The Tally Newsletter, Issue 6
Welcome back for issue 6 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.
This week, we cover:
Synthetix embraces multisig governance
MakerDAO Governance Migration
SushiSwap’s reimagined sushibar
The end of Uniswap liquidity incentives
Synthetix Embraces Multisig Governance
TL;DR: Synthetix’s new Spartan Council will empower elected representatives to maintain and upgrade the protocol.
Synthetix founder Kain Warwick is often thought of as a governance skeptic. While Synthetix had already begun the process of decentralizing the protocol with the dissolution of the Synthetix foundation in July, it has remained staunchly opposed to common governance frameworks like token voting.
But while Synthetix has largely sidestepped governance up to now, it may become untenable for the current Protocol DAO of core team members and insiders to continue managing the protocol.
With this in mind, Synthetix is testing out a unique representative governance framework to progressively devolve control. The Spartan Council will comprise a 7 member committee, elected by Synthetix community members based on their total system debt minted. Voting weight will be scaled quadratically to favor smaller contributors, but should remain resistant to sybil attack due to the high gas costs of interacting with the Synthetix system.
The Spartan Council can propose changes and upgrades based on a 3 of 7 vote, but ultimate executive power will continue to rest with the pDAO for the time being.
MakerDAO Governance Migration
TL;DR: Maker’s patch for the recent flash loan voting incident will result in significant governance downtime.
In issue 4, we shared about Maker’s dubious honor of being the first protocol impacted by flash loan voting. Many in the community were surprised that this vulnerability still existed, assuming it had been patched after flash loans originally came to prominence at the beginning of the year.
Maker had partially addressed the vulnerability by increasing the governance timelock delay, which gives the community time to rally and cancel a malicious proposal. But the underlying system still allowed users to deposit, vote, and withdraw tokens all in the same block, remaining vulnerable to manipulation from short term borrowed votes.
With new urgency from the recent voting event, the MakerDAO team is now moving forward with an accelerated upgrade to the governance system. By counting voting weight from the previous block, the system is no longer vulnerable to flash loan manipulation.
However, one drawback of this upgrade is it requires MKR to be migrated between governance contracts. This will create substantial coordination costs of getting MKR holders to move their tokens, and is scheduled to take at least a week before the new contract has enough voting power to operate safely. In a worst case scenario, governance action could be stalled into the December holidays and new year.
Sushiswap Considers SIMP 1
TL;DR: Sushiswap’s first improvement proposal would pay out earnings in DAI instead of SUSHI, and fix a vulnerability in the staking contract.
At the end of October, Nansen took an engagement with Sushiswap to research their users and SUSHI farmers. But what started as a simple marketing strategy morphed into Sushiswap’s first formal improvement proposal.
In the course of their research, Nansen identified users who were earning unreasonably large profits from short term deposits into the sushibar staking contract. Sushi Improvement or Modification to the Protocol (SIMP) 1 helps address this through a short term locking mechanism to prevent abuse.
But, with the staking contract already under review, Sushiswap lead 0xMaki took the opportunity to propose some bigger changes. Per the proposal post on the Sushiswap forum, protocol swap fees will be paid out to stakers in DAI instead of SUSHI tokens.
While this creates a bit of friction for those who wish to reinvest into SUSHI, it also allows for more collaborative yield strategies. As an example, Yearn’s vault for farming Pickle Finance accumulates PICKLE tokens to earn additional yield, rather than immediately farming and dumping the token.
In other news, Sushiswap seized the opportunity presented by Uniswap’s expiring liquidity incentives. The previous rotating weekly menu of rewarded pools has been slashed, in favor of increased incentives to the same 4 pools that were boosted by Uniswap.
Uniswap’s Liquidity Mining Debate
TL;DR: Uniswap’s genesis liquidity mining program has ended, and the community is currently signaling on a potential replacement.
Over the past 2 months, Uniswap’s genesis liquidity mining program distributed 20 million UNI across 4 key pools. Partly as a result of these incentives, total deposits skyrocketed and Uniswap became the most liquid venue for trading ETH.
Source: uniswap.info, Nov 2020
But as liquidity incentives ended yesterday, funds have begun to flow out of the exchange. Total value locked in Uniswap has already declined from a peak of over $3 billion to roughly $1.7 billion.
On last Thursday’s Uniswap community call, Compound founder Robert Leshner had made the point that governance inaction shouldn’t change a protocol’s status quo. Uniswap may have been guilty of this by allowing liquidity incentives to expire without a plan of action. Potentially in response to this, two uniswap community members put forward a proposal to reinstate the previous liquidity incentives at half the rate.
This proposal is currently live for the first of two preliminary signal votes on Snapshot, with supporters and opposition nearly neck and neck. Assuming signal voting proceeds successfully, a new liquidity incentive program may be live as soon as early December.
Thanks for joining us for issue 6 of the Tally newsletter. We look forward to having you back next week!
Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com
Best,
Nate, Tally