It all began with a typo.
At the start of the third season, we still have Avon, Cally and Vila, and they're joined by Tarrant and Dayna. Tarrant's a Sime, and I'd assume that weapons-specialist Dayna is also. And naturally Soolin is, too. This in itself goes a long way toward explaining the difference between the first two seasons and the second two...first and second season, they're a balanced set of transfer partners; third and fourth seasons they're a hunting pack of Sime raiders. (MD)
When Cally died, the situation became less stable, because they'd lost their one strong Channel, so they did have to raid. (KA)
There would obviously have to be a Channel distribution system in place, or the Federation would have succumbed to Zelerod's Doom long ago, but I expect that killing isn't illegal either. It's just really really expensive. Choice kills. Ohnj Verlis probably didn't (just) deal in slaves, but in Gens. Gen relatives of deserters would not be sent to the slave pits, they would be sent to the Gen pits; not for death, but to be milked by the government Channels until they died. Gens would be second-class citizens, but I don't think they would be classed as non-persons. All channels would be forced to work for the government - but Cally, not being a Federation citizen, would have received different Channel training - Auron-style training, whatever that was. (KA)
For those of you completely confused, a small explanation must be given. The Sime~Gen universe is a fictional creation of Jacqueline Lichtenberg in which humanity has mutated into two forms - the selyn-producing Gens, and the tentacled (on their arms) Simes which feed on selyn. Selyn is a kind of life-energy which Simes can detect. Unfortunately, for most Simes, taking the selyn from a Gen kills the Gen. A Channel is a Sime who can take selyn from a Gen without killing them, and channel it to other Simes. Some Gens also, with proper talent and training, are able to donate selyn to any sime (not just Channels) without being killed.
If you want to know more, check out the Sime~Gen pages.