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The Tally Newsletter, Issue 32

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The Tally Newsletter, Issue 32

May 19, 2021

monetsupply
May 19, 2021
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The Tally Newsletter, Issue 32

newsletter.tally.xyz

Welcome back for issue 32 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: 

  • PoolTogether’s grants program proposal

  • Sharp losses and insolvency for BSC based lender Venus Protocol

Plus brief updates from around the ecosystem.


PoolTogether on Track to Pass Grants Proposal

TL;DR: The proposal empowers a grants committee to distribute 27,000 POOL tokens to contributors over a 6 month period.

PoolTogether, the protocol for no loss prize pools, has become the latest project to jump on the grants bandwagon. And for good reason - while the structure and processes are still taking shape, Uniswap and Compound have both had early success with their grant programs. 

Similar to the other protocols, PoolTogether will charge lead members with managing the program and handling due diligence. A committee of reviewers will then confirm each grant before funding, and help manage the allocated POOL tokens via a multisig. While funding is granted in POOL tokens, the grants program would be authorized to spend up to $500,000 per quarter in grant funding plus $100,000 in operational expenses.

As we’ve seen in the past with the Uniswap grants committee, it can be difficult to judge the future value of tokens. The proposal specifically addresses this with an option for potential followup funding requests to governance depending on price changes. This may come into play relatively soon, as with the recent market downturn 27,000 POOL tokens are worth at least 20% less than the $500,000 quarterly spending target.

PoolTogether Proposal 12

So far there seems to be broad community support for grants spending, with the proposal having already met the minimum quorum requirement. This was likely made easier by the relatively small token request, and the community trust built up over time by the various committee members. 

In the short term, many projects like PoolTogether are recognizing there may be more risk from governance inaction versus potential overspending. But as more projects embrace grants programs to increase responsiveness, communities may struggle with limits of trust and social scalability. A mix of social and technical solutions will be needed to unlock further benefits from committee governance.

Venus Protocol Faces Disorderly Liquidations

TL;DR: Severe market manipulation in the project’s own XVS token allowed attackers to take out undercollateralized borrowing positions.

Venus Protocol has been a prominent fixture of Binance Smart Chain (Binance’s in house EVM blockchain) since last fall. It offers similar borrowing and lending services to Ethereum’s MakerDAO, Aave, and Compound, including lending of various crypto assets and minting the project’s native VAI stablecoin. While the fundamentals of defi lending and derivatives are well understood, Venus’s pursuit of the far end of the risk curve seems to have caused problems in this latest incident. 

Specifically, Venus allows users to both borrow its own XVS (a short position) as well as use it as collateral to borrow other assets (a long position). This leverage is compounded by futures and margin offerings on Binance’s centralized exchange as well, leading to a highly leveraged trading environment for the XVS token. 

Twitter avatar for @bneiluj
Julien Bouteloup @bneiluj
this is amazing. Liquidation on steroids $XVS holders got liquidated via Venus protocol. "Liquidator" market sold to create more liquidations. And entire move was initiated by a "Whale" who borrowed at 100% against his XVS (>$200M) and savagely short it on leverage. Brilliant.
Twitter avatar for @depression2019
Depression BTC @depression2019
Full retrace after nearly a 100% pump in an hour for $XVS. This is a 5 minute chart lol Venus is a $1 billion marketcap coin so this is kind of wild https://t.co/DD9BBCWto6 https://t.co/L0OOpJu5Zo
10:49 PM ∙ May 18, 2021
449Likes104Retweets

Attackers managed to use this intrinsic volatility as a means of extracting value from the system. First, XVS was borrowed to trigger a short squeeze and parabolic price rises. Then attackers pledged their XVS tokens as collateral on Venus to borrow alternative assets including ETH and BTC. But due to the XVS token’s inflated valuation being fed into the oracle, the attackers were able to borrow more than the fair value of their collateral.

Twitter avatar for @Joselito
Joselito @Joselito
The system worked as intended and liquidators did their jobs. The problem here was primarily caused by cascading liquidations which after each liquidation lowers the price which then caused more liquidations. Think of it as “Longs” getting liquidated. (2/5)
12:33 AM ∙ May 19, 2021
85Likes9Retweets

Despite the founder’s explanation that no funds were lost, Venus protocol faces tens of millions in bad debt, where the value of outstanding loans exceeds assets. Because losses are not automatically applied to suppliers’ positions, and the protocol has only a vague plan for plugging the hole (using OTC deals or further borrowing against XVS), it may be impossible for all users to withdraw their assets. This creates a risk of bank runs if users lose confidence in Venus’ repayment plan, as those withdrawing last face greater losses.

Twitter avatar for @FrankResearcher
Igor Igamberdiev @FrankResearcher
8/9 These funds here were lost not by those who were supposed to become liquidation’ victims but by ordinary protocol users who deposit money in it. Until Venus finds a way to get rid of the bad debt, the protocol is undercollateralized, and the bank run will be challenging.
6:18 AM ∙ May 19, 2021
90Likes7Retweets

Above all else, the exploit exposes a looming governance problem in many BSC based protocols. Without community involvement in project maintenance and risk management, all responsibilities fall on core team members who may be either unqualified or misaligned. Projects focused on real community engagement should have a competitive advantage from safer, more effective governance.


In Brief:

  • Crypto markets experience sharp intraday drawdown, with billions of dollars liquidated:

  • MakerDAO’s liquidations 2.0 upgrade handles market drop without losses:

Twitter avatar for @tomhschmidt
Tom Schmidt @tomhschmidt
taking my kids on a field trip to watch the Maker Liquidations Portal
Image
2:43 PM ∙ May 19, 2021
39Likes1Retweet
  • Alchemix considers 1,000 ALCX grant to sponsor centralized exchange listing:

Twitter avatar for @CryptoToit
CryptoToit 🌍 ⚔️ 👨🏽‍🚀 🔫 👨🏽‍🚀 @CryptoToit
Calling @AlchemixFi holders to participate in a governance vote. Voted for the allocation of 1,000 $ALCX
snapshot.orgSnapshot
4:08 PM ∙ May 19, 2021
33Likes6Retweets
  • Aave votes on implementing GUSD and CRV reserve factors, which funnel revenue to the protocol to compensate for the AAVE risk backstop:

Opportunities: 

  • Flipside Crypto’s Bounty Brief newsletter collates funding for defi data analysis 

  • Aave grants program begins accepting applications:

Twitter avatar for @StaniKulechov
stani.eth 👻 =(⬤_⬤)= 👻 @StaniKulechov
Devs building on top of @AaveAave Protocol, join t.me/aavegrantsdao and present your project on next community call led by @HelloShreyas from @AaveGrants 👻
t.meAave Grants DAO 👻You can view and join @aavegrantsdao right away.
11:19 PM ∙ May 18, 2021
91Likes13Retweets

Thanks for joining us for issue 32 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!

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

Best,

Nate, Tally

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