’t the market just come in and swoop up all of your ENS? I think the less surface area for quickly and reversibly leveraging ENS tokens the better, since they are also governance votes. Things like flash loans and arbitrage bots could really pose more significant risks of collusion and 51% attacks, right? Obviously it can still happen without incorporating LP tokens, but wouldn’t somehow including them as votes just open the governance to even more nefarious actors?

4 Likes