The Tally Newsletter, Issue 45
September 8, 2021
Welcome back for issue 45 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:
Coinbase’s Lend product rebuffed by SEC
Emerging governance mechanisms for Loot NFT ecosystem
Plus brief updates from the defi and governance space.
Coinbase Clashes with SEC Over Lending Service
TL;DR: The SEC has threatened to sue Coinbase over their planned lending service, while several competing services are already on the market.
While many regulatory battles are fought behind closed doors, this week we witnessed a rare case of one such struggle emerging in the open. Prominent crypto exchange Coinbase finds itself embroiled in a fight with the SEC over their recently announced crypto lending service.
Announced in June, Coinbase Lend would offer customers the ability to earn interest on their crypto assets, beginning with a 4% yield offered on USDC. Returns are generated by re-lending the funds to crypto market makers and lending desks such as Genesis. While Coinbase Lend lacked key protections (such as FDIC insurance), it still gained considerable market interest with returns many times higher than the best available savings account rates.
But when Coinbase informed the SEC of their plans, they were rebuffed with threats of lawsuits and securities law violations. In essence, the SEC seems to be asserting that Coinbase Lend would fit the definition of an investment contract under the Howey test, because customers would be investing money with expectation of returns based on the efforts of a third party.
While the SEC’s position may have merit, their approach to enforcement has been uneven, leading Coinbase to take the unusual step of making their grievances public. While Coinbase faces high barriers to launching a lending service, many competing services have been operating in the US for years. Prominent examples include BlockFi, Celsius, and Nexo - the later two of which also issued their own crypto token with questionable adherence to securities laws. Even Gemini, which has a high reputation for regulatory compliance, has moved forward with offering crypto lending earlier this year. In this case, Coinbase’s cautious approach of asking for permission has backfired versus competitors who are willing to launch without the agency’s blessing.
With their public broadside, Coinbase is making their case in the court of public opinion. While the Howey security standard is very broad and could conceivably apply to many forms of crypto financial services, turning public opinion against the SEC may give Coinbase cover to launch their Lend product despite objections.
The SEC is currently grappling with Coinbase’s centralized crypto service, but many of their concerns could also apply to the defi lending space. If they adopt a more proactive approach to enforcement (as evidenced by their investigation of Uniswap that emerged last week), defi lenders could face tough scrutiny leading to further exclusion of Americans from the crypto market.
Loot Project Community Debates Governance Options
TL;DR: There is disagreement whether AGLD or Loot NFTs themselves should be the core governance mechanism for the Loot ecosystem.
Over the past week, the NFT space has been fixated on Loot Project and various derivatives. Loot is a set of 8,000 text file NFTs, with each containing a random set of in-game items. This has captured attention by offering a minimal foundation that allows others to build features, games, and experiences on top.
While the initial Loot Project consisted of a single set of free to mint NFTs, other community members quickly released extension projects targeted towards Loot holders, including NFTs for additional items, player traits, artworks, and even an in-game currency Adventure Gold (AGLD).
Similar to the launch of YFI last summer, Loot has witnessed some significant governance controversies within days of launch. Two key factors have driven attention to the emerging Loot governance system; secondary market NFT trading fees, and social coordination around defining legitimacy of Loot extensions.
Loot NFT trading fees were initially set to 0%, but Opensea can implement creator royalties for trades made through their platform. This would create a source of revenue to fund game and ecosystem development, but also leads to tough questions about treasury management and asset allocation that could distract from building on top of Loot.
Separately, the community is dealing with how to define authenticity and legitimacy of Loot extension projects. Notable extensions include “More Loot”, a collection of up to 1.3 million NFTs in the Loot style to make the ecosystem more accessible, and fungible currency AGLD which was airdropped to original Loot holders.
So far, the most contentious item has been agreeing on the source of governance power and legitimacy in the ecosystem. While Loot NFTs themselves are capable of serving as governance tokens (see Nouns DAO and the Loot Snapshot space for examples), some community members advocated for using the airdropped AGLD tokens for governance instead.
A vote passed narrowly, but the proposing party lacks executive control over other parts of the Loot ecosystem (such as potential Opensea royalty fees) so the true impact of the proposal remains unclear. But many other prominent community members have voiced opposition or skepticism of using AGLD as a governance token.
While discussions are ongoing, Loot project creator Dom has proposed to burn the keys to the Loot NFT contract, which would render much of the debate around governance moot. Without any admins or assets to govern, the community can return to the arguably more important task of building the ecosystem in an open and permissionless fashion.
Uniswap grant funded project begins publishing community newsletter:
Terraform Labs’ centralized liquidator bot temporarily runs out of cash, putting Anchor protocol solvency at risk:
dYdX staking mechanism runs into bug, potentially locking users’ deposited tokens:
Aave votes on accepting FRAX as a lending asset:
Lido Finance launches liquid staking for Solana:
Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at email@example.com