The Tally Newsletter, Issue 5
November 10, 2020
Welcome back for issue 5 of the Tally Newsletter, a publication focusing 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.
In this issue, we cover:
Aave upgrading token economics
Yearn voting on revamped revenue model
veCRV vault as a new powerhouse in Curve governance
Speedbumps for Compound’s cUNI voting proposal
Uniswap’s upcoming community call
Onward!
Aave Considers AIP 2
TL;DR: Aave is considering a token economics revamp that would redirect funds from token buybacks to the governance treasury.
Since launching in 2017, the LEND token has been based on a buyback and burn model, where revenues received by ETHLend and Aave protocols were used to reduce the LEND token supply. While this value accrual mechanism is widely employed in both traditional finance and crypto, it has a few drawbacks. With buy and burn, it’s not possible to target revenues towards active community members or build up strategic reserves.
Now that the transition from LEND to AAVE token and the launch of Aave governance is nearly complete, the community is taking steps to address these limitations. As a first step, the Aave core team has proposed AIP-2, which would stop token buybacks and allow fee revenue to accumulate in the governance treasury. Over time, these funds can be used for liquidity or voting incentives, development grants, or insurance against black swan events.
And this isn’t all that’s happening in Aave governance. The Delphi Digital team also just unveiled a plan for segmenting Aave’s insurance mechanism to support operational agility. It will be interesting to see how this develops!
Yearn’s Economic Revamp
TL;DR: YFI voting is taking place now on two key fee and revenue proposals, while a third proposal recently passed.
Last week, we covered YFI contributors’ proposal to replace Yearn’s vault withdrawal fee with a 2% management fee and increased 20% performance fee on profits. This proposal passed earlier this week with overwhelming support of YFI voters.
While the initial proposal paired the fee adjustment with adjustments to contributor incentives, it became clear that these additional changes were more contentious than removing the withdrawal fee. So the Yearn team unbundled the changes into separate proposals, and voting is now live on two additional items.
YIP-52 proposes to increase the revenue allocated to strategists (contributors who create vault investment strategies) from 0.5% to 5% of vault profits. The intention is to incentivize a new wave of strategists to help Yearn remain competitive with other aggregators. This vote initially ran into stiff opposition, but now looks to be on track to pass.
The second active vote would bootstrap a contributor reward fund by seizing 8 YFI currently sitting idle in the Yearn treasury. This is significantly less contentious with over 90% of votes already in favor. Voting is live on both proposals through 6am UTC on November 12.
Ape CRV Vault Making Waves in Curve Governance
TL;DR: Yearn’s new veCRV vault has swiftly increased Yearn’s voting power in CurveDAO.
Yearn and Curve have been intimately linked almost since inception. The Curve y pool remains a key driver of TVL for both projects, while Yearn was a large beneficiary of the 5% of CRV tokens allocated to early liquidity providers.
Curve’s unique vote locking and reward mechanism has also incentivized Yearn to become highly involved in Curve governance. Locking CRV grants users a boost in LP rewards and voting power in allocating rewards across pools, which is clearly valuable for Yearn as one of the largest Curve liquidity providers.
Earlier this week, Yearn took steps to turbocharge their Curve rewards and voting power through a new, specially designed veCRV vault (known as yveCRV or “Ape CRV”). The vault will pay out any Curve admin fee earnings, along with a share of the extra CRV earned from Yearn’s linked stablecoin vaults. The tradeoff is the vault will continuously re-lock its voting power for the maximum duration, so depositors can never withdraw their CRV tokens.
Yearn’s share of veCRV voting power has increased from 2% to 5% in just the past few days since launch, showing strong demand for a low maintenance CRV vault position.
One interesting issue that is still unaddressed is how to deal with Yearn’s growing voting power in CurveDAO. Abstaining from votes is likely not a viable option, as Yearn’s voting power may be needed to reach quorum. The community is currently discussing this in the Yearn forum, with Curve founder Michael Egorov weighing in on the potential options.
So far, it looks like the most likely option will be delegating votes to Yearn’s multisig, who will then vote on behalf of Yearn and yveCRV depositors. While this may be the simplest option to implement, it also creates a high degree of centralization in CurveDAO voting.
Compound Resubmits cUNI Voting Proposal
TL;DR: Compound proposal 28, which failed due to an inadvertent un-delegation, has been resubmitted unchanged as proposal 29.
It’s not too often that you see a proposal fail despite unanimous support of voters. We witnessed just such an event last week with the failure of Compound proposal 28.
Prop 28 would have delegated the voting power from the cUNI market to Compound’s community multisig, which could then participate in Uniswap governance on behalf of depositors according to cUNI snapshot votes.
In Compound’s governance system, proposals need to continue to meet the minimum 100,000 COMP vote threshold from the time they’re proposed through to final passing and execution; otherwise, they can be cancelled by anyone. This can be problematic for autonomous proposals, as users may not be aware that they need to leave their votes delegated for the entire voting period.
Delegation was prematurely removed from proposal 28, causing its cancellation despite 100% support of the ~500,000 COMP participating. Given strong backing from voters, the initiative has been resubmitted with no changes as Compound proposal 29, and voting is live now through 11am UTC on November 12.
Uniswap “Unofficial” Community Call
TL;DR: A Uniswap community call will be held this Thursday at 5pm UTC.
While most protocol discussions take place in chatrooms, discussion forums, and Github, purely written media can be limiting for contributors. It can also be tough to feel connected to a community of people without ever meeting. Given these limitations, it’s no surprise that periodic community calls have become a cornerstone of effective decentralized governance.
While community meetings are often officially sponsored by the underlying projects, the Uniswap team has made it clear they don’t want to participate actively in governance. This means community building is left to independent contributors.
To fill the temporary gap in leadership, pseudonymous forum user monet-supply has offered to host an unofficial meeting on behalf of the community. The call will be held this Thursday Nov 12 at 5pm UTC, with potential topics for discussion including Uniswap’s community governance process and extending the liquidity mining program.
Thanks for reading our fifth installment of the Tally Newsletter! We’ll be back this same time next week with more governance 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