Post-hack pressure pushes balance labs to wind down operations, restructure protocol

Faced with declining TVL and post-hacking pressure, it plans to repair the balance model, reduce emissions, and reduce costs to stabilize protocol operations.

Balancer Labs, the entity behind the DeFi protocol Balance, is moving to dismantle its current structure after months of financial woes. His leadership proposed a reduced model for implementing the Balancer protocol.

According to CEO Markus Hardt, two management proposals have been made to improve the structure of the protocol in the months since the November exploit.

The breakdown of the economic model

In a recent post on X, while the balancer core technology, including the v3 update and added pools, will continue to be implemented, the economic design around the protocol remains unsustainable.

According to Hardt, Balance allocates excessive incentives to attract liquidity relative to earnings, leaving BAL token holders depleted. The proposed changes aim to address this by eliminating BAL emissions, moving all protocol fees to the Treasury, reducing exchange fees charged by the protocol to benefit liquidity providers, and moving to the weakest group.

Restructuring proposals to address the impact on veBAL holders, including recapitalization and compensation initiatives, will eliminate economic rights associated with token locking. The executive added that the goal is to provide participants with an exit or transition path rather than enforcing participation in revised terms. Stating that the transition will require strong performance going forward, Hardt also said,

“This does not mean that everything is solved or that we start making promises that we do not have the right to deliver. First, we need to do well at the bottom line. We need to be more disciplined, more focused and more transparent about what creates real value and what does not.

Exploitation and TVL crash.

The restructuring comes after a long period of decline for Balancer. Once a major DeFi platform in the 2020-2021 cycle, the total value of the protocol increased to more than $3 billion in November 2021 before falling to $800 million in November 2021, according to data compiled by DeFillama.

The November hack accelerated the outflow, as it cost TVL an additional $500 million in a two-week period. Balance TVL has dropped below $160 million.

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