Thread by @KyleSamani

0/ Perhaps the biggest problem of governance tokens is that governance becomes more expensive as the token price increases

This is actually a *huge* problem

1/ Let's say you're running a relayer on the 0x network, and you accumulate 3% of ZRX while the price is below $.20

Over time, ZRX becomes successful and becomes worth $1.5, and that the volume of 0x-based trades has increased 7.5x as well

2/ Let's also say that during that time, your relayer doubles trade volume.

Unfortunately, that means your market share is down 3.75x in that same time

But you're still holding 3% of the ZRX tokens. What do you? Selling becomes very rational.

3/ This also works the other way around. Let's fast forward 5 years, and say that 0x is powering trillions of dollars of trades each year

You're NASDAQ, and you finally recognize the need to build a DEX and want to do so using 0x

By times this, ZRX is trading at say $5

4/ If you want a meaningful influence on the protocol - say 10% of tokens - that would cost a *minimum* of $500M, but likely quite a bit more given slippage

5/ So your decisions is:

1) Do i care about participation at all?
2) What's the cost of forking? (technical, loss of any network effects, and loss of any state in the protocol)
3) Are those benefits worth the risk of taking on $500M+ of risk on my balance sheet *in perpetuity*?

6/ This is the biggest problem with valuing governance tokens

It becomes *really* expensive as it becomes successful

{fin}