The Tally Newsletter, Issue 42
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The Tally Newsletter, Issue 42
August 13, 2021
Welcome back for issue 42 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:
Two contentious Aave governance proposals
LeXpunK DAO proposes funding legal advocacy organization to Curve, Lido, and Yearn
Plus brief ecosystem updates from other projects.
Aave Governance Heats Up with Two Contentious Proposals
TL;DR: A proposal to accept BOND tokens as collateral narrowly failed, while Gauntlet’s proposal for risk monitoring passed despite significant opposition.
Aave governance has often seen unanimous or near unanimous outcomes on governance votes. But in the past weeks, two proposals have seen highly contentious outcomes.
In AIP23, the Barnbridge team requested to add the BOND token to Aave. But in contrast to other recent asset additions such as RAI and AMPL, they proposed allowing borrowing against the BOND token as collateral from initial onboarding with up to 35% loan to value ratio. Accepting tokens as collateral can be risky, as each additional asset has the potential to cause losses for other markets if the price drops suddenly. This in turn would impose losses on Aave stakers, who backstop default risk for the protocol.
There was an additional wrinkle to this vote, as the support and opposition among large holders seemed to align with their investments in either Barnbridge or competing risk tranche protocol Saffron Finance. Tyler Ward of Barnbridge specifically called out Arthur of Defiance Capital as an opposing force.
But when pressed to explain the reasoning for opposition, Arthur responded with risk related concerns about allowing newer, lower liquidity assets to serve as collateral.
While some frustration surely remained on the Barnbridge side after their proposal was rejected, they accepted the vote outcome and have realigned their proposal to accommodate the investors who opposed AIP23. The ongoing Snapshot poll to add BOND to Aave without collateral support has seen near unanimous support, showing that there is a path forward for the listing proposal with more conservative risk parameters.
As the Barnbridge proposal was ending, Gauntlet Network submitted a separate proposal to Aave governance that has also seen significant debate. Gauntlet proposed an engagement with Aave to offer continuous risk monitoring and parameter change recommendations, aiming to both mitigate risk and improve capital efficiency in the main Aave money market.
While these services are clearly valuable, improving usability while mitigating risk of losses born by Aave stakers, the price tag and terms of engagement caused concern among some community members. Notably, Gauntlet requested quarterly payments amounting to roughly $8 million per year, but will retain full confidentiality and control over the models and process underlying their recommendations. Essentially, Aave would be paying for a consulting engagement rather than protocol owned risk infrastructure.
Another potential point of concern was VC cross shareholdings in both Aave and Gauntlet. If investors have a larger proportional stake in service providers than client token networks, they may have a vested interest in passing through proposals even if they are not in the best interest of the protocol.
In the end, the Gauntlet risk management proposal passed by a comfortable majority. But given the relatively high level of dissent, they may need to work hard to maintain and build community trust and confidence in their offering. The service contract will be reviewed quarterly, allowing for frequent reassessments of their performance and value proposition.
Crypto Law Collective LeXpunK DAO Proposes Alternative Legal Advocacy Group
TL;DR: The collective has requested initial funding from Yearn, Curve, and Lido to pursue a “builder first” approach to defi legal advocacy.
When Uniswap approved funding for the Defi Education Fund, there was widespread concern that the organization would not align evenly with the broader goals of the defi community. Among potential issues, most of the experts and lawyers on the committee were involved with protocols that had taken a two tier approach to launching their protocols, with a DAO operating alongside a private development company.
Having a two tier ownership structure could present some risks for DAOs, as the development company may have non public obligations to their VCs and private investors that give them preference over token holders. Some feared that the 10 million UNI in funding approved by Uniswap governance could be used to protect VCs from legal risk, rather than benefiting the wider community or DAO members.
LeXpunK DAO formed to address this perceived gap with a more open, community focused approach to legal advocacy. To date, they have reached out to three DAOs for initial funding that in their view take a more decentralized approach to development and are less constrained by potential VC side deals: Curve FInance, LidoDAO, and Yearn.
Yearn’s proposal has already passed a governance vote with unanimous support, with voting for Curve and Lido still to come. As this initiative progresses, there are a few points of interest to keep an eye on. First, what DAOs will be considered sufficiently decentralized and community run to be invited to participate? Second, will the legal strategies employed by LeXpunK DAO and the Defi Education Fund come into conflict? Finally, how will protocols respond to the practice of airdropping tokens to only those voters who support a particular vote (as LeXpunK DAO has suggested with the three proposals above)? Regardless of how the above questions resolve, LeXpunK DAO is likely to have a significant impact on defi’s regulatory standing over the coming months.
In Brief:
Andre Cronje releases permissionless bribe app for Curve gauge voting, allowing protocols to influence which pools receive rewards:
Polygon merges with Hermez network in $250 million, token based deal:
Curve Finance approaches first inflation reduction:
PolyNetwork suffers largest ever defi hack with $600 million taken and then returned by hacker:
Rarible releases decentralized protocol to simplify NFT projects:
Dydx launches DAO and governance token, controversially excluding past users with links to US based IP addresses:
Opportunities:
Tally is still hiring! Check out our job postings here.
Defi Grants site aggregates DAO grant programs, simplifying the funding process for potential applicants: https://www.defigrants.org/
Thanks for joining us for issue 42 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