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CryptoEconomic Research

DeFi Protocol Governance Report | July 2022 | Week 1

Aave to add 1INCH and RSR as collateral, Maker sets up a Keeper Network stream, Compound returns funds, Sushi partner with KlimaDAO, and more!
by Laurence Smith, Cameron ODonnellJuly 8, 2022
DeFi Protocol Governance Report
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Proposal: Return Accidentally Sent Funds #3

Created: July 4th, 2022

Passed: Not yet but looking likely,
411K COMP For,
2 Against 

What does it do: Returns 90% of the WBTC accidentally sent to the Comptroller by a user. 

Why: The funds were sent by mistake and its an act of good faith by Compound.

Takeaway: This isn’t the first time – there have been two other proposals to the same effect for accidentally sent funds in the past. Good to know Compound governance is forgiving. 

Proposal: Risk Parameter Updates for 2 Collateral Assets

Created: June 27th, 2022

Passed: Yes,
686K COMP For,
0 Against

What does it do: Adjusts the following parameters for two compound assets:

  • Set cUSDC collateral factor to 85.5% from 84% 
  • Set cDAI collateral factor to 83.5% from 82.5%

Why: Recommendations from Gauntlet’s simulation engine, after processing the latest market and liquidity data. The risk parameters are being changed in line with the Moderate risk level the community decided on. 

Takeaway: The parameter changes should drive capital efficiency, whilst maintaining protocol risk at safe levels.

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Proposal: Aave <> Sigma Prime | Request for Approval

Created: June 24th, 2022

Passed: Yes,
206K AAVE For,
269 Against

What does it do: Brings on Sigma Prime to provide continuous security assessment services to the Aave ecosystem. The deals provisions up to 280 people days across 7 testing windows in a 12 month period.

Why: Sigma have been providing security assessment services to Aave for over two and a half years. Standard proposal to continue the review of critical components of Aave v2 and v3. 

Takeaway: Aave continue to keep an eye on security – a prudent decision given market conditions and the reel of large hacks this year. 

Proposal: ARC: Add 1INCH as collateral

Created: July 5th, 2022

Passed: Not yet but looking likely,
39k AAVE For,
0 Against

What does it do: Onboards the 1inch Network token (1INCH) as collateral in Aave. 

Why: 1inch is the oldest and one of the most trusted aggregators in DeFi, with total trading volume at $160B, total swaps at 5.91MM and total users at 1.25MM. Its governance and utility token, 1INCH, has a circulating market cap of $500MM, daily trading volume greater than $50MM, and can be found on a lot of the leading centralised exchanges. 

Bringing all of the above together, it illustrates the high liquidity that 1INCH has. Coupling that with the fact that there are robust price oracles for 1INCH, due to it being listed on several perpetual markets, and that it has a wide range of token holders make it a good fit for being used as collateral. There’s also the added first-mover advantage as it is not listed on any decentralised lending platforms.

Takeaway: More collateral options! 1INCH has proven itself to be secure enough to be added as collateral. We expect more decentralised lenders to follow suit. 

Proposal: ARC: Add support for LUSD (Liquity)

Created: July 5th, 2022

Passed: Yes,
30K AAVE For,
10K Against

What does it do: Makes the LUSD stablecoin a borrowable asset on Aave v2 mainnet (0% LTV). 

Why: Adding LUSD will help diversify the use of centralised stablecoins, like USDC, for borrowing within Aave. It’s also deemed to be a resilient stablecoin due to LUSD being backed by Ethereum as collateral, with a minimal collateral ratio of 110%. 

Takeaway: If the vote passes Aave will be the first protocol where LUSD will be borrowable. It also opens up the doors to future opportunities with Liquity, the creator of LUSD. These opportunities may be as follows: (1) enablement of LUSD as collateral (LTV > 0%), (2) addition of LUSD on Aave/Optimism and (3) enablement of efficiency mode against selected stablecoins once v3 mainnet is live. 

Proposal: Add Reserve Rights (RSR) as a borrowable asset

Created: July 6th, 2022

Passed: Yes,
26k AAVE For,
0 Against

What does it do: Provides borrowing support on Aave for the Reserve Rights Token (RSR). RSR is the governance token for the Reserve Protocol, with two utility functions: (1) governs and (2) insures the stablecoins created and supported on the Reserve protocol. The Reserve protocol launches this coming autumn. 

Why: The Reserve protocol is looking to build on Aave. It will do this in two ways: (1) integrating aTokens as collateral and (2) using the protocol oracle to determine price during valuation and auction functions. To be able to do this, in particular to use Aave oracles, RSR must be a borrowable asset on Aave. 

RSR could make a good borrow asset as when RSR is staked on a Reserve stablecoin, it may receive some of the income from the respective RToken’s full collateral basket. This yield generated on stRSR is expected to drive demand for borrowing RSR as it allows for users to hedge against price change on an existing stRSR position and to borrow for the purpose of staking for stRSR yield.  

Takeaway: RSR is looking like it will be added as a borrowable asset, providing another option for users to stake, borrow and earn more yield.  

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Proposal: Core Unit Distributions, Recognized Delegate Compensation, Keeper Network Stream Setup

Created: July 5th, 2022

Passed: Yes,
101K MKR For

What does it do: Executes the following:

  • Stream original core unit distributions in total of 3.9M DAI, split up into 
    • 1M DAI to the Strategic Finance Core Unit, per their budget poll.
    • 2.9M DAI to the Growth Core Unit, per their budget poll.
  • Transfers the increase in budget of 650K DAI to the Growth Core Unit, per the budget ratification poll.
  • Stream the recognized delegate compensation of 85K DAI to 14 wallets
  • Stream 215K DAI to the Keep3r Keeper Network at a rate of 1K/day, per ratified MIP63c4-SP4

Why: Standard execution of original and ratified operational budgets, payment to Recognized Delegates, and funding for the onboarding of the Keeper Network services outlined in MIP63.

Takeaway: Even under current market conditions, MakerDAO continues to operate with operational stability and a thorough governance process.

Sushi Swap

Proposal: KlimaDAO x Sushi Carbon Offset Integration [Signal]

Created: June 27th, 2022

Passed: Not yet but looking likely,
805K SUSHI For
48k Against

What does it do: Implements an opt-in feature that will allow users to elect to or automate the offsetting if the carbon emissions associated with their swaps. KlimaDAO will provide the research and development resources, working alongside Sushi dev team to implement and integrate. 

Why: KlimaDAO uses a carbon-backed currency backed by real carbon assets to help neutralise the carbon emissions that cause climate changes. The move will help Sushi users to offset the carbon emissions associated with swaps

As an added benefit KlimaDAO will chose Sushi as the primary place for supplying liquidity for their carbon-based credits, positioning Sushi as a critical player in the on-chain carbon market. 

Takeaway: We like that Sushi are giving their users an option to save the planet, whilst also giving Sushi a key role in the on-chain carbon market. 

Proposal:  SushiGuardRouterV01: Formal Proposal

Created: July 6, 2022

Passed: Not yet but looking likely,
2.8M SUSHI For,
2.5K Against

What does it do: Implements Sushi Gaurd through a router that users can leverage at a protocol level. The router will allow Sushi to generate profits typically realised by arbitrage bots. Sushi will split the revenue with Manifold finance for operating and maintaining the additional infrastructure. 

Why: Sushi maximises the economic opportunity for the protocol and the users by profiting from and minimising MEV arbitrage activities. 

Takeaway: Preliminary modelling indicates that this proposal’s economic impact can produce between $420K – $1.8M monthly in additional profit across chains with the implementation.

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  • Rari Capital
  • Uniswap

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