An Index-Paladin Voting Market

Dear Owls,

We’re excited to introduce ourselves to the Index Community and open a dialogue before opening an Index voting market. At its heart the Paladin protocol aims to enhance governance interactions with voting markets, coordination mechanisms and more. We have been live since 30/09/2021 at and audited by Pessimistic.

While the topic of vote lending and liquid influence is controversial, we believe that built correctly and in tandem with the community, the right guardrails can be defined to ensure healthier governance. We’d like to use this post to elaborate on why we took the approach we did, how it can help persistent shortcomings in governance and how you can contribute to it all.

Paladin Lending aims to fill the gap by providing a dedicated lending protocol to manage influence in governance. We want to create a win-win solution between investors and activists for more effective coordination : creating utility for passive non-voters and granting new tools for activists.

TLDR : Why a voting market for Index :

DAOs are rooted in a vision of openness and low barriers so all kinds of individuals can work together in full transparency. Index has thousands of different token holders yet when you look at the voting record it’s heavily skewed toward a few participants with participation averaging around 15% lately.

This is for a lot of reasons: protocols are still distributing ownership, high gas fees, information overload, passive investors, etc. A class of delegates is emerging but it’s still questionable how effective this will be, especially when we see that contributors are minority holders in the DAO. Overall, the result is a lot of idle governance power (80%+) and centralization risk.

Today, this means that if someone buys OTC 10% of the circulating supply for 5M$, they will get a proposing stake in most of the biggest protocols of DeFi.

Our goal is that voting markets can make this influence liquid and separate passive investors from players who are really interested in participating, giving more leeway to contributors and forcing the discussion of low turnout and openings to attack vectors.

Evolving together :

Feedback is a crucial part of our process and we’ll continue to work closely with communities integrated into Paladin. That way lending markets can better reflect each culture. Each onboarded asset was presented before-hand on the community forums and we were invited to speak on Community Calls to answer with full transparency. In the long term our goal is to help create better incentivisation models for core contributors and push for minority holder coordination, but it all starts with vote lending.

In its current design, staking pools can be customized in terms of access (whitelisting delegates, need for minimum “skin in the game”…) or through its interest model.NB : the current pricing models are a bonding curve with Utilization Rate of the pool and Quorum / Proposal threshold as parameters. This way, the loan cost discourages huge borrows for long periods and reduces potential GEV on large loans.

Paladin went live at the end of September and we wanted to use this post as a greeting and an invitation to collaborate. By creating a community designed pool, the Index community can enable liquid governance on its terms.

There will be an upcoming community call on the 9th of November at 18:00 CET in our discord, to clarify everything that needs more explanation. If you can join us we’d love to hear from you. If not, feel free to share your thoughts in this discussion and we’ll answer any questions.

NB : If you’re interested in learning more about the Paladin vision and architecture check out our articles: Manifesto for a new wave of corporate activism, Paladin, the governance lending platform, Voting Markets: Why now.


Hey Figue, thanks for opening up a dialogue!

I actually did a bit of scenario writing around governance based attacks or GEV here: [Discussion] Index Token Distribution, Governance attacks, and legitimacy

Generally speaking, I think the basic insight that some sort of GEV market is inevitable is correct, and I think I would support a flashbots-like protocol that is doing its best to externalize, stabilize, and regulate allowable sorts of GEV. I understand that you’re building guardrails, and actively experimenting on what sorts of guardrails would create a stable market.

However, perhaps selfishly, I do not want the Index Coop to be the guinea pigs for what kinds of GEV based attacks could occur. As far as I can tell, the pros and cons of including INDEX on Paladin looks like this:

Pro: Passive holders & treasury can gain some interest rate by lending to Paladin (low benefit, high probability)
Con: There can be some unexpected governance attack on the Index Coop through Paladin’s token market that the guardrails did not foresee (catastrophic risk, low probability)

With Index Coop’s DPI metagovernance, I can certainly see why it would be useful to have INDEX on your platform. However, that same usefulness to you is also a reputation liability for us - if Index Coop is perceived to be abusing its metagovernance power, that could produce a broad backlash throughout the DeFi space.

I would prefer for Index to not be one of the early tokens on your platform.


Happy to see we share the common belief that GEV protection is going to become a major topic !
I don’t think the request of not wanting INDEX being used as guinea pig is selfish, on the contrary, it shows a deep understanding on the potential of it all. I would also like to add that Paladin has been live for over a month with “guinea pig” tokens.

I think there’s a lot of Pros that have not been mentioned :

  • Forcing the discussion on building more internal guardrails. Like it or not, Index Coop is now a kingmaker in DeFi, with proposal power in most DPI indexed protocols It is absolutely necessary for them to be put in place. Smart activist players are already playing around Index Coop, I fail to see how a Paladin market could be a worse liability than this (ie : UIP-07).

  • Offering higher turnout on governance. While ~15% is a strong showing compared to most protocols, it still means that (at 50M$ MC), only 7.5M$ of INDEX are actively controlling an important part of DeFi. The higher the turnout, the lower the reputation risk from a vote manipulation coming from Index.

  • Contributors own too little of the protocol currently to be properly aligned with the real stakes Index weights in, and sometimes to even steer the protocol they steward in the right direction. Voting markets offer a way to realign these progressively and give a new layer of governance game for stewards to play on.

All in all, we highly value the feedback from the Coop, and wish to further the discussions before proceeding to onboarding.

I would like to finish on a small mental exercise :

  • What do you think happens when Bribes get generalised to Index governance ?
  • What happens when large funds get a controlling stake in Index ?

Paladin is not about offering more options to plutocracy but about building cooperation before it is too late.


It’s clear that both of us see the vulnerabilities in the status quo clearly:

  1. Voting power can be purchased by anyone, including agents who want to extract value from Index Coop rather than accrue value to Index Coop
  2. Contributors have relatively low decision making power, and would not be able to block an exploiter who has enough capital, although there is the implicit check on an egregious attack via judgment of the multi-sig executors

Furthermore, our status quo is subject to all of the downsides that Vitalik mentions in his blog post here. So you’re right that we’ve got problems.

What’s a bit less clear to me is how, exactly, Paladin purports to solve or even mitigate these problems and vulnerabilities. If I understand correctly, Paladin is a marketplace which allows token holders who do not want to exercise their voting power to sell their voting power to people who are willing to pay for that voting power, while maintaining ultimate ownership, which is literally the exact sample vulnerability Vitalik is talking about: image

Besides that, having INDEX on Paladin does nothing to mitigate the vulnerability of potential vote buying where an attacker can use $X of capital to acquire Y votes. Instead, attackers can use even less capital to acquire the same amount of votes, making attacks easier. Arguing that Paladin neutrally also enables “good” voters to borrow INDEX to counteract “bad” voters doesn’t work either - that just puts us in crappy Prisoner’s Dilemma where “good” voters are forced to preemptively borrow votes from Paladin and pay interest in order to “ensure” better governance and at best pay extra money to neutralize the Paladin voting attack vector.

Given this set of problems, what concrete guard rails do you actually propose to minimize abuse of the Index governance process from Paladin? Here’s some sample ideas you’ve proposed and the concern I have about them:

Proposal 1: only whitelisted delegates can borrow from Paladin. This is a violation of credible neutrality and is equivalent to only allowing specific addresses to vote on Index proposals, which would shatter the openness of the DAO.

Proposal 2: Delegates require a minimum amount of INDEX ownership to borrow from Paladin. In order for Paladin to have a market, the price at which attacks can buy votes for still has to be less than the cost to acquire the INDEX OTC. This only mitigates the severity of the attacks that Paladin itself enables, and doesn’t improve our situation at all.

Clearly you care a lot about governance and care to mitigate these attacks, and I’m really glad you’re thinking through these problems as well. I really appreciate your input on how to make our governance system stronger and more robust.


You seem to have gotten the gist of the protocol.
I would also like to add that the similarity between Paladin and Vitalik’s article coincide with when we met him and “pitched” Paladin (it was at EthCC). While we have no pretention in originating Vitalik’s crusade, the design is not similar to Paladin, it is exactly the one we presented to him.
The intentions of his series of article are wise, but as long as you have coin-voting system, you can’t separate your protocol from bribes, they happen. The question is, can you limit and control them. And, more ambitiously can you redirect these vote outflows into participation ? In essence Paladin is trying to convert users who care so little about governance systems that they loan their votes, into active participants.
Right now, we’re at Phase 1 : attracting liquidity and creating APY

On vote buying: I do think it is important to stress that potential vote buyers do not spend less to buy votes via Paladin. They spend more, to be more accurate, they pay a market price (no margin of negociation, which is a norm in OTC deals). We have offered one interest model which will be expanded on in our WPP, and are working on a few other models.
On top of forcing a market to crystallize the governance premium we push for this kind of transactions on chain, which is a necessity as it would heavily reduce the current suspisions that protocols such as Index Coop have on some large votes cast.
As mentioned previsouly, we understand the worries about potential ramifications, but we would much rather have these discussions now and here than after a full-on attack, as INDEX is now the prime vector of governance plays for blue chips.

More than onboarding INDEX, the goal of this discussion is to create the right sandbox to allow these inevitable behaviours to happen in a controlled environement.

On neutrality in Paladin: There seems to be a huge misunderstanding on the concept. It doesn’t mean we push protocols in a loan’s arm race, this would be pointless. It means the protocol does not take side. Instead, we try to offer as much self-regulation as possible. Depositors are free to withdraw their tokens out of the pool anytime, which would skyrocket the APY and close the loan down, and enables you to cancel the proposal.
This is effectively a ragequit of users. So instead of buying loans on top of loans, you are better off warning depositors and solve the problem via social consensus, this is how we scale governance in a trustless manner.

As for proposal criticis, I agree with the problem of the 1st point, but not sure I understand the second. The idea is that Paladin would have multiple pools, one totally permisionless and others sanctioned by governance (who would be eligible for our liquidity mining).

Thanks for the candid discussion, as always, we’re totally open to other guardrails if you have ideas.


Honestly, I’m not sure what sorts of guardrails would really help my confidence here. I’ve been trying to think through the analogy of Flashbots:MEV vs Paladin:GEV and it’s still a bit muddy for me, but here’s what I’ve got so far.

For MEV, Flashbots created an open transparent platform and auction system for participating in it to prevent MEV from being 100% captured by large mining pools, and I can see how Paladin is trying to do something similar. However, the problem posed by MEV is qualitatively different from the problem posed by GEV. Basic MEV, even if nasty like sandwich attacks or front running, does not pose an existential threat to the integrity of the chain. Once people started talking about Reorg MEV, Flashbots drew a line and refused to support it, saying “we will not facilitate MEV that threatens the integrity of the chain.”

With GEV, the implications are much scarier, because the power of governance is much larger than that of the miners. If you think about what the miners are capable of doing, literally the only thing they can do is reorder transactions. This has a large, but capped, value, which can then be made open and transparent, then auctioned and externalized. However, governance, by design, is much more powerful. Successful GEV does not necessarily have a cap in value, esp. relative to the protocol we’re talking about. Thus, GEV always has the potential to be existentially dangerous to the protocol it’s being extracted from. For this reason, people are terrified of bribery and collusion, as a general rule, whereas it seems like people are mostly okay with MEV now.

So the threat is potentially existential, and the attack vector is through collusion and vote buying. My gut tells me that if the threat is from collusion and vote buying, it is not possible to control that threat by making vote buying easier, more efficient, or more transparent.

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Honestly, I’m not sure what sorts of guardrails would really help my confidence here.

Then I’m not sure how we can do more than what we’ve already done.
I see your point, but comparing GEV and MEV to such extent seems over the top imo.

The first reason for this is that governance attacks are much rarer than sandwich attacks, so while thinking of the worst case scenario is a necessity, limiting yourself to these is a serious narrative twist of the potential of vote lending.


GEV does not necessarily have a cap in value, esp. relative to the protocol we’re talking about

Yes it does. Governance is limited to the functions that were hard coded in the on-chain governance mechanisms, you can’t do everything you want. This is especially true in Index where execution of decisions is done manually.


people are terrified of bribery and collusion, as a general rule, whereas it seems like people are mostly okay with MEV now.

The bribes models has been picking a lot of speed (6M+ volumen in the past month), in terms of supply, and demand. I agree that some active governance participants are worried, nonetheless I think the average DeFi user is absolutely okay with this, and this is something that you need to take into consideration.

If your gut tells you there is no way to make this work, then I can’t say anything more than don’t partake in it, because with our without us, with or without you, this will happen (and is already happening on Index).

We’re just trying to offer a middle ground

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Does Paladin facilitate the communication to reach the social consensus you describe? It seems to me that these people at the passive end of the scale would be difficult to engage to solve for social consensus in a timely manner. If communication is facilitated via Paladin that could be beneficial from a stakeholder engagement pov.


That’s an excellent question! We have an internal solution but haven’t had time to deploy it at scale. We could live test it on the Index pool.
The idea is fairly easy, create a (permisionned with palINDEX) chat for depositors to facilitate coordination. Let me know if you feel this is the kind of solution you were expecting

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