Our Network: Issue #70

Coverage on Balancer, 1inch Network, 0x, Uniswap, and Thorchain.

This is issue #70 of the on-chain analytics newsletter that reaches more than 10k crypto investors every week 📈

About the editorSpencer Noon is an investor at Variant, a first-check crypto VC fund.

✨ Together with our partners: The 1inch Network enables the most lucrative, fastest, and secure operations in its dApp and wallet for iOS. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

This week our contributor analysts cover DEXs: Balancer, 1inch Network, 0x, Uniswap, and Thorchain.

① Balancer

👥 Jeremy Musighi

📈 Balancer V2 cuts gas cost by 33%

👉 Earn yield as a Balancer liquidity provider

  • Since Balancer V2’s smart contracts were quietly deployed to Ethereum mainnet two weeks ago, preliminary activity has shown notable improvements in gas efficiency for swaps. As we near public launch (which includes the V2 front-end release), early data points indicate a median gas per swap of 103K in Balancer V2, compared to 153K in Balancer V1— a 33% improvement. Due to V2's single-vault architecture, efficiency in multi-swap transactions (which require only two token transfers) is further improved.

  • Flash swapping— arbitrage without any upfront capital, made possible in Balancer V2— was spotted in the wild (by a user who should consider calibrating their gas estimates to be profitable). This activity was apparently done manually, with no signs yet of bots capitalizing on the opportunity.

  • Over the past 17 weeks, the 80% BAL / 20% WETH liquidity pool on Balancer V1 gave liquidity providers some of the highest yields in DeFi— an average APY over 75%. These rates may fluctuate before re-stabilizing as liquidity begins to migrate to Balancer V2. This is not a promise of future returns.

② 1inch Network

👥 Nikita Ovchinnik & Valeriya Minaeva

📈 1inch launches new wallet for iOS

💰 Join the 1inch community on Twitter

  • The 1inch Lab has released the fastest and most advanced DEX aggregation protocol in the market. In version 3, gas fees have been substantially reduced thanks to assembly code optimization. The feature applies to swaps using Uniswap v2 and its forks, such as Sushiswap. Swapping ETH for DAI on 1inch, for example, requires 10.3% less gas than the same trade on Uniswap and 4.9% less than on 0x.

  • The 1inch Wallet for iOS allows anyone to swap tokens at the best rates possible. Two days after launch the 1inch Wallet had already reached 16K+ downloads. The wallet offers a balanced mix of user experience, versatility and security. Users get access to substantial liquidity across 50+ sources on Ethereum and 20+ on BSC.

  • 1inch’s swap API for BSC is an aggregating solution offering the chain’s users high transaction speed and the best swap rates on the market. The API finds the most efficient token swap paths, splitting swaps between different protocols and even different market depths within one protocol.

③ 0x

👥 Danning Sui

📈 0x API now reaches ~85k MAU

👉 Join the 0x community on Discord

  • On March 18th, 0x API launched on BSC and so far has relayed over 155k trades, accounting for $478M in trade volume. On a peak day (Apr 18th), Dodo users alone accounted for $70m+ in trade volume. It now provides 14 liquidity sources to 7 applications. The expansion also attracted 25k new users with the 0x API now reaching ~85k MAU.

  • RFQ volume share on 0x API increased from 2.5% (Jan) to 27% (Apr). This indicates that market makers quote prices become more and more competitive compared to on-chain AMM liquidity. For the 3 most popularly traded pairs among MMs (WETH-DAI/WBTC/USDC), the RFQ system accounts for ~40% of the total volume.

  • 0x DAO launched in April with ~2M ZRX(~$4M) in the community treasury to incentivize governance. In the first week of May the 0x API peak day hit ATH at over half a billion on both the 3rd ($519m) and the 4th ($538m). 0x v2 protocol volume also doubled to ~$200M daily, driven by 1inch and Tokenlon.

④ Uniswap

👥 Vishesh Choudhry

📈 Uniswap V3 tops $200M volume on day one

👉 Join the Uniswap Discord

  • Uniswap v3 did over $200M in trading volume on launch day, reaching $280M at the time of writing. There have been 29.8k trades by over 12k unique users. 581 different pools have been created on v3 with over $400M TVL. v3 currently accounts for ~20% of Uniswap trading volume. The majority of markets have been created with a 0.3% trading fee so far. The latest iteration of Uniswap is averaging ~800 trades/hour by ~500 unique traders per hour. This is ~15% of comparable figures for Uniswap v2.

  • Of the $411M value locked in v3, ~$298M of this value sits in the top 10 pools. Of this, ~$251M is provided in markets with a .3% trading fee and ~$46M at a .05% fee. ~$78M of liquidity is in stable-stable pools. ETH is the most popular asset at $166M TVL followed by USDC, USDT, and Dai.

  • The top 4 liquidity pools are ETH-USDC, ETH-USDT, ETH-UNI, and ETH-WBTC. Most pools are following a semi-normal distribution centered on the current price. ERC20-ETH pairs show a wider spread than ETH-stable pairs. Stable-stables show an even sharper liquidity spike centered on current exchange rates.

Click here to read Part 2

Our Network: Issue #70 (Part 2)

Coverage on Balancer, 1inch Network, 0x, Uniswap, and Thorchain.

Continued from Part 1.

⑤ Thorchain

👥 Adam Cader

📈 Thorchain Reaches $1.5M Daily Volume

👉 Join the Thorchain community

  • Over the past two weeks, Thorchain has approximately averaged a daily volume of $1.5 million in assets (such as BNB, USDT, SUSHI, etc), including those in its cross-chain asset swap functionality. RUNE, Thorchain’s governance token, averages 1 million in daily volume and comprises 50% of the volume on the network.

  • Thorchain reached nearly 670 million TVL on May 7th, 11th below DEXes such as Nerve and Raydium and above 1inch and dYdX. Across all DeFi protocols it is 35th in TVL. While not the highest ranking by TVL, Thorchain managed to double their TVL in just over one month, an indicator of strong growth.

  • From stats directly pulled from the Thorchain network explorer, Thorchain currently has ~50,000 monthly transactions on its network — relative to competitor chains and AMMs this figure is somewhat low, showing that they still need to increase adoption and tx count to better compete.

About the editorSpencer Noon is an investor at Variant, a first-check crypto VC fund.

Our Network: Issue #69

Coverage on Polygon, Numerai, The Graph, and Flashbots.

This is issue #69 of the on-chain analytics newsletter that reaches nearly 10k crypto investors every week 📈

About the editorSpencer Noon is an investor at Variant, a first-check crypto VC fund.

✨ Together with our partners:

The 1inch Network, which unites decentralized protocols and enables the most lucrative, fastest, and protected operations in the DeFi space. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

This week our contributor analysts cover Web3: Polygon, Numerai, The Graph, and Flashbots.

① Polygon

👥 Ling Young Loon

📈 Polygon daily transaction count now matches Ethereum

👉 Join the Polygon community Discord

  • Polygon’s Proof of Stake sidechain has seen a meteoric rise in transaction volume, exceeding Ethereum’s transaction count by 18% on Tuesday. Its native DEX, Quickswap, accounted for 41,000 transactions that day, hitting over 20% of Uniswap’s transaction volume. There are only 400,000 unique addresses on Polygon, a far cry from 150 million on Ethereum or 61 million on BSC. Curiously, Polygon’s top 3 addresses sent 573,000 transactions this week, a large majority of which appear to be arbitrage trades.

  • 11% of Nansen Smart Liquidity Providers have already begun transacting on Polygon. Smart money wallets have sent 9000 transactions each to Quickswap and Aavegotchi contracts. Funds and whales are not budging yet. Interestingly, only 25% of all Polygon addresses ever sent transactions on Ethereum.

  • Who seeds new wallets? The PoS bridge wins out, initiating the first transfer to 81,000 wallets. Personal wallets fund a surprising number of new addresses, some of which have never used Ethereum. Connext, Bitmax, and Ramp are alternative on-ramps, seeding 3300, 640, and 172 wallets respectively.

② Numerai

👥 Omni Analytics Group

📈 High performing NMR stakes are earning >190% APY

💰 Learn and earn $NMR over on Coinbase

  • Numerai can be described as a new type of crowdsourced hedge fund, run by a global community of data scientists whose weekly staked submissions to the Numerai meta-model secure the protocol. The network’s native utility token, Numeraire, is given as a reward for accurate predictions staked on the platform, but can also be burned as punishment for sub-par submissions. Despite the slashing risk, participants are undaunted and on average stake about 47 NMR (roughly $3,000 at the time of writing).

  • Numerai's scoring mechanism values submissions that are both predictive and unique. Though higher correlations are preferred, this dual focus allows Numerai's meta model to learn from predictions across the entire range of the correlation space, further encouraging signal diversity.

  • As a culmination of both the performance of market signals and the increased participation in staking, data scientists are earning average 1-year yields in excess of 190%, while truly exceptional signals can net nearly 800% APY.

③ The Graph

👥 Eva Beylin & Brandon Ramirez

📈 Hosted subgraphs begin migrating to the decentralized network

👉 Become an Indexer on The Graph

  • Query volume on The Graph’s hosted service has continued to rise to unprecedented volume. Over 600 million queries are processed per day, totaling over 19 billion in March alone. This usage has been driven by the increasing adoption of Ethereum dapps and expansion in supporting multiple EVM-based chains including Celo, Polygon and Binance Smart Chain.

    We’ve seen significant growth in DeFi continuing from “DeFi Summer”, with AMMs still being the most popular category. There has also been accelerating usage of NFTs and entertainment platforms. Additionally, cross-chain (eg. wrapped bitcoin) and scaling solutions are seeing increased usage.

  • This week, The Graph began migrating subgraphs from the hosted service to the decentralized network. After more than 90 days of bootstrapping indexing on mainnet, the network is ready to begin processing queries.

    Audius, DODO, Enzyme, Gnosis, Livepeer, mStable, Opyn, PoolTogether, Reflexer, and UMA are the first 10 subgraphs that have begun migrating over. Since December, only the PoolTogether had received allocations, averaging more than 400M GRT allocated by Indexers. However, in Phase 1 of the migration, Indexers are slowly beginning to allocate towards new subgraphs in preparation for Phase 2, which is when queries will be sent on mainnet.

  • By April, over 2.6B GRT has been staked by Indexers and Delegators, up ~8% since February. The Delegator to Indexer stake ratio is 2.76, falling from 3.08 at the end of February. This indicates that while overall GRT stake is increasing, Indexing stake is growing faster than Delegation. While Delegators are critical for enabling economic security of the network, increased Indexer adoption also signifies that Graph node operators are becoming more comfortable with the infrastructure and are preparing for migration.

④ Flashbots

👥 Robert Miller

📈 Miners have earned $24m using Flashbots to date

👉 Join the Flashbots community Discord

  • Flashbots is a research and development organization focused on mitigating the negative externalities of current MEV extraction techniques and avoiding the existential risks MEV could cause to state-rich blockchains like Ethereum. Since launching in January of this year, Flashbots’ MEV-geth client has seen rapid adoption. Today mining pools totaling more than 80% of Ethereum’s hashrate are running MEV-geth, which enables those pools to capture MEV in a fair, transparent, and efficient way.

  • To date, miners have earned $24m in ETH by including transactions sent via Flashbots. Over $22m of this income occurred in April alone. This is additional income (taking into account opportunity costs), with miners earning an additional 5% on average in revenue per block with Flashbots transactions.

  • Finally, the number of weekly unique users (measured by distinct EOAs) that have Flashbots transactions included on-chain has steadily increased since the beginning of this year. One factor contributing to this is an increase in the number of unique use cases that Flashbots supports, a sign of growing utility.

Our Network: Issue #68

Coverage on SuperRare, Foundation, and Flow.

This is issue #68 of the on-chain analytics newsletter that reaches nearly 10k crypto investors every week 📈

About the editorSpencer Noon is an investor at Variant, a first-check crypto VC fund.

✨ Together with our partners:
Image 2020-11-13 at 10.54.34 AM

1inch, whose v2 offers the best rates by discovering the most efficient swapping routes across all DEXes—swap on the customizable new UI. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

Governance Extractable Value (GEV)

This week, in addition to our regular network coverage, we are running a new research-driven blog post as part of our Deep Dive series. Governance Extractable Value, written by authors Leland Lee & Ariah Klages-Mundt, examines how governance can be used as a way to extract value at the expense of networks, as well as how networks themselves can fight back against GEV. The post is highly relevant for any crypto investor, researcher, or builder, and I highly recommend giving it a read.

Click here to read the post.

This week our contributor analysts cover NFTs: SuperRare, Foundation, and Flow.

① SuperRare

👥 Richard Chen

📈 Monthly volume tripled in March

🔎 Track the cryptoart industry sales and data

  • SuperRare monthly volume reached an all-time high of $30M in March. The company made $3.7M in revenue and artists made over $1M in secondary royalties in March. A sizable portion of the volume was driven by secondary sales as the floor price for blue-chip artists like Pak, XCOPY, Hackatao, Frenetik Void, Coldie, and others was raised significantly. Several record sales include "Death Dip" by XCOPY (1000 ETH) and "DΞSTINATION HΞXAGONIA" by Don Diablo (600 ETH).

  • SuperRare differs from other platforms by being the only place for curated 1-of-1 cryptoart. As a result, pieces sell for much more on SuperRare than all other platforms as collectors will pay a premium for a "super rare" minted NFT. The average artwork price on SuperRare reached a high of 7.28 ETH.

  • Monthly active collectors reached an all-time high in March. SuperRare focuses on authentic crypto-native artists that collectors will repeatedly support and avoids getting big-name artists to do a one-off cash grab NFT drop, as those NFTs are now trading well below their primary sale price on secondary markets.

② Foundation

👥 Chris Collins

📈 Foundation surpasses $38 million in sales

🧺 Collect on Foundation

  • Foundation is building a network of creators and collectors to build the new creative economy - one where creators can capture more of the value they create and collectors can participate in their growth. Since the platform’s launch less than three months ago, Foundation has generated more than 17,300 ETH ($38mm+). It is the second-highest grossing NFT platform in April and recently broke its record for highest-grossing piece with Edward Snowden’s 2,224 ETH sale on April 16.

  • The number of artworks sold on Foundation recently surpassed 10k and continues to grow rapidly alongside the network. In fact, just this past week the number of creators who have minted at least one NFT on the platform also passed 10k.

  • Finally, creators are earning a significant amount of ETH, which is attracting top-tier as well as up-and-coming talent to the network. This in turn is attracting collectors, with the number of unique collectors on Foundation eclipsing 14k this week.

③ Flow

👥 Rochelle Guillou

📈 Over 8 Million NFTs Have Been Minted on Flow

👉 Join the Flow Community on Discord

  • Dapper Labs, the company behind CryptoKitties, created the Flow blockchain as a scalable alternative to Ethereum, specifically for building decentralized applications like games and NFTs. First with CryptoKitties and then with the launch of NBA Top Shots, the Flow platform saw explosive growth in the number of NFTs being minted. Dapper Labs has now also signed deals with the Ultimate Fighting Championship (UFC) and Dr. Seuss to develop crypto collectibles in the same way.

  • Flow reached a peak of 179k NFTs listed on February 22nd, right around the time a Lebron James highlight sold for an unprecedented $200,000.

  • Flow sees an average of 183k transactions daily. The fact that this has kept steady over time is a good indicator of ecosystem health.

Click here to continue reading this week’s newsletter, including Deep Dive #2 on GEV.

Our Network: Deep Dive #2

Governance Extractable Value

Our Network is on-chain analytics and research-focused newsletter that reaches nearly 10k crypto investors every week 📈

Governance Extractable Value

Or how I learned to be optimistic on governance

👥 Leland Lee (Galaxy Digital) & Ariah Klages-Mundt (Gyroscope Protocol, Cornell University)

Governance is the ultimate owner of a protocol. Whether it be a dictatorship of one or a plutocracy, governance controls every adaptable aspect of the protocol and how it evolves. Unlike traditional companies, governance in blockchain dApps is transparent and deterministic as defined by smart contracts, and changes are visible to all. But where there is light, there are also shadows. It can be easy for governance to extract value at the expense of the system, something we term Governance Extractable Value (GEV). And unlike traditional companies, there is no judicial framework as the ultimate recourse for bad governance.

What is governance?

Protocol governance is divided along two axes: what can be controlled and who has control. Each protocol has different goals, leading to a diverse design space. Some protocols are immutable and change is impossible, others have minimal parameters such as toggling fees or a pause function, while others enable the entire functionality of a contract to be replaced (or “upgraded”). These powers of control can rest in the hands of no one, a single user, a small group (multisig), or a large group (governance token voting). Without mechanisms to check powers, complexity and flexibility can be ripe for opportunistic behavior.

GEV exploits

Does governance have users’ best interests at heart? History is mixed :) GEV exploits fall into two broad categories: capital structure exploitation and short-termism.

Capital Structure Exploitation

Colloquially known as a “rug pull”, capital structure exploitation involves governance stealing collateral from the system and giving it to themselves. Rug pulls are akin to a bank taking users' deposits and running away, although they can be more subtle and indirect. Most users would not knowingly participate in a contract with an obvious rug pull function that anonymous developers can call. But developers can often add rug features later or exploit the system structure to rug pull in indirect (and confusing) ways. Here are some examples:

  • Malicious upgrade rug. In an imaginary bank account, users should deposit and withdraw only their money. They should not be able to withdraw other users’ funds. Compounder’s initial design had no backdoor. However, the developers upgraded the contract and added a rug pull function, allowing them to steal a total of $10.8m of collateral assets. While there was a 24hr timelock before upgrades took effect, during which users could have withdrawn their assets, few users were actually monitoring this.

  • Infinite mint hack.PAID network’s erc20 token had a single account as an owner who could unilaterally mint new tokens. In the attack, the developers minted millions of tokens to drain the PAID-ETH Uniswap pool, running away with the ETH and rendering PAID valueless due to hyperinflation.

  • Sidelining minority holders.DigixDAO voted to return the ICO treasury to token holders as it was worth more than the governance tokens. Behind the scenes, a coalition held a controlling share. It was unclear who they were and how they would vote (the Digix team was vocal against dissolution). Before the vote came in, parties were able to buy DigixDAO tokens from minority holders for as much as 48% spread against the underlying ETH settlement. It is unknown whether these parties were coalition members themselves, profiting at the expense of minority holders, or other parties betting on the vote outcome.

  • Vote to rug. MakerDao had a theoretical attack vector where governance could vote to give all the system collateral to themselves without warning to end users. The time component now has been mitigated by a timelock. 

Short termism

Although governors and users want a protocol to grow, they may have different views on the particular approach and timeline. Users aim for sustainable growth. In contrast, governance token holders may want growth at any cost. It can be attractive to make risky bets on the future in order to get immediate benefits (fees / token appreciation) but at the system's expense, ultimately making the system more fragile. Short terminism can manifest in many things. An example is listing risky assets and increasing debt ceilings in tokens that are beneficial to governors.

  • Cream Finance, a fork of Compound, listed many non blue chip DeFi tokens with no debt ceiling to attract more users and volume. However, $FTT deposits eventually represented 40% of all deposits on Cream, significantly increasing the protocol's risk profile. If FTT experienced a severe price drop, then lenders on Cream would lose their assets.

Toward Solving GEV

For traditional companies, GEV prevention is reactionary, with regulators and class action lawsuits acting as a stick to discourage extractive behavior. But that world does not translate to decentralized smart contracts where logic has to be programmed beforehand. In an on-chain world, governance needs to be preprogrammed or have robust incentives not to be bad as there is supposed to be no centralized party to react with recourse after exploitations.

Diffusion of Power - Multisigs and Token Voting

There are many trade-offs with who actually governs the protocol. Deploying with a single owner account is amazing for developers. Only one key is required to upgrade the protocol, and there is no need to coordinate with other key holders in different time zones or to rally apathetic token holders. Development is fast and unilateral, but the trust is with the key holder. Multisigs and token voting are apt for more mature projects to reach a more distributed consensus on updates. Though in practice if the development team controls most of the voting tokens the system reverts back to a dictatorship or coalition.

These days, the trend is to outsource specific controls to particular user groups - dynamic Balancer fees via Gauntlet and MakerDAO’s Debt Ceiling Instant Access Module. These governance carve outs must be designed carefully to not enable hidden exploits.

None or Limited Contract Upgradability

Early smart contracts tended to take immutability in the literal sense.  Changes or upgrades to contracts were impossible. This is naturally horrible if there is a bug and makes smart contract development akin to designing immutable hardware, like the Mars rovers that are out of reach to repair. In immutable contracts, new features require users to migrate contracts. In some eyes, this is a feature (we can trust the code not to change) but can also be a horrid UX bug (YAM users had to migrate their tokens twice - 🤷). 

The intermediate step is having a minimal upgrade surface, such as control over a pause toggle, which is useful when bugs are discovered, or other very limited parameters.

The most flexible design is using upgradeable contracts. This is a core (proxy) contract that stores all the data and refers to a replaceable contract that actually governs all the logic. Users may not even know that the underlying contracts are updated, enabling both a seamless UX and a seamless rug.


A governance timelock is intended to give existing users breathing space to adjust to an upgrade. Given enough theoretical liquidity, timelocks enable users to leave the protocol if they are unhappy with pending changes. Given this dynamic, users ought to desire long timelocks so they can both hear of the change and better understand and react to it, but long timelocks also reduce the protocol’s agility to correct problems. MakerDao, for the longest time, rejected a timelock for this reason.

But timelocks aren’t a panacea: just because users can theoretically exit a protocol during a timelock, it doesn’t mean that there’s actually liquidity to do so. If Maker governance tries to seize all collateral in CDPs and DAI liquidity is low - good luck acquiring Dai and closing out CDPs during the timelock. And this assumes that all users are constantly monitoring the timelock for malicious behavior (hi Compounder).

Optimistic Approval

As an evolution on timelocks, optimistic approval enables proposals to be quickly passed unless a veto is initiated. A veto would entail users of the protocol, i.e. individuals who use the protocol but aren’t part of governance, such as Dai and CDP holders and Uniswap LPs, to reject a proposal by governance. If the minimum number of users initiates a veto, then the timelock duration is increased to enable more users to either support or reject the veto. The result is that developers can ship quickly while leaving users with a voice to protect themselves.

  • Enabling recourse - in a timelock-only world, a malicious upgrade leads to a race for the exits assuming sufficient liquidity. Now users don’t have to leave anymore.

  • Fail safe - in the event of a malicious proposal, an absentee user doesn’t need to worry about losing funds (no need for watchtower-like products). Only a small number of users are required to monitor the timelock to keep everyone else safe.

Optimistic Approval essentially shifts the governance incentives, so that rug pulls are unprofitable. After an attempted rug pull, the attentive user will initiate the veto, protecting themselves and other users. The governors will be worse off since the attack will fail and users will be less inclined to participate in the protocol's future.[0]

One caveat of optimistic approval is determining which group of stakeholders should be able to initiate vetoes. In a system like MakerDAO, should both CDP owners and Dai holders have veto power or only one group? [1]

Long-term Governors

Governance must be aligned with the long-term success of a protocol. Generally, this involves having token holders lock up capital or prove that they are long-term orientated. The former manifests in staking with unbonding periods or locking tokens into the future (a la Curve). The latter manifests as tenured voting, where users who have been holding tokens for longer have more weight. Often, token locking mechanisms can be gamed with derivative products and smart contracts[2]. And tenured voting doesn’t guarantee that a token holder will continue to be a long-term one. At the point where tenured voters have more power, they may decide it is more profitable to change their behavior.

An alternative mechanism is to delay capital distribution back to governance holders (dividends / buy back and burns) into the future and conditional on stability/kpi metrics. The idea is that governance should not be rewarded for growing the protocol today, but instead rewarded tomorrow to ensure that they do a good job over time. Essentially, governance should be held responsible (and so not receive bonus payouts) if the system is no longer standing. Instead, these bonus payouts should be conditional on the system continuing to be healthy into the future. A powerful comparison: short-term incentives of bankers and politicians. DeFi gives us a chance to correct this in the governance structure itself.

Reducing GEV will increase trust in protocols

Although there are enough apes and degens in the foreseeable future to ensure that even risky protocols will have capital and usage - the majority of users are much more risk-averse. GEV is one of these risks, and it is much more general than just straightforward rug pulls. Designing GEV-resistant systems will be critical in both broadening the adoption of dApps and realizing the original promises of decentralized finance. A rugless future awaits.

[0] Aave governance has a multisig backdoor guardian that can veto malicious proposals (this is more for the developers rather than users of the proposals). 
[1] A twist on vetoes can introduce a poison pill (i.e. slashing) for a malicious proposer - though this could lead to abuse and requires additional consideration. Enabling slashing is dangerous unless the conditions for it are provable. For instance, it's easy to prove that a validator signed two competing blocks (PoS) or that a tx is valid for a given starting state (checking validity of a block), but it's not generally possible to prove that a governance action was malicious in such a way. It's then up to the consensus of agents about whether it was bad, which is not the same thing as it actually being bad. This leads to a bunch of problems with protecting minority holders against the tyranny of the majority.
[2] Smart contracts can be designed to lock governance tokens and trade a derivative token representing the locked up assets. This can be blocked by preventing smart contracts from locking governance tokens, but also prevents multisig wallets from being used. (Though it is possible to whitelist certain bytecode, etc)

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