Liquidity Farming is harmful for funding FOSS

I want to share with you an article that analyzes the economic failures of the wrong application of Token Engineering for funding Public Goods. Why so many initiatives ( Giveth , Radicle , and DEV) keep repeating the same mistakes by just adapting the same template of Curation Markets? As they always rely on Liquidity Farming and Bonding Curve emission.

Thanks for sharing!

the economic failures of the wrong application of Token Engineering for funding Public Goods.

This sounds a bit harsh to me, to be honest. You’re analzying economic failures - judged by whom? - of wrong applications - again, judged by whom? "

Are there cases where token engineering has been shown to benefit public goods and/or sustain communities working on open source? Are you assuming any good intent by these actors, or are you dismissing them all from the get-go? If the former, how can we leverage their efforts to sustain open source? If the former, how are you hoping to convince them by using words like “failure” and “wrong”? What’s a better alternative?

As well, it’s generally good practice to mention that this is not just an article, but your article, unless I am missing something.

That article (that I’ve written by myself) is self-explanatory and brings references to real-world cases where applied Token Engineering caused a lot of trouble.

You’ve mentioned that such declarations “sounds a bit harsh”, but you must know that Rug-pull schemes are not a joke!! a lot of people got harmed from these speculative games, and that social tragedy has been caused a hostile climate in the OSS community (because of the failures of the application of Bonding Curve DAOs). That’s why most developers now express a resentful opinion about any initiative that attempts to integrate blockchain payment for helping FOSS projects.

Bonding Curve has legit uses for commercial-oriented decentralized exchanges (DEX), as it helps balance a paired set of assets in liquidity pools (which is fundamental for Automated Market Makers and price arbitration systems in DeFi).

But when such token engineering is applied for sustaining public goods (whose inherently draw market failures), is when everything goes wrong. Even the author of the idea of using Bonding Curves for Curation Markets, Simon de la Rouviere, has already acknowledged that the economic incentives that agents have to participate in DAO crowdfunding campaigns haven’t gone in the desired direction.

Bad things happen when the only source of wealth that investors have, is just guessing about the future price of the nominal value from their investment titles.

Unable to recognize the real value of Public Goods and OSS projects, previous DAO solutions only resort to creating economic games based on artificial tokens emission where the price is dictated by an Algorithm (and not by a real market that should be driven by buyers’ demand). So Bonding Curve encourages actors to play against the Algorithm, without caring about the underlying project they supposedly are helping. That was indeed the diagnostics that I’ve just written in the article.

The alternative is the one that I’ve already presented in this forum many times: DAOVOTION. It’s the only solution that already recognizes the real value of Open Source, which is the Reputation that it grants for the positive social impact of the FOSS projects when they’re successfully executed. DAOVOTION doesn’t rely on speculative games, but it enables a real market of tokens that have utility in DeFi solutions.

I don’t feel like you answered this. Perhaps I am missing something in your answer, which to me seemed to reiterate some of the points in your article, focusing on certain aspects of DAOs and presenting your own model as one which fixes them.

I don’t have the energy to focus on this, unfortunately, as DAOs are only one possible method to foster a more sustainable ecosystem and I have limited time. I hope DAOVOTION can help with this problem, though! Best of luck with it.

There are many ways that a DAO could be developed for the sustainability of FOSS.

The issue that I’ve pointed out is that employing a monetary control strategy for incentivizing investments is not ethical: By treating DAO tokens as a form of currency, applying Liquidity Farming for creating value out of nothing only could lead to purely speculative-driven games, which certainly there will be many losers as investment agents have to play against each other.

By guessing the future price of their nominal investment titles, the few winners would be the ones that know better when to leave the game earlier, while the fools get wrecked when the price of the tokens collapses. As every rug-pull scheme propped by LP DAOs, it’s just a form of gambling.

And right now I don’t know a good example for OSS projects financed by that way. But the only known “successful campaign” funded by Bonding curve LP DAOs is Constitution DAO. What a meaningful use case!! In fact, every project hosted in the Juicebox DAO platform looks very similar: “Let’s buy Marvel”, “Let’s buy the Mona Lisa”. Any kind of pointless but popular social campaign that nothing has to do with knowledge production of software development.