The decentralized autonomous organization (DAO) behind the Mantle protocol has paused its ongoing token migration process to prevent collapsed crypto exchange FTX and its sister trading firm Alameda Research from converting their BIT tokens worth $43 million to Mantle's native MNT tokens.
The issue arose after a Mantle community member initiated a discussion proposing to restrict FTX and Alameda from automatically converting their sizeable BIT holdings to MNT amid the ongoing migration. In November 2021, Alameda had entered a deal with BitDAO, Mantle's predecessor, to swap 100 million BIT tokens for over 3.3 million FTX tokens (FTT) worth $100 million at the time. The trade came with a 3-year lock-up agreement preventing either party from dumping the others' tokens until November 2024.
However, after FTX's collapse, BitDAO suspected Alameda of reneging on the deal and dumping BIT tokens, causing its price to crater. With the Mantle token migration underway, there are now concerns that automatically converting Alameda's BIT into MNT would flood the market and depress MNT's price as well.
The community member highlighted the lack of a "guaranteed right of migration" for FTX's BIT and called for a new migration contract able to restrict these tokens' conversion. In response, Mantle has paused its migration program until a solution is reached. The DAO's governance process will decide whether to allow, restrict, or completely prevent FTX's participation.
Mantle was formed in May after a BitDAO community vote approved unifying its ecosystem under the Mantle brand. This meant BIT holders would have their tokens swapped for Mantle's native MNT utility tokens. But FTX's BIT holdings present a complication. With $43 million worth of BIT, FTX would receive a considerable portion of MNT's limited supply after migrating.
Some argue FTX shouldn't benefit after failing to honor its prior lock-up agreement. They also fear Alameda dumping MNT just as suspected with BIT. Others contend that programmatically blocking FTX could make the network appear centralized and discretionary. The decision represents a critical early governance test for the nascent Mantle DAO.
The migration contract has been paused pending the outcome. But with Mantle seeking to become a decentralized hub for Web3 developers and FTX holding enough BIT for a significant MNT position, the DAO's reputation and tokenomics hang in the balance. This first big challenge will prove whether Mantle's governance model and community are mature enough to make difficult decisions fairly and transparently.
This situation presents a complex ethical dilemma with reasonable arguments on both sides. On principle, decentralized networks should aim to be censorship-resistant and avoid overtly singling out specific participants. But FTX also violated its previous commitments and allowing automatic conversion could severely damage Mantle.
Perhaps the wisest path is instituting migration caps that limit conversion amounts over a fixed time period. This would prevent sudden dumps while avoiding the reputational risks of overtly targeting a specific former partner. It may inconvenience some innocent BIT holders but sometimes imperfect solutions that balance competing needs are preferable in complex situations.
I predict that Mantle will implement some form of partial, capped or delayed conversion for FTX's BIT holdings. This middle-ground approach acknowledges valid concerns about protecting the network without taking the more extreme measure of fully blocking FTX. However, the community should also prepare contingency plans in case FTX attempts to game any new restrictions or sell its MNT on secondary markets. This saga represents the messy reality of decentralized governance - there are often no perfect answers during times of crisis.
Can Restricting Token Conversion Be Discriminatory in Crypto?
In matters of crypto governance, the boundaries between appropriate protective measures and discriminatory practices remain blurry. On one hand, restricting specific entities could help prevent malicious behavior threatening a project. But it also raises concerns about limiting participation and arbitrary enforcement.
There are reasonable arguments on both sides in Mantle's case. Blocking FTX could be perceived as centralized censorship, especially if limitations are retroactively imposed. But some limits may be necessary to stop massive token dumps. Good governance requires balanced solutions that protect the community while upholding core principles. With this complex first test, Mantle has an opportunity to set positive precedents for governance practices in decentralized networks. But it also risks consequences if any resolution seems unjust.
How Should Crypto Projects Balance Inclusion With Self-Preservation?
Crypto presents a unique challenge because its open-access approach often conflicts with practical needs for self-preservation. Trying to restrict participation can undermine the ethos of permissionless systems. But not enacting protective measures can render a project unable to survive real-world threats.
For Mantle, allowing unrestrained conversion of FTX's BIT tokens could destabilize its nascent ecosystem. Yet blocking conversion appears discriminatory. Navigating these dilemmas requires nuance and creativity. Mantle's solution will shape perceptions of its governance capabilities. To balance inclusion and self-preservation, projects must find solutions allowing participation without jeopardizing viability. With enough experimentation, crypto may pioneer governance models effectively reconciling these competing imperatives.