Why Liquidity Mining Distorts Real Estate Governance Priorities

Liquidity mining attracts mercenary capital with no protocol loyalty. Voters are incentivized to maximize short-term emissions, not long-term health, leading to empty governance forums and proposals that serve farmers, not users.

• TVL ≠ Governance: $1B+ in TVL can be governed by a few hundred transient wallets.
• Vote-Buying: Proposals become auctions for directing emissions, not improving core utility.

High, unsustainable APYs create a permanent subsidy that masks fundamental product-market fit. When emissions taper, the protocol faces a bank run on liquidity, exposing it to oracle manipulation and death spirals seen in protocols like Terra and Wonderland.

• Fake Demand: Trading volume is ~70% wash trading to capture rewards.
• Systemic Risk: The protocol's security becomes a function of its token price, not its code.

Curve Finance pioneered vote-escrow (ve) models to lock mercenary capital, but it created a new meta-game. Whales like Convex Finance and Stake DAO bribe and aggregate votes, centralizing power. Governance becomes a capital efficiency game, not a product development forum.

• Power Law: ~10 entities control the majority of voting power in major veToken systems.
• Bribe Markets: $100M+ in annual bribes paid to direct emissions, distorting all priorities.

Protocols must bootstrap with real fee generation from day one, not future token promises. Uniswap V3 and GMX demonstrate that sustainable, utility-driven fees attract sticky liquidity. Governance then focuses on optimizing fee parameters and product upgrades for users, not farmers.

• Real Yield: Protocols like GMX distribute $50M+ monthly in real ETH/USDC fees.
• Aligned Voters: Governance power accrues to those who care about fee sustainability.

Replace farm-and-dump tokens with non-transferable governance stakes or long-term lock-ups. Olympus Pro (OHM) bonds and Frax Finance's veFXS model force participants to have multi-year skin in the game. This aligns voter time horizons with protocol longevity.

• Time-Weighted Voting: veCRV locks tokens for up to 4 years for maximum power.
• Protocol-Owned Liquidity: OHM pioneered treasury-controlled liquidity, removing mercenary LP dependence.

Acknowledge that token-weighted governance is flawed. Delegate substantive decisions to expert councils or subDAOs with proven track records, while using tokens for high-level signaling. MakerDAO's Core Units and Aave's Risk Parameters are set by domain experts, not yield farmers.

• Meritocratic Governance: MakerDAO pays Core Units ~$50M annually for development & ops.
• Reduced Surface Area: Farmers vote on emission direction; experts manage risk and code.

Protocols like Curve Finance and Compound treat voting power as a direct function of token holdings, mistaking capital for conviction. This creates a market for governance-as-a-service (GaaS) where mercenary capital (e.g., from Convex Finance) rents voting power to direct emissions, prioritizing short-term APY over sustainable fee generation.\n- Key Flaw: 1 token = 1 vote, regardless of holder intent.\n- Outcome: Emissions are directed to pools with the highest mercenary bribe ROI, not the highest protocol utility.

Liquidity mining rewards are perpetual, forcing governance to constantly debate emission schedules instead of core protocol upgrades. This creates a hyper-financialized feedback loop where the largest token holders (farmers) vote to maintain or increase their own subsidies, crowding out discussions on risk parameters, oracle security, or new feature development.\n- Key Flaw: Governance is held hostage by recurring subsidy votes.\n- Outcome: Roadmap stagnation; technical debt accrues while emissions politics dominate.

The Curve/veToken model and Olympus Pro's bond-like mechanisms align governance power with long-term holding. By requiring tokens to be locked for voting power (with power decaying over time), you attach a cost to governance influence. This filters for participants with skin-in-the-game, making them more likely to vote for fee accrual and protocol longevity over transient yield.\n- Key Benefit: Aligns voter time horizon with protocol's.\n- Key Benefit: Reduces the efficiency of mercenary capital raids.

Move beyond token-weighted voting. Implement systems like Optimism's Citizen House or Gitcoin's Grants rounds, where proven contributors (developers, analysts, community moderators) hold governance power over non-financial domains. Decouple treasury and emissions votes from core technical governance. Use conviction voting or quadratic funding to surface community preferences without capital dominance.\n- Key Benefit: Separates financial from technical governance.\n- Key Benefit: Incentivizes meaningful contribution over mere capital allocation.