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CryptoEconomic Research

DeFi Protocol Governance Report | May 2022 | Week 2

Compound likely to pass parameter changes that will look to balance risk with risk trade-offs between certain assets, cross-chain interoperability coming to Aave, and more!
by Laurence SmithMay 13, 2022
DeFi Protocol Governance
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Proposal: Risk Parameter Updates for 7 Collateral Assets

Created: May 9th, 2022

Passed: Not yet but looking likely,
462,575 COMP For,
0 Against

What does it do: Adjusts the following risk parameters, so as to align with the Moderate risk level elected by Compound’s community:

  • USDC Collateral Factor increase from 80% to 82.5%
  • DAI Collateral Factor from 80% to 82.5%
  • UNI Collateral Factor from 75% to 77% 
  • LINK Collateral Factor from 75% to 77%
  • MKR Collateral Factor from 70% to 74%
  • AAVE Collateral Factor from 70% to 74%
  • YFI Collateral Factor from 70% to 74%

Why: The update will look to maintain the risk tolerance of the protocol; as driven by the optimisation function that balances insolvencies, liquidation and borrow usage. 

Takeaway: Seven parameter changes for seven Compound assets, which will look to balance risk with risk trade-offs between certain assets. 

Proposal: Grant request for launching Compound with Aztec Connect

Created: May 8th, 2022

Passed: Not yet but looking likely,
483,222 COMP For,
0 Against

What does it do: Actions the transfer of 510 COMP to the following address: 0xe298a76986336686cc3566469e3520d23d1a8aad

Why: Compensates Aztec for subsidising deposits into Compound ($50K distributed upfront and $50K released three months after launch). The subsidy will kick off the network effects of the integration, which will bring significant gas savings as the network throughput increases. 

Takeaway: The integration itself is with Aztec Connect, which will provide users a means of interacting cheaply and privately with any Ethereum DeFi application through a bridge contract.

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Proposal: ARC: Whitelist Connext for V3 Portals

Created: May 9th, 2022

Passed: Not yet but looking likely, 
190K AAVE For,
410 Against

What does it do: Whitelists Connext for V3 Portals across the following chains:

  1. Optimism 
  2. Arbitrum
  3. Polygon 
  4. Avalanche 
  5. Fantom
  6. Harmony 

Each of the chains will have credit lines for USDC ($2MM per chain) and ETH (40 ETH per chain).

Why: Connext is a trust minimised cross chain protocol that enables communication between chains and roll-ups. Portals and Connext are a perfect match – LPs will be able to access immediate extra liquidity to fulfil transactions and Aave’s new architecture will enable the operation to be completed via the protocol in a trust minimised way. 

Takeaway: Cross-chain interoperability is coming to Aave. 

Proposal: ARC: Enable sUSD as Collateral on AAVE V3 on Optimism with a 10 million sUSD Supply cap

Created: May 9th, 2022

Passed: Not yet but looking likely,
136K AAVE For,
1 Against

What does it do: Enables sUSD as collateral on AAVE V3 on Optimism, with a 10 million sUSD supply cap. The Risk Parameters will be set as follows:

  • Set sUSD max LTV to 60%
  • Set liquidation threshold to 75%
  • Set liquidation penalty to 5%
  • Upgrade interest rate curve to that of DAI/TUSD
  • Fixed lending is disabled 

Why: The market cap for sUSD has grown considerably over the past year, spurred by steady demand for decentralised stablecoins. sUSD is highly over collateralised by SNX, the governance token for the Synthetix protocol. 

sUSD stability has increased in stability over the last year as it has seen its liquidity on major DEXs rise. 

Takeaway: sUSD will soon be collateral on Aave V3 on Optimism. 

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Proposal: Recognized Delegate Payments, Lowering WBTC Stability Fees, and Onboarding wstETH-B

Created: May 11th, 2022

Passed: Not yet but looking likely,
66,313 MKR For,
0 Against

What does it do: Implements the following changes: 

  • Distributed 79,647 DAI to ten recognised delegates
  • Lowers the Stability Fee on WBTC-A and WBTC-B Vault Types, as per the recommendation of the MakerDAO Open Market Committee

As well as the following additions:

  • Onboards wstETH-B (Wrapped Lido Staked ETH) to the protocol

Why: The funds distributed go to ten Recognised Delegates (as per the Recognised Delegate Compensation program). 

Stability Fees are being lowered on WBTC-A and WBTC-B as they are seeing weak demand, despite last month’s fee reduction. By reducing the rates to parity with ETH-A vault type should put WBTC in a competitive range against Aave and Compound. 

The addition of wstETH-B is due to positive interest from the community to expand products with the addition of Lido’s stETH. 

Takeaway: Bunch of changes in one – Recognised Delegates are getting their dues, stability fees are amended for WBTC-A and WBTC-B in an attempt to increase demand and more Lido products are soon to be on Maker. 

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  • MakerDAO
  • Rari Capital
  • Uniswap

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