Lybra Finance token migration row triggers DAO vote with $1.8m on the line

The newly minted Lybra DAO will begin its governance lifecycle with a vote to save or destroy $1.8 million belonging to investors who failed to migrate their tokens.

Lybra DAO oversees Lybra Finance, a DeFi stablecoin protocol on the Ethereum blockchain that sits on $243 million in investments. The protocol launched a new version called v2 on August 31 that necessitated a migration of its native LBR token to this new version.

The token migration process was supposed to last for 30 days until October 1 but some investors missed this deadline. Their tokens, currently worth $1.8 million, are supposed to be burned forever according to the original plan, thus rendering them worthless.

Those who missed the vote launched an outcry on social media. Many blamed the protocol for setting a short window of time for the migration.

Pressed for time

Lybra said the short nature of its own process was because of the need to finish its protocol upgrade quickly and protect its investors.

“We understand how having two tokens — old and new — can be extremely confusing to investors,” Lybra Finance told DL News. “A quick migration was decided with the best intentions of keeping our community safe and to prevent any legacy hangover from old v1 tokens being traded.”

Token migrations often have long deadlines with some even having an indefinite timeline for completion.

However, project teams are not keen on maintaining the infrastructure that supports old tokens or the migration process indefinitely, DeFi builder Andrey Shevchenko told DL News.

“Some people always forget and abandon tokens, and with the deadline, you ensure that at a certain point you can safely deprecate the infrastructure,” Shevchenko said. “Usually, the deadlines are quite far in the future.”

The Lybra team has now responded to the outcry and will not immediately burn the tokens as previously stated.

“Our primary focus is the best interests of the protocol,” the Lybra proposal stated. “In light of the current migration stats, removing the non-migrated tokens from the circulating supply may be inappropriate.

Instead, the team created a governance proposal on Tuesday which will be debated within the DAO until Friday, when voting on the matter will commence.

Vest, tax, or burn

Lybra Finance had 15.4 million tokens in circulation during the migration process but over 2 million, about 13% of the circulating supply, did not migrate.

The Lybra Finance team put forward three recommendations for handling these tokens as part of its proposal.

The option calls for the 2 million tokens currently in limbo to be migrated to v2 but subject to a 90-day vesting period. This option also includes a 3% migration fee worth about $65,000 to be distributed as compensation to those who adhered to the initial migration window.

Lybra’s second recommendation also allows for migration but with a 20% haircut for investors who did not meet the deadline. And there’s no vesting requirement, unlike the previous alternative.

Both migration alternatives will have a three-month window, the proposal stated.

The final recommendation is to adhere to the original plan where all non-migrated tokens are burned.

Lybra clarified that its contract does not have the ability to destroy tokens in investor wallets. Instead, the affected tokens will be restricted from being minted from the v2 smart contract.

Sympathy and punishment

Lybra’s proposal may be modified before being voted on Friday, and the recommendation to burn all non-migrated tokens comes with significant implications for the DAO.

This is because only holders of migrated LBR tokens have governance power in Lybra DAO.

Investors who did not migrate their tokens cannot vote on this proposal and have no power to protect their interests.

As such, there are calls for this option to be removed from the recommendations up for voting.

However, some DAO members say there should be some form of punishment for investors who did not meet the migration deadline, given the team’s daily updates on the process.

Meanwhile, affected investors can purchase already migrated LBR tokens to be part of the governance process.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.