Mango Markets’ DAO return plan leads to accusations of ‘self-dealing’
On April 7, a plan to buy tokens at par has sparked controversy in the governing body of the decentralized finance protocol Mango Markets.
Some members of the community claimed that the buyback was orchestrated to benefit the buyer of the FTX State MNGO token. These tokens were transferred from FTX to an anonymous account only a few days before the scheme was announced, possibly as part of an over-the-counter transaction.
Critics of the plan accused its creator, Donduala, of being linked to the FTX buyer. Donduala has not commented on the allegations in the Discord forum.
Other members supported the plan, even though it favored the mysterious buyer of FTX assets, saying that it made sense for the organization to buy MNGO tokens. Proponents argue that the MNGO token is undervalued in the market and should therefore be purchased as a means of distributing profits to investors. A revised version of the recovery plan was approved on April 24.
Mango Markets is a web 3 application that allows crypto users to borrow and lend various cryptocurrencies. It runs on the Solana network and is managed by MNGO tokenholders, who together form its governing body, the decentralized autonomous organization Mango Dao.
The protocol was exploited for $116 million in a flash credit attack in October 2022, and the token's price dropped by more than 25% from its pre-exploitation value, according to data from CoinMarketCap.
Don Douala proposed to return the token
On April 7, Mango DAO member Donduala posted a proposal on the Discord forum. Donduala proposed that the DAO buy 275 million MNGO from current holders, thus reducing the supply of token distribution. In return, The DAO must offer 9.995 million Dai (DAI) stablecoins to holders of its base CHAI, which is approximately $10.7 million. This represents a return value of $0.032 per MNGO token. According to CoinMarketCap, the price of MNGO was $0.02324 on April 7, less than 27% of the stated return price.
To facilitate this exchange, the DAO provides options that can be exercised by individual owners. To prevent the tokens from being distributed to exchanges and other automated systems, only accounts participating in the proposal vote will receive options.
The community found a secret FTX “buyer”.
On April 11th, DAO member Donderper discovered that the secret account received assets from the bankrupt crypto exchange FTX, and this account is now using these tokens to support its buyback proposal. “Holy shit,” Donderper shouted. “Has FTX Estate entered the chat now?” They posted a screenshot showing that the account supports the proposal. It represented 6.67% of the total vote at the time.
Donderper pointed out that the report's actions were “shady”: “[A] A week before this proposal begins to be discussed, FTX Assets will begin transferring its 333 million tokens to an account used by this vote. They assumed that “someone cut a deal with FTX to buy their mngo”. [$0.01]” and then proposed to buy the DAO for $0.038. The account is set to sell half of the coins for a net profit of $2 million, he said.
Donderper has not posted any evidence of the price at which the alleged free trade occurred. Blockchain data only shows that one known FTX account transferred the tokens to another account.
Some members of the community began to point out that Donduala and another DAO member, Maximilian, might be associated with an FTX-related account. “Wow, this is super shady. @DonDuala / @Maximilian, a member asked, “Do you know who controls this account?” Another member responded, “They know 100%,” calling the transfer a “backdoor deal.”
In a post later that day, Donduala sidestepped the question of whether they were affiliated with the FTX buyer and instead responded to criticism of the proposal. Donduala said the focus on the FTX buyer appears to be a distraction from the main issue at stake in the proposal. “Of course there's a lot of dislike for FTX and the way the asset took the clearance process,” he said, “but today's clamor to vote for those tokens seems misplaced.
Donduala argued that the proposal should pass because it represented support for “market efficiency”. “No vote against market efficiency, yes votes protect the token and the vote will keep the DAO on its best footing.”
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The idea fails and he takes off
On April 12, the initial proposal was rejected, with 52.3% of tokens used to vote against it. Donduala resubmitted the proposal with amendments. In the new version, the DAO will buy only 156 million MNGO, which is more than half of the original proposal. Additionally, options will be distributed to all users who have contributed to Mango DAO's Realm management system, regardless of the votes cast for this particular proposal.
On April 20, Mango Markets co-founder Daffi Durairaj made a lengthy argument against the approval of the new proposal. Durairaj said Donduala and Maximilian were “total mercenaries” and were “willing to say and do anything to improve their financial position”. In private conversations, Durairaj learned that “there is a huge amount of money at stake and they don't intend to negotiate.” He said the two had engaged in “unbelievable behavior and self-control” and that “these behaviors are grounds in themselves to oppose this proposal.”
Durairaj suggested that the DAO could support the token's value in other ways after the proposal was defeated, but argued that this particular takeover proposal should not be accepted.
The revised proposal passed
On April 21, Douala publicly posted the new version of his proposal for a real-time voting system. On April 24th, it passed, with over 67.9% of tokens used to vote for it.
On April 30, Douala announced that 46.67% of the options had been exercised, resulting in the DAO buying approximately 73 million MNGO for 2.3 million Chai.
On the same day, Donduala announced that they will present a new proposal to issue one-eighth of the DAO's treasury in May and buy back additional MNGO at 5% of the estimated book value.
In response to the returned purchases, some members took to social media to complain. “Mango Dao is ripe,” said X user Kevin, “Some haters have suggested a comeback.” […] Passive token holders for soft mats. After this proposal failed, they “voted it back with cosmetic changes.”
X user Frank Ronson pushed back against this claim, asking, “What's wrong with going out at book value?” he asked rhetorically. “People shouldn't be bound by a protocol that doesn't match book value,” Ronson said.
When a company's market value falls below its book value, investors sometimes buy the stock and take control of the company. Investopedia calls these investors “corporate raiders.” According to Cornell Law School's Legal Information Institute, corporate raids are legal in the United States, but poison pills and regulatory taxes make raiding ineffective.
Related: AAVE DAO disputes compensation plan for AMPL depositors
On April 18, Avram Eisenberg was found guilty of defrauding the mango markets. Sentencing is set for July 29. On April 26, court documents state he was also charged with possession of child pornography.
