Aragon, a blockchain project dating from 2017's ICO boom, is undergoing a governance crisis. The project's non-profit foundation and its Decentralized Autonomous Organization (DAO), which should typically act together, are attacking each other.
In the most recent move, the Aragon DAO has 'voted' to proceed with legal action against the team behind the project, represented by Aragon Association (AA), after it unilaterally decided to shut down the project and the governance token without putting the proposal past the DAO first.
Risk-free value investors or crypto vultures?
The company behind Aragon DAO's legal actions is Patagon Management - a one-man outfit that describes itself as a "Proprietary Trading Firm focused on Crypto Special Situations Investing."
The founder, CEO and mail secretary of the company, Diogenes Casares, describes in his blog a new methodology for crypto investing: Risk-Free Value. In simple terms, he targets crypto projects with a market capitalization valued at less than its treasury holding. This kind of situation may exist if, for example, the project raised the funds for the development, but the token is trading low due to market trends. Over-collateralized stablecoins also, by definition, fall under this category.
The rest is a matter of some social engineering and trading techniques. By gaining the controlling votes and utilizing underdeveloped governance systems, 'Risk-Free Value Investors' gain control of the DAO's and drain the funds.
Casares proudly lists some of his victims in his blog:
“While not frequently mentioned, the RFV community has broken down many DAOs, including Invictus DAO, Fei Protocol, Rome DAO, and Temple DAO. It has also partially influenced the governance of many other projects such as Redacted Cartel, Time Wonderland, and Olympus. Collectively, these protocols have Risk-Free assets in excess of $1B,”
Aragon under attack. The Association Strikes Back
This Spring, 'Risk-Free Value Investors' or as AA describes them, RFV Raiders, tried to take control of the Aragon treasury by purchasing ANT tokens and outvoting the Association that holds the treasury. In response, the team behind the project announced that it would dissolve the Aragon Association, and proposed to transfer the treasury to the token holders. They offered ANT holders to redeem their tokens for ETH at a fixed rate, thus distributing $175 million in funds at current prices. At the end of a one-year redemption period the recovered ANT would be burnt.
$11 million would be safeguarded to cover the outstanding obligations of the Association and mitigate regulatory uncertainty. Any remaining funds and unclaimed ETH would be sent to a new product-focused structure created by the team.
According to the announcement, the current structure has failed to manage the treasury properly, while bureaucratic complexity, misaligned stakeholders, and failed attempts at modifying the governance increased tensions within the project. Most importantly, it has "failed, to find a way to turn a DAO framework from a common good into a protocol with value capture."
"Neither the AA nor ANT are currently suited to govern the project. A fresh start is needed and nothing short of a total reset will do."
Code is law, DAO is not
The decision on the AA dissolution process had forum “participation” but no proper governance vote from the DAO. That gave the community, now orchestrated by Patagon Management, grounds to submit a counter-proposal on the initiation of a legal process against the responsible party. On November 21, the DAO voted resulting in Patagon Management LLC being granted 300,000 USDC to pursue legal action and negotiations with the Aragon team. The Raiders claim that the project team's decision is unfair as it would receive all unused and unclaimed funds.
Furthermore, Patagon Management has called the dissolution plan "papered over, beautified theft." It explained that they and many other community members have already been looking for change for a long time. According to a Twitter thread, the AA has been exploring various options for DAO transition of late, including buybacks, before it unilaterally chose a shutdown. According to Patagon, the shutdown and redemption will result in at least a 75% loss for users. "This is a simple case, and we are confident we will win it," - said Patagon Management.
It is worth noting that at the time of the DAO vote, most of the ANT holders had already participated in the redemption. The AA also highlighted that several members participated in the redemption process right after voting in the DAO. According to the Association, the community's allegations are baseless and simply aim to maximize their personal profit. “We look forward to demonstrating that they are meritless in court if need be,” - tweeted the AA. We will continue to Observe.