The Tally Newsletter, Issue 27
April 14, 2021
Welcome back for issue 27 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 week we cover:
Compound’s proposal to institute governance analysis period
Maker considers raising emergency shutdown threshold
Plus some updates from the Tally blog and other ecosystem protocols.
Compound Votes on Governance Process Update
TL;DR: Proposal 43 would institute a 2 day delay from when a proposal is submitted to when voting starts, offering additional time for community review.
Since the launch of Compound’s governor alpha voting system in the middle of last year, a consistent request has been for additional review and preparation time before votes take place. Until now, the voting system has used a 1 block delay between when a proposal is submitted and the vote snapshot and voting period begins. This is just long enough to prevent vote manipulation using flash loans, but is insufficient to allow any preparation by governance participants.
In view of this, Compound cofounder Geoffry Hayes submitted proposal 43, which would increase the delay period from 1 block to 13,140 blocks (roughly 2 days). This will allow community members additional time to review code and parameter changes to ensure they’re safe.
In addition to giving a longer period for governance analysis, this proposal would also fundamentally redefine the workflow and responsibilities of protocol delegates. In the current system it’s not possible to remove delegation from someone after a proposal is started, which creates a risk for vote owners who may not agree with their delegate’s position. With a longer delay period, delegates could review and communicate their voting preferences with enough time for vote owners to add or remove support. This could empower funds and large holders to support independent community contributors with less risk of misalignment or failure in fiduciary duties to their investors.
Voting has just begun yesterday, but based on current participation it looks like the proposal is not controversial. Proposal 43 is also the first time voters can select an abstain voting option and offer a freeform comment with their vote, and participants will be watching closely to see if this leads to a boost in participation numbers and quality.
MakerDAO Considers Changes to Emergency Shutdown Mechanism
TL;DR: Due to risk of governance attack, the Maker community is looking at increasing the threshold for triggering emergency shutdown.
MakerDAO is fairly unique among protocols in offering an explicit, on-chain mechanism for its own dissolution. The Emergency Shutdown function allows MKR holders to burn their tokens in order to settle and wind down system operations. While this is primarily intended as a failsafe against potential attacks or technical faults, it also plays an important governance role as a poison pill provision. Any significant philosophical or operational changes (for example implementing KYC) could be vetoed by a committed minority of token holders through the shutdown mechanism.
Currently, a minimum of 50,000 MKR tokens are required to shut down the system. While this represents a significant sum of money, Maker’s market capitalization (and therefore economic security) has lagged behind other protocols throughout the bull market. There is also increasing liquidity available for hedging or shorting MKR exposure on defi and centralized platforms, with total liquidity and open interest across Aave, Binance, and FTX amounting to almost 50,000 MKR. This is problematic, as an attacker could short MKR while triggering an emergency shutdown, with the expectation of MKR price dropping during the following market dislocations.
A Maker community member has raised an initial discussion over a potential increase in the threshold, which would make it more difficult to trigger shutdown as an attack vector. But any raises would need to be carefully considered as shutdown is also a means of defense against other failures or attack vectors. The measure will be discussed in tomorrow’s MakerDAO weekly call, and the Maker risk team has suggested next steps for consideration including formal continuity planning and a monitoring program for MKR token ownership and liquidity changes.
In Brief:
Tally cofounder Raf Solari breaks down the emerging building blocks of protocol governance in our blog: https://medium.com/tally-blog/governance-legos-6559f2234a3a
Polygon, an EVM based sidechain, offers liquidity incentives for the Aave protocol’s local market:
Gauntlet partners with Balancer protocol to help set dynamic pool fees in v2:
Fei protocol TRIBE voters reject a proposal to buyback FEI tokens using protocol treasury:
Reflexer Finance (maker of RAI) proposes expansive joint venture partnership to the Index Coop, including potentially unlimited joint token minting:
Thanks for joining us for issue 27 of the Tally Newsletter! Be sure to check out the Tally governance app, join us on Discord, and subscribe to our protocol calendar for the latest updates!
Tally is hiring full stack engineers anywhere in the Americas time zone. If you’re interested in working with us to make on chain governance work, apply on our jobs page!
Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com
Best,
Nate, Tally