There’s a systemic risk in the way liquid staking is currently implemented via projects like WaterNeuron.
WaterNeuron uses a central neuron with a 6-month dissolve delay to distribute voting rewards to holders of nICP (a liquid staking token). These rewards originate from an 8-year neuron, which has much higher voting power and dissolve delay bonuses.
The system relies on these neurons having honest controllers — but what happens if it’s not?
We’ve discovered that 51% of the WaterNeuron’s voting power is controlled by a group of aligned actors (with links to Coinbase). This means they can change how that 6-month neuron behaves — including how it votes, where rewards go, or even convert it into an 8-year neuron, locking in massive long-term power.
Now imagine if Coinbase (or any exchange with large ICP holdings) adopted this same model and staked tens of millions ICP this way via liquid staking. This would cause the 6-month neuron to control or influence an enormous fraction of governance, despite having a low dissolve delay and being, in theory, a “temporary” staking tool.
But the neuron representing them accumulates massive influence
And the real control lies with a small, non-transparent group that can alter governance direction
This is how governance capture can occur without anyone realizing it — not through a direct vote, but through indirect reward routing and trust in a central neuron.
I’m proud that you’ve discovered that a dao is a group of people and not a single individual.
But in all seriousness you hinge all in theoretical debate. While there one day can be a threat that 10% vp can change a few nns votes that day isn’t today.
When you talk about the team being non transparent I’d like to highlight that you nor infu have been active in this dao. You two expected us to vote with you when you two have never engaged in governance conversations within the dao. That is until we all agreed to vote to reject your proposal that Dfinity as well rejected.
You just don’t seem to understand people buy into things they believe in, that daos are more than one person, and that daos can be aligned in voting as discussions happen with all members.
Like I said above you have been extremely absent in your governance responsibilities in wtn and then after we all discussed your initial proposal we all agreed that Dfinity was correct and voted with them. That is all after a community discussion.
The argument is that we should fix obvious problems before they become too big.
When theres a hole in the bottom of the ship, you dont wait for the ship to fill with water and start sinking before you patch the hole. You patch the hole before the problem gets out of hand.
This is an obvious common sense problem.
The problem with alot of your arguments @mico is they depend on the only actors effected by the system being the dao participants. However, this is not the case here. All ICP holders are effected (via dilution of tokens. Due to staked icp that really should be liquid icp not gaining yield).
And the governance balance of the entire nns is effected due to people who should be staking their tokens giving their control to the dao. They cant suddenly change their following the same way they could in the nns.
And the scale of the problem is massive. Thats why WTN is such a good investment. It is!! But not for the right reasons.
As a precautionary measure i would propose we limit the voting power of canister controlled neurons to 1% (a ten fold reduction). To mitigate the potential risk.
I don’t think you understand what liquid staking is.
No matter how you spin it the icp is locked up, the only difference is that defi can actually exist on icp now while also removing liquid icp and allowing for new market participants to join the defi fun here.
They actually can by unstaking and or selling for icp on the open market. If they want to remove vp from wtn all they do is unstake their nicp from the protocol.
We just have to change the NNS rules to protect against such an attack.
