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The Tally Newsletter, Issue 19

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The Tally Newsletter, Issue 19

February 22, 2021

monetsupply
Feb 22, 2021
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The Tally Newsletter, Issue 19

newsletter.tally.xyz

The Tally Newsletter, Issue 19

Welcome back for issue 19 of the Tally Newsletter, a publication focused on all things decentralized governance. We’ll keep you updated on key proposals, procedural changes, newly launched voting systems, shifting power dynamics, and anything else you need to know to be an informed citizen. 

This issue covers recent advances in governance automation:

  • Reflexer launches non-pegged stable asset RAI 

  • MakerDAO expands use of instant access modules

Plus a roundup of key proposals and protocol news from the last week!


Reflexer Launches Non-pegged Stable Asset RAI

TL;DR: The RAI system uses a feedback control mechanism to stabilize token value without a fixed peg to USD.

After months of development and anticipation, Reflexer labs has released RAI on mainnet.

Twitter avatar for @reflexerfinance
Reflexer Labs @reflexerfinance
1/n RAI is (officially) live! Let the money god rise and shine 🗿 medium.com/reflexer-labs/…
medium.comRAI is LiveAfter almost a year of testing, simulations and building, we’re thrilled to announce the launch of RAI! RAI is an ETH backed, non pegged stable asset whose monetary policy is managed by an on-chain…
1:49 PM ∙ Feb 17, 2021
406Likes117Retweets

RAI is intended to have a stable price, allowing users to benefit from holding an asset with dampened volatility or borrowing to lever up their exposure to ETH. But unlike other stablecoins such as MakerDAO’s DAI, RAI is not pegged to a specific reference asset such as the US dollar, instead floating freely as a function of supply and demand.

In many ways, RAI is a reaction to perceived shortcomings and flaws within MakerDAO’s DAI stablecoin system. Following the March 2020 market crash, DAI traded consistently over $1 as the demand for holding a stable asset exceeded supply from borrowers seeking leverage.

With the standard solution of reducing borrowing rates failing to solve the problem, Maker ultimately decided to aggressively onboard new assets, including centralized stablecoins and wrapped cryptocurrency. Onlookers were concerned that this would reduce DAI’s decentralization, as centralized collateral could potentially give outside entities leverage over the system. Additionally, this conflicts with long term goals of governance minimization, as potentially corruptible human input is needed to evaluate new collateral assets and select appropriate risk parameters.

RAI takes a radically different approach to maintaining stability. Borrowing from MakerDAO’s specification for a “target rate feedback mechanism”, RAI uses a perpetual funding mechanism to incentivize buying or selling. 

Whenever the price of RAI is trading above the system’s price target (currently around $3.13), the target itself is lowered. Over time, the funding rate effectively transfers value from RAI holders to RAI borrowers, incentivizing minting and selling to bring the peg back in line. In cases where RAI trades below the price target, the process works in reverse with the target rate gradually raised to incentivize purchasing (increasing demand) and loan repayment (reducing supply).

Twitter avatar for @reflexerfinance
Reflexer Labs @reflexerfinance
The money god is not happy 🗿. The market price must be closer to redemption. Tomorrow we will start the controller and will then progressively scale its force. Expect negative rates.
7:13 PM ∙ Feb 17, 2021
52Likes4Retweets

The funding mechanism is theoretically sound, but defi users’ attraction to newly listed tokens has kept RAI trading consistently above target in the few days since launch. The excess demand may also be caused by unconfirmed but widely anticipated liquidity incentives for participation in the RAI ecosystem. 

Based on current 8-hour funding rates of -0.033% (shown in the RAI stats page), RAI borrowers are paying an effective annual interest rate of -28%. 

Twitter avatar for @ameensol
ameen.eth @ameensol
If you market buy RAI above the redemption price (currently $3.14), you are paying an ape tax. It's a transfer of wealth from apes to those who believe RAI will eventually restore its peg. And the Money God always wins. 🗿
8:15 PM ∙ Feb 18, 2021
19Likes2Retweets

While this level of negative funding will likely subside as the RAI supply grows, it points towards a key tradeoff within the system between decentralization and scalability. RAI supply is constrained by the value of ETH able to serve as collateral, while alternative debt backed stable assets such as DAI can benefit from a much broader collateral base. Over time, this could lead to a structural RAI supply shortfall, which would drive consistently negative funding rates and declining RAI value versus USD.

RAI parameters are still controlled by the Reflexer Labs team. But as the system matures and gains deeper liquidity, the goal is to progressively decentralize and then eliminate human influence on the control mechanisms. But with MakerDAO well on its way to implementing some of the system’s key changes, including the capability for negative funding rates, RAI will have stiff competition in its goal of becoming a decentralized “money god”.

MakerDAO Extends Instant Access Modules to More Assets

TL;DR: Expanded instant access modules automate day to day management of debt ceilings. 

Over the past year, MakerDAO’s list of approved collaterals has grown from just two assets (ETH and BAT) to over 20 individual assets. This expansion in the collateral base has helped Maker meet parabolic DAI demand, while also diversifying risk among potentially uncorrelated assets. But at the same time, it has greatly expanded the governance overhead for managing risk parameters such as debt ceilings and interest rates.

The debt ceiling instant access module helps MakerDAO meet this challenge, by allowing any Ethereum user to update an asset’s debt limit within predefined, governance controlled bounds. Over the past month, this functionality has been expanded from the original ETH-B vault type to cover nearly all of Maker’s supported assets (Uniswap LP and stablecoin vault types are excluded for the time being). 

In addition to reducing the frequency of parameter change votes, instant access modules also allow for the debt limit to more closely track current debt exposures. This is particularly important due to Maker’s oracle security module, which delays price updates by 1 hour to give time to respond to critical failures or faulty data. Capping borrowing capacity limits Maker’s losses from sharp and sudden asset price falls. 

While Maker currently empowers a working group to recommend interest rate changes based on risk and competitive considerations, the pace of adjustments needed in a bull market are beginning to present challenges. Just this week, the working group made its first mid month adjustment proposal since inception last year. Rate changes are primarily driven by shifting debt exposure, so linking interest rate adjustments to the instant access module may be a natural progression for MakerDAO’s governance automation. 


In Brief:

  • Alpha and Cream suffer defi’s largest exploit to date, $35 million lost to hack:

Twitter avatar for @AlphaFinanceLab
Alpha Finance Lab @AlphaFinanceLab
Dear Alpha community, our partners, and DeFi users, we'd like to share a post mortem on the recent Alpha Homora V2 exploit. We’d like to sincerely thank everyone who has helped us, both on the technical and non-technical sides. TL;DR 👇 blog.alphafinance.io/alpha-homora-v…
blog.alphafinance.ioAlpha Homora V2 Post MortemDear Alpha community, our partners, and DeFi users, as we have shared earlier, we have closed the loophole that made the exploit possible. We’d like to take this opportunity to thank everyone who has helped us, be it on the technical front and non-technical front. We sincerely appreciate it. We are …
7:33 PM ∙ Feb 13, 2021
676Likes173Retweets
  • Aave AIP-10 adds support for xSUSHI:

Twitter avatar for @AaveAave
Aave @AaveAave
After a governance vote, xSUSHI is officially listed on Aave! 👻🍣
Twitter avatar for @SushiSwap
SushiChef @SushiSwap
The golden xSushi available on @AaveAave now! https://t.co/CWieZHd1xb 👻 x 🍣 https://t.co/76aM5GQcNT
10:32 PM ∙ Feb 14, 2021
593Likes93Retweets
  • Compound proposal 38 (adjusting BAT and ZRX collateral factors) fails to meet quorum:

Twitter avatar for @compoundfinance
Compound Labs @compoundfinance
Proposal 038 by @gauntletnetwork adjusts the $BAT and $ZRX collateral factors from 60% to 65%, to improve capital efficiency for borrowers. Discussion: comp.xyz/t/risk-paramet… Proposal:
compound.financeCompound | Proposal Detail #38Adjust BAT, ZRX collateral factors
8:39 PM ∙ Feb 12, 2021
75Likes21Retweets
  • KyberDAO considers switch to inflationary token economics:

Twitter avatar for @KyberNetwork
Kyber Network @KyberNetwork
$KNC Token Migration & Upgrade discussion is heating up on our new @KyberDAO Governance Forum! Join the discussion here: gov.kyber.org/t/knc-token-mi…
Image
5:41 PM ∙ Feb 18, 2021
102Likes24Retweets
  • Yearn voting to extend multisig authority:

Twitter avatar for @iearnfinance
yearn.finance @iearnfinance
YIP-59: Temporarily Extend Multisig Empowerment vote is live on Snapshot. This YIP would extend multisig empowerment for an additional 3 months (EOM May 2021). You can read the full description of this YIP and vote using the link below.
snapshot.pageSnapshot
8:47 PM ∙ Feb 19, 2021
30Likes10Retweets
  • Balancer votes to continue gas reimbursement program and increase rewards for GNO and AAVE:

Twitter avatar for @BalancerLabs
Balancer Labs @BalancerLabs
Attention, $BAL governors: There will be 3⃣ Snapshot votes this weekend! LPs must vote in at least one proposal to ensure govFactor activation for next week. Snapshot block: 11889925 (~22:00 UTC) Voting spans: 23:00 UTC Friday-Sunday Changes enacted: 00:00 UTC Monday Details ⤵️
8:18 PM ∙ Feb 19, 2021
40Likes12Retweets
  • Pool Together and Radicle launch governance tokens:

Twitter avatar for @PoolTogether_
PoolTogether @PoolTogether_
Control of the PoolTogether protocol is decentralized and 100% in the hands of POOL governance tokens holders. Read how governance works:
medium.comGovernance 101Control of the PoolTogether Protocol rests solely in the hands of the community holding the POOL tokens. This is a revolutionary new way of organizing and it takes some education. The post explains…
3:12 PM ∙ Feb 19, 2021
93Likes19Retweets
Twitter avatar for @radicle
Radicle 🌱 @radicle
Today, we're announcing the launch of Radicle's Ethereum integration and its native governance token. With this release, Radicle becomes the first open-source, community-led, and self-sustaining network for software collaboration. 🌱 radicle.xyz/blog/introduci…
radicle.xyzRadicle Blog - Introducing RADThe Radicle project has released its native governance token, making it the first open-source, community-led, and self-sustaining network for software collaboration. The Radicle token is live! The official contract address is …
3:08 PM ∙ Feb 18, 2021
284Likes128Retweets

Thanks for joining us for issue 19 of the Tally Newsletter! We’ll be returning to our regular schedule of Wednesday releases this week, so keep eyes out for our next issue. 

In the meantime, be sure to check out the Tally governance app, and join us on Discord for the latest updates!

Best,

Nate, Tally

Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com

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The Tally Newsletter, Issue 19

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