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CryptoEconomic Research

DeFi Protocol Governance Report | January 2023 | Week 1

Aave starts off the new year by updating its codebase and approving two risk management contracts, Compound renews with OpenZeplin, Synthetix updates staking liquidation parameters, and more!
by Laurence Smith, Cameron ODonnellJanuary 6, 2023
DeFi Protocol Governance Report
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On-chain Vote: OpenZeppelin Security Partnership – 2023 Q1 Compensation

Created: December 17th, 2022

Passed: Yes
1.8M Comp For,

What does it do: OpenZeppelin plans to focus on security-related services in 2023, including auditing new configurations of Comet and supporting the growth of Compound v3, drafting a new CIP for the contribution process for upgrades, and advising the Community Multi-sig on best practices for incident response. 

Why: The proposal is created to renew the security partnership between OpenZeppelin and Compound every quarter, starting in Q1 2023.

Takeaway: Compound is continuing to engage OpenZeppelin for top-tier security services. This shows that the community and the protocol value risk mitigation through prevention.

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On-chain Vote: Chaos Labs Aave v2 Coverage

Created: January 3, 2023

Passed: Yes
415K AAVE For,

What does it do: The proposal outlines a five-month engagement for Chaos Labs to extend the scope of its work with Aave to include proactive risk analysis and management of the v2 markets while encouraging and supporting a safe migration to the upcoming Ethereum v3 deployment. This includes methodically updating parameters, protecting existing user funds, mitigating new potential risk factors on v2, and coordinating with third-party protocols to assist in transition planning.

Why: The proposal is created in response to the amount of work needed to transition to v3 and that Chaos Labs has already demonstrated its ability to do this work effectively in a short time frame.

Takeaway: The Aave community has pre-approved this proposal through Snapshot. The proposal creates a five-month stream of funding for Chaos Labs to manage the transition from v2 to v3 on the Ethereum platform. 

On-chain Vote: Rewards controller update across V3 pools

Created: December 25th, 2022

Passed: Yes
566K AAVE For,

What does it do: The proposal updates the rewardsController in the Aave v3 periphery codebase by softening the solidity version requirement, replacing a reference to totalSupply with totalScaledSupply, and consistently using uppercase for the AGPL license program. 

Why: The proposal is intended to introduce light improvements and fixes to the Aave v3 periphery codebase to improve the developer experience and resolve minor issues. 

Takeaway: The Aave v3 periphery codebase is upgradeable and controlled by the Aave governance; the update will be applied to the Polygon v3 pool. It will serve as positive signaling for upgrading implementations for v3 pools on networks controlled by guardians.

On-chain Vote: Gauntlet <> Aave Renewal

Created: December 24th, 2022

Passed: Yes
846K AAVE For,
256K AAVE Against

What does it do: The proposal outlines a 12-month engagement between Gauntlet and Aave, starting on December 28, 2022, and ending on December 28, 2023. During this time, Gauntlet will provide risk management coverage for all Aave v2 and v3 markets using its risk management platform, which quantifies risk, optimizes risk parameters, runs economic stress tests, and calibrates parameters dynamically. 

Why: Gauntlet services provide continuous market risk management and maximize capital efficiency while minimizing the risk of insolvency and liquidations for the protocol.

Takeaway: Aave continues to take risk management seriously. They have a long-standing relationship with Gauntlet and the engagement is intended to create long-term sustainable growth for Aave.

On-chain Vote: Pause Link Borrowing

Created: November 28th, 2022

Passed: Yes
566K AAVE For,

What does it do: The proposal intends to freeze all reserves on the Aave Ethereum v1 and Aave Ethereum Amm V1 pools as part of sunsetting Aave v1. Users will still be able to repay and withdraw but can no longer supply and borrow.

Why: The community has previously taken steps towards sunsetting Aave v1, such as enabling a migration tool and disabling stable borrowing, and the next step is to freeze all v1 reserves. 

Takeaway: Aave is focusing on its future tech stack by moving forward with sunsetting V1. Users will still be able to repay and withdraw but can no longer supply and borrow.

Synthetix Banner

Proposal:  SCCP-268: Update staking liquidation parameters

Created: December 29th, 2022

Passed: Yes,
7 SNX-SC For,
0 Against

What does it do:  Changes the following parameters in SNX staking:

  • Reducing the liquidation penalty from 75% to 60%, 
  • Reducing the self-liquidation penalty from 70% to 50%, 
  • Reducing the liquidation ratio from 175% to 160%, and 
  • Reducing the liquidation escrow duration from 12 months to six months.

Why: The proposal is created to align the incentives of debt repayment with the risk involved by making adjustments to the SNX staking liquidation parameters.

Takeaway: The main benefit of updating the staking liquidations parameters is avoiding lengthy flagging periods that may impose excess risk on healthy accounts. 

Proposal: SCCP-261: Increase Max Initial Leverage Slightly on All Markets

Created: December 20th, 2022

Passed: Yes,
7 SNX-SC For,
0 Against

What does it do:  The vote will increase the maxLeverage parameter for all markets by 1. The maxLeverage parameter is multiplied by the initial margin to determine a position’s maximum absolute notional value.

Why: The proposal is created to provide a small buffer between the maxLeverage allowed by Synthetix and the leverage intended to be offered by partner front ends to improve the user experience and reduce the number of delayed orders that fail.

Takeaway: This change is intended to improve the user experience and reduce the number of delayed orders that fail, while also ensuring that the risk to the system and traders is not significantly increased.

Proposal: Referral Program for Ethereum – Final Reform

Created: December 20th, 2022

Passed: Yes,
55M LDO For,
7.6k Against

What does it do:  The proposal suggests implementing a new referral model for stETH that offers rewards to referrers based on the amount of ETH referred. The rewards would range from 2.5 DAI per ETH referred up to $100M worth of ETH to 5.5 DAI per ETH referred up to $5B worth of ETH.

Why: The protocol is working to increase the adoption of decentralized finance and infrastructure and improve the speed of execution on the stETH decentralized exchange platform.

Takeaway: The program would be wound down before withdrawal operations are enabled on Ethereum. An emergency trigger or exit clause would be included in the event of manipulation or overwhelming success. 

  • Uniswap
  • Maker

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