The Tally Newsletter, Issue 7
Welcome back for issue 7 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:
Gnosis’s foray into futarchy
M&A activity heats up with Aragon merger
Index Coop’s participation in Aave governance
CurveDAO votes for fee distribution
GnosisDAO Launches with Support for Prediction Markets
TL;DR: Gnosis’s newly launched governance process uses prediction markets as a value signaling tool to inform voters.
Futarchy uses odds and outcomes from prediction markets to inform governance decisions. As a protocol focusing on prediction markets, Gnosis is a natural fit to be an early adopter of futarchy based governance.
Up until now, key decisions about Gnosis funding and development have been handled entirely by the core Gnosis development team. But a recent activist campaign by investor Arca has given greater urgency to the task of decentralizing control of the protocol.
Gnosis’ newly launched mechanism still leaves ultimate control to the core team, but institutes new voting and prediction market signaling tools to help transition to fully decentralized governance. Proposals will be subject to a Snapshot vote, allowing GNO holders to signal on their preferred outcome.
Concurrently with signal voting, the Gnosis team will also create two prediction markets for the vote outcome, with one denominated in GNO and the other in a stablecoin. The spread between the GNO and stablecoin odds can serve as a barometer of the expected price impact of the vote passing, giving token holders an additional data point to consider when making their decision.
The first decentralized Gnosis proposal is live for voting and signaling through November 30th, and would issue incentives to any GNO holders who participate in GnosisDAO voting through a Gnosis Safe multisig within the first month of launch. But the community is already learning key lessons from GIP-1’s rollout.
The current futarchy system requires Gnosis itself to provide liquidity for the vote based prediction markets, but this exposes the protocol to high losses when the market outcome becomes clear. As a result, liquidity is too thin to be a meaningful measure of market sentiment. Solutions may be forthcoming soon, as founder Martin Koppelmann started a discussion in the Gnosis forum to adjust the market making strategy to mitigate protocol losses and allow for deeper liquidity.
Aragon Subsumes Aragon Court
TL;DR: The Aragon community has ratified a plan to merge ANJ and Aragon Court under the ANT token.
Over the past few weeks, the governance space has witnessed what may be its first decentralized merger.
Aragon, the governance infrastructure protocol, had previously spread into 3 business segments, each with their own token. The core Aragon protocol and operating system were linked with the ANT token, but separate initiatives for a dispute arbitration system (Aragon Court) and app specific blockchain (Aragon Chain) were given their own tokens. The intent was for all 3 tokens to be linked via bonding curves, seamlessly integrating the protocol.
However, in the past few months the shifting landscape of governance development has led Aragon to rethink their strategy. The Aragon Chain initiative and linked ARA token were sunsetted before having a chance to launch, while AragonOS is being deemphasized in favor of a light weight governance framework based on Snapshot and Aragon Court.
With Aragon Court now forming the core of Aragon’s product offering, a proposal was made to merge the ANJ token into ANT.
The proposal received overwhelming support from voters on the back of strong turnout. With the vote now concluded, a tender offer of 0.044 ANT tokens per ANJ will be submitted to Aragon Court community members. This represents a ~9% dilution of existing ANT tokens if the offer is fully exercised.
While Aragon may be the first protocol to pursue M&A activity, others are following close behind. Just this morning, Yearn and Pickle Finance announced an intention to merge their yield aggregation platforms. Expect further discussion and vote wrangling on both sides before this transaction clears, as the task of combining separate communities may prove more difficult than Aragon’s related party merger.
Index Coop Votes on Aave AIPs 2 and 3
TL;DR: Coop members voted in favor of both measures, representing the first time that a decentralized asset manager has participated in protocol governance.
Index Coop serves as an asset management protocol, helping passive investors gain access to broad cryptocurrency exposure. Their first product, the Defi Pulse Index (DPI), is allocated to premier governance and Defi tokens on a market capitalization weighted basis.
Considering that users choose to invest into DPI as a low maintenance holding, one would expect their holdings to remain inactive for governance purposes. DPI helps address this issue of voter apathy by granting all voting rights from the portfolio to INDEX token holders.
DPI’s native metagovernance functionality was put to work this past week on Aave’s AIP-2 and AIP-3 votes. INDEX voters signaled in support of both measures, which would enable migration of aLEND to aAAVE and redirect earnings from token burns to the Aave governance treasury.
Based on snapshot vote participation of ~41,000 INDEX and DPI holdings of ~68,000 AAVE at the time of the vote, Index Coop voters had nearly 20 times the impact of AAVE token holders on a dollar for dollar basis. Similarly to Compound’s cUNI voting pool, token indices may emerge as focal points for protocol governance due to their high participation rate and block voting strategies.
CurveDAO Passes Fee Distribution
TL;DR: Admin fees have been accumulating for the past several weeks, and this vote will support distribution to CRV stakers.
Curve has been accumulating earnings from trades per an initial vote to activate admin fees back in September. Since then, over $2.5 million in fees have been captured by the protocol. But these fees have remained in the system, with no mechanism to distribute them to CRV stakers.
Now that the Curve team has developed a way to forward fees to veCRV holders, a vote has been submitted to activate fee distributions. Polls close on this coming Friday 27 November, but the proposal has already received sufficient support to meet the DAO’s quorum requirement.
While community discussion focused on the benefits of distributing fees to token holders, there was relatively little consideration for drawbacks of fee distributions including legal risk of violating securities laws. Only time will tell if dividend features like this will fall afoul of regulators.
That’s all for this week’s issue of the Tally newsletter. Thanks for joining us, and 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