“ShapeShift has begun decentralization,” said Colorado Stock Exchange CEO Erik Voorhees in an announcement Wednesday detailing the company’s decision to ditch the enterprise model and evolve into a decentralized autonomous organization (DAO) was set out.
The reveal lit a fire under ShapeShift’s Governance FOX token, causing the price to soar over 300% to $ 1.16 in a matter of hours. And while the cryptocurrency has declined to $ 0.55 in the past 24 hours, it is still up nearly 200% this week – an excellent performance given the general slump in the market.
Analysts disagree on whether the rally represents an increasingly intense search for returns or whether investors are cheering the early mover advantage of ShapeShift as a DAO.
“The FOX token has risen higher because people bought the token to provide liquidity in the new FOX / ETH pool to receive liquidity provider tokens,” said Nick Hotz, senior analyst at US Investment Management – Arca company.
Read more: Voorhees Welcomes Crypto’s Hypercapitalism As ShapeShift Goes “Gray”
ShapeShift was due to launch its first liquidity mining program on Friday. The program allows FOX holders to provide liquidity on the Uniswap v2 decentralized exchange and to put their liquidity provider tokens into the ShapeShift Staking Rewards contract for a proportionate share of 15,768,000 FOX tokens that will be distributed over the next three months .
Hotz told CoinDesk that the program was paying a ridiculously high annual percentage return (APY) of 20,000% on Wednesday. While the APY has since fallen below 1,100%, according to CryptoCompare it is still well above the return offered by liquidity pools of the leading decentralized financial protocols (DeFi) such as Venus, Curve, SushiSwap. The ultra-high returns may have enticed traders to buy the FOX tokens.
The annual percentage return looks pretty staggering according to ShapeShift’s liquidity mining program on Uniswap.
A DAO giveaway like the FOX Airdrop has several advantages over traditional IPOs and may have attracted some value buyers.
“ShapeShift users will be financially invested in the success of the project and will be given an incentive to use the platform more often and make friends,” said Arca’s Hotz. “In comparison, IPO investors have no say in company decisions unless they buy shares. They have little incentive to evangelize for the company. ”
ShapeShift has allocated additional tokens for paying people to use its products to drive further customer acquisition, a feature never available to IPO subscribers.
The price of the FOX token seems to have jumped into a new range after the announcement of ShapeShift.
Dennis Hui, a DeFi portfolio manager at DAO Ventures, made a similar statement, adding that the price rally also shows that “everyone wants a piece of an exchange” that has already established a niche.
“ShapeShift has existed as a company for many years, generating revenue and leading the way in decentralized ownership,” Hui said in a LinkedIn chat. “So it is very different from many regular DAOs that only started operations last year.”
Denis Vinokourov, head of research at Synergia Capital, said FOX’s response to ShapeShift’s decision reflected markets’ demand for a DAO – a democratized decision-making system using cryptocurrency and blockchains.
While decentralized finance has seen explosive growth over the past 12 months with an influx of venture capital, full democratization has proven to be a challenge.
“DAO is a great idea on paper, but it has proven difficult to make a reality by breaking various ties with the foundation,” said Vinokourov. “The significant influence of venture capitalists on decision-making was highlighted during the recent Uniswap approval of the $ 20 million education fund.”
Read more: DeFi is getting proactive on guidelines thanks to a $ 20 million grant from the Uniswap community
Recently, a DeFi education fund sponsored by Harvard Law’s Blockchain and Fintech Initiative requested and received 1 million UNI tokens (Uniswap’s native coin) from the Treasury Department of the Decentralized Exchange. According to the Reddit post, most of the Uniswap community rejected the idea of giving the DeFi fund about $ 17 million as of this writing. However, the proposal was accepted due to the votes of some large UNI token holders.
“Almost the entire winning margin came from the applicant himself and from Penn Blockchain, which is sponsored by [venture capital fund] a16z and helped write the [World Economic Forum] Report with several board members who are now going to hand over the UNI which has left the treasury ”, remarked one of the members of the Uniswap community called“ hlspunk ”according to Decrypt.
The episode raises questions about decentralized token-based governance when big owners are in charge and likely explains the market’s reaction to ShapeShift’s plans to decentralize via one of the largest airdrops in history.
As CoinDesk’s Brady Dale noted, “A lot of companies in the crypto space are building a decentralized protocol but leaving a position in the business that is involved in generating profits alongside their blockchain creation (an example of this is Compound Labs is just starting treasury has to do exactly that). “
ShapeShift goes a step further, however, by dropping 340 million FOX tokens to all previous users of the exchange (around 900,000 addresses) and 120,000 addresses on several well-known DeFi protocols.
“This is why the response to ShapeShift’s token was so dramatic after the company took steps to become a DAO,” said Vinokurov. “PR gag or not, the reaction shows that this is exactly what the markets want.”
UPDATE (July 16, 2021, 3:35 PM UTC): Corrects Harvard Initiative received 1 million UNI tokens valued at approximately $ 17 million at press time.