The Tally Newsletter, Issue 33
May 26, 2021
Welcome back for issue 33 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:
Gitcoin’s push for decentralization with the GTC token launch
Index Coop struggles with failure to meet quorum on key votes
Plus brief updates from around the ecosystem.
Gitcoin Launches Governance Token
TL;DR: The GTC token will be used to oversee the Gitcoin grants program, as well as manage treasury assets and support work on sybil resistance.
While Gitcoin has become a central force for Ethereum development and funding, the core bounties and grants programs were developed and administered by a private company. Grants funds are held in a community multisig with outside members, but this setup still drew some concern over excessive centralization.
Gitcoin has taken a great stride towards addressing this with yesterday’s launch of the GTC governance token. 15% of the token supply has been granted to past donors and grantees on the platform, with another 35% allocated to the genesis team and investors over a 2 year period.
GTC holders will be the ultimate source of authority over Gitcoin’s grant rounds, with a mandate to ratify the size and allocation of funding between different areas. They will also control a treasury comprising 50% of the GTC token supply, which will help counterbalance the voting power of protocol insiders and incentivize future participation.
Early governance participation has been boosted by a thoughtfully designed token claims process. While claiming on the Quadraticlands site, users are automatically prompted to delegate their tokens, with a list of prospective stewards pulled directly from the Gitcoin community forum.
This seems to be working as intended, with nearly 5% of the fully diluted token supply already active for voting (nearly 33% of the community’s initial allocation). The distribution of votes is also more balanced than many other protocols, where top ranked delegates frequently gain their voting power from only a handful of large token holders.
GTC holders’ first call to action is quickly approaching. As part of their governance responsibilities, voters will have the opportunity to review and ratify Gitcoin’s Grants Round 10. But beyond this, they also face the tasks of treasury management (including GTC tokens as well as donated AKITA tokens) and maintaining/building on sybil resistance. Gitcoin’s work on identity is a particular area of interest, as it points towards potential for future governance mechanisms that are based on personhood and participation rather than proof of capital (like current 1 token 1 vote mechanisms).
Index Coop Reruns Key Votes After Failing to Reach Quorum
TL;DR: The failure to increase leveraged token supply caps led to a large price dislocation on secondary markets.
The vast majority of protocol governance systems utilize some form of quorum requirement. This ensures that unfavorable proposals can’t be snuck through the voting process without sufficient backing from the community. But while most protocols have generally seen healthy participation rates, occasionally a lack of voter turnout causes serious issues.
In the past we’ve seen this most frequently in protocols using on-chain governance. Most notably, Uniswap’s first two proposals failed to reach the minimum 40 million vote requirement, and MakerDAO has seen periodic governance delays due to failure to pass quorum. This can be partly explained by the friction involved in on chain voting, which requires users to pay transaction fees to submit their vote choice. Uniswap’s initial proposals were also fairly controversial, so it could be argued the quorum requirement worked as intended by blocking proposals with insufficient support.
Index Coop’s latest struggles with voter participation are notable as they don’t fall under the explanations above. Index currently uses off chain Snapshot polling to gauge user support, eliminating the need for paying transaction fees to submit votes. And the most recent proposals were fairly uncontroversial, involving day to day operational matters that would be expected to be rubber stamped by governance.
The first proposal was a motion to deprecate the Coinshares CGI index product. Considering the product had barely any use and was running into liquidity issues with component assets, this vote was mainly just a formality to save the protocol from further investment and management overhead.
The second and third failed proposals would have increased the maximum supply limit for Index’s successful FLI leveraged tokens. These votes were arguably more important, as they impact product stability. Arbitrage bots keep the market price of FLI tokens in line with underlying deposit value, but when the index reached its supply cap it was no longer possible to mint additional tokens to balance supply and demand. This caused the market price of the FLI products to rise far over the value of underlying assets, with any users who bought at a premium facing likely losses once prices return to normal.
Index quickly resubmitted the three votes earlier this week, and all are on track to pass later today. In the short term, Index is considering delegating authority over supply caps to a multisig or other more agile decision making body, which should prevent this issue from recurring. But this represents a cautionary tale for protocols relying on governance agility, proving that gasless voting may not be enough to incentivize active participation. Vote delegation is an alternative tool that can help increase engagement from passive owners, who may be limited by lack of time to review proposals rather than friction of paying transaction fees.
In Brief:
Tally welcomes synthetic index protocol Cryptex as a supported governance:
MakerDAO community member proposes disabling MKR borrowing on Aave:
Marketmaker Wintermute makes push into defi ETFs with investment in asset management protocols:
Gauntlet Network makes first adjustments to swap fees as part of their Balancer v2 engagement:
Yearn pitches new YFI vault type with lower fees to MakerDAO community:
Curve veCRV holders to receive airdrop for authorized fork on Fantom, similar to previous arrangement with BSC based Ellipsis:
Yearn votes on rotating out two signers from their core multisig:
Rari invalidates snapshot proposal that failed to follow governance framework:
Opportunities:
Flipside Crypto’s Bounty Brief newsletter collates funding for defi data analysis
One week left for Uniswap Grants Program’s data analytics dashboard bounty:
Compound Grants Program shares request for proposals:
Thanks for joining us for issue 33 of the Tally Newsletter. Be sure to check out the Tally governance app and join us on Discord 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