The Tally Newsletter, Issue 52
November 17, 2021
Welcome back for issue 52 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 cover:
Mochi Protocol’s Curve Wars Coup and Ecosystem Response
Fei’s Proposed Rari Capital Acquisition
Plus quick ecosystem and product updates!
Convex and Curve React to Mochi Protocol
TL;DR: While Mochi’s dangerous vote buying tactics caused widespread concern, the response raises important questions about minority voter protections.
Late last week, we witnessed one of the boldest power plays yet in defi governance. An upstart lending based stablecoin project, Mochi, was seeking to expand its usage through a listing and rewards pool on Curve Finance. But the manner in which they pushed this through led to serious risk for users and a strong backlash from other stakeholders.
It started innocuously enough, with Mochi releasing a governance token to help incentivize LPs and usage similarly to the USDP and MIM debt backed stablecoin systems. But after initially bootstrapping demand by bribing Curve and Convex Finance voters to add rewards for Mochi’s USDM stablecoin pool, Mochi used the team’s 99% share of MOCHI token supply to mint additional USDM on their own platform, swap through the Curve pool for DAI, and purchase CVX tokens to permanently vote for pool boosts.
This created high risk for USDM holders, who now were reliant on the value of MOCHI collateral backing their stablecoins. Considering that Mochi protocol locked their purchased CVX tokens for the maximum 3 months for voting boost, it would not be possible to liquidate this position to recapitalize USDM reserves either. This is in addition to a series of other issues with Mochi, including a “multisig” requiring only 1 signer and hard coded price for the MOCHI token that didn’t reflect true market value.
The purchase caught several other protocols off guard, with KeeperDAO, Frax Finance, and OlympusDAO all in various stages of considering purchases of CRV or CVX tokens for incentive boosts. Mochi’s centralized governance and lending mechanisms allowed the core team to move faster than competing DAOs, who needed to gain token holder support for treasury investments. This presents an interesting problem for DAO merger activity, where open governance processes lead to disadvantage versus more agile, centralized competitors.
Due to widespread concern for governance capture and LP losses, the Curve emergency multisig (made up of unaffiliated community members) killed the CRV rewards for the USDM pool. While the Curve DAO has the power to overturn the multisig action if they wish, this left Mochi’s voting power essentially worthless, and with no more rewards to support stablecoin demand and a loss of confidence the price of USDM crashed as the pool became progressively more unbalanced.
Following Curve's decision to deactivate USDM pool rewards, Convex voters took the more controversial action of revoking Mochi’s CVX voting power directly. While the stealth token purchase raised concern about a possible governance takeover, this is the first time voting power has been actively revoked from a single target within a defi DAO.
Underlying tokens were not seized and Mochi will be able to reclaim the CVX at the end of the standard 3 month lock period. But this could become a dangerous precedent if vote revocation becomes more widely accepted, as it could systematically disenfranchise minority token holders.
Fei and Rari Capital Consider Protocol Merge
TL;DR: The proposal targets synergies between Rari’s permissionless money markets and Fei’s stablecoin and reserve liquidity.
Just a week after Fei raised partnership deals with Balancer and Tokemak, we’re already seeing new crypto M&A activity. In this case, Fei protocol is proposing a full merger with Rari Capital, the maker of the Fuse money market protocol. This calls for deeper integration than the earlier Fei partnerships, with the RGT token eventually being swapped for TRIBE and both projects operating under unified governance.
In this sense, it is more similar to last week’s Gnosis and xDAI merger proposal, and there are some parallels between the two deals and community response. In both cases the merger involves a large, well capitalized acquirer and much smaller target. xDAI and Rari communities have shown some reservations about the deals, which could dilute their voting power and autonomy, while also tying them to a larger and heavier organization which may have less upside potential. But compared with the Gnosis and xDAI proposal, there may be a stronger business case for the proposed Rari and Fei tie up.
While Fei protocol is primarily a stablecoin project, they have been expanding into a new framework of “liquidity as a service”. This allows for deploying FEI stablecoins and other liquid assets from Fei’s protocol controlled value into defi applications or supporting external projects’ liquidity needs (see the proposed collaboration with Ondo Finance for another example). To date, Fei has already deployed over $30 million into Rari capital pools, and further user deposits in Fei’s fuse pool take the total liquidity contributed into hundreds of millions.
Source: Fei Analytics
A merger could allow for more FEI and PCV assets to flow into Rari’s fuse pools, but more importantly it also helps Rari meet key capital needs including contributor funding and expenses, along with repaying funds owed to users from a previous hack. So while the proposed terms are for a roughly even $1 to $1 swap of RGT to TRIBE, taking on Rari’s debt means that Fei is still effectively paying a premium for the acquisition. Whether this is enough to satisfy RGT holders remains to be seen, with sentiment in the Rari Capital forums less enthusiastic so far versus the Fei protocol community.
In Brief:
Saddle Finance releases SDL governance token, granting 18% of airdrop to Curve community to try to ease strained ties:
Nick Johnson from ENS shares how to create a snapshot space for delegates to poll their constituents:
Cream Finance shares compensation plan for money market losses:
Fire Eyes DAO makes proposal to transfer ENS admin privileges from multisig to community governance:
DYDX considers launching grants program:
Thanks for joining us for Tally Newsletter issue 52. 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