The concept of bribes in DeFi has recently been picking up traction. The bribe model was popularized during the famous “Curve Wars” and generally revolves around using incentives to influence voter decisions in governance structures. Many in the DeFi community have expressed mixed feelings about this practice. Some argue that it is unhealthy for the market as it creates an unfair environment for smaller players. The obvious upside of bribes is that voters benefit from them monetarily. What long-term effects will bribes have on the DeFi ecosystem and how will the protocols adjust and adapt to this practice?
What are bribes?
The core idea of bribes is about getting a particular decision in your favor in a digital decentralized space. DeFi is often compared to the wild west since the space is decentralized and very unregulated; it allows for concepts such as bribes to come into existence. Essentially Bribes are a new way for different protocols to direct liquidity. Recently the space has seen plenty of traction with the recent “Curve Wars” which has definitely influenced many other protocols to adopt this idea of bribes.
What are some of the use cases?
We can see how this benefits the protocols heavily but let's see how users can also benefit from these bribes. For instance, let’s take a look at BeethovenX, more specifically let’s look at their recent Farming Incentive Gauge Vote (round 6).
The image above shows 3 columns: the first one depicts the name of the different pools and respective protocol, the second being the quantity of BEETS that the pool has accumulated during the proposal, and the last column shows the threshold of votes by percentage. We can see that one particular pool was very favorable with 34 percent above the threshold. What was the incentive for the majority of participants to vote for “One God Between Two Stables” over any other pool? It turns out that the protocol paid out $241,647.78 to influence the votes in their favor. In other words, the protocol paid out bribes to the voters to influence the voting behavior. From a user’s perspective, it is just a game of maximizing returns; it makes sense to vote for the pool with the highest yield.
Looking at the data, we can see the true impact of these “bribes” to users.
From the table above we can clearly see the type of impacts bribes are having. In this case, we can see that the volume jumped from less than $300k USDC to almost $1.8M overnight. We can see that bribes are certainly playing a remarkable role in this new market.
How are voters profiting?
We’ll be using the previous example to showcase how some voters are profiting from this. For the sake of simplicity and understanding, we’ll be focusing on the top two pools, i.e., “One God Between Two Stables”, “Pirate Party”. Let's say we have two voters Alice and Bob each with 1000 fBEETs. Alice voted for “One God Between Two Stables” while Bob voted for “Pirate Party”. So who would have made the most profit?
We can clearly see that in this particular scenario Alice would have ended up with $19.33 USD as opposed to Bob who would have made $16.57 USD in his investment. In this case, voting for the pool with the highest bribe would have given out the most beneficial returns. This example gives us an idea as to why the voters are motivated to vote for these protocols.
Where is this heading?
What effect is this having on the DeFi ecosystem? This “pay to play” bribe model seems to create an environment where the player with the most capital wins the war. This could potentially rule out any new players that come into the scene as it’ll be very difficult for them to compete with some of the bigger more established players. There are a lot of opinions when it comes to bribes at the moment but since this is a new emerging market, the future of this practice will have to be decided by the community. As the DeFi sector of crypto grows, it is our duty as individual regulators of the space to take control and shift the boat in the direction we think is best.
The author is a Solidity Developer intern at Polygon interested in Blockchain and L2 solutions. Some of their hobbies are looking at different ZK proofs. They are also one of the founders of the Queen’s college Blockchain club in New York City. In his free time, he enjoys exploring Brooklyn and eating sushi.
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Amazing work!
Very well written! We definitely need to take action as voters.