On July 29, 2020, Balancer Labs, the dev team that runs decentralized finance (DeFi) protocol Balancer, came under heavy criticism for blacklisting a pool with about $20M worth of funds on its platform.
The blacklisting took effect without allowing participants to vote on the decision using the project’s alleged governance token, BAL.
The governance token was originally intended to enable holders to take part in making decentralized governance decisions that will determine the future of the Balancer project.
Nonetheless, Balancer Labs went on to blacklist a YearnFinance (YFII) pool from its platform without asking the governance community to decide on the move.
“So @BalancerLabs just blacklisted a pool and removed it from their frontend… a pool with **$20 million** of funds in it. They did this without any community governance at all,” user intocryptoast lamented.
Are DeFi Projects Truly Decentralized?
In the recent past, Balancer Labs has finalized a sequence of community voting procedures to be used by BAL token holders when deciding on protocol governance and improvement decisions.
Nevertheless, the latest blacklisting casts doubt over the precise motives behind the distribution of the so-called “governance tokens,” and whether DeFi projects are truly decentralized.
Yesterday’s blacklisting incident demonstrates that despite being labeled as a tool for governance, these tokens could become irrelevant in deciding what changes are to be made on these DeFi protocols.
Moreover, Balancer Labs labeled YFII as a scam token in a new GitHub commit raises concerns over what criteria Balancer utilizes to categorize tokens as fraudulent.
The latest criticism towards the Balancer Labs team comes just over a month after Balancer was hacked for $450K in two separate transactions that targeted two pools containing Ethereum-based deflationary tokens.
Luckily, Balancer Labs promised to promptly compensate every user who was affected by the infamous hack.
Balancer Made Huge Mess of “Governance Tokens”
The latest incident where the Balancer Labs team made important decisions without calling on any community governance isn’t exceptional.
The DeFi project launched the so-called governance tokens for their platforms in early June. Within 15 hours after launching its “governance token” and distributing the first batch to users, the token gained over 235% and has been trading within that range ever since.
The issue came on June 24 when Balancer protocol users needed to vote on how the project would deal with questionable liquidity distribution and deal with mining rule changes.
Instead of relying on BAL governance token holders to vote on these decisions, Balancer Labs organized a Discord poll. They reported that it will now implement rules decided by a community consensus reached over the Balancer Discord channel.
Clearly, one may deduce that since BAL tokens were not needed to reach “a community consensus,” the actual use case for these so-called “governance tokens” may well be imaginary.