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CryptoEconomic Research

DeFi Protocol Governance Report | May 2022 | Week 4

Compound adjusts risk parameters, Sushi gives more visibility into its employee compensation, Aave adds sETH2 to Aave 2 Mainnet, and more!
by Laurence SmithMay 27, 2022
Cryptoeconomic Research Featured Images  4
This image has an empty alt attribute; its file name is Compound-Banner.png

Proposal: Risk Parameter Updates for 5 Collateral Assets

Created: May 22nd, 2022

Passed: Not yet but looking likely,
681,146 COMP For,
0 Against

What does it do: Adjusts the following 5 Compound asset risk parameters: 

  • USDC Collateral Factor from 80% to 82.5%
  • DAI Collateral Factor from 80% to 82.5%
  • LINK Collateral Factor from 75% to 77%
  • MKR Collateral Factor from 70% to 73%
  • YFI Collateral Factor from 70% to 73%

Why: The parameter changes look to ensure that Compound maintains its overall risk tolerance, as defined by the Moderate risk level agreed upon by the Compoundcommunity. These changes are based on recommendations from Gauntlet’s simulation engine, which has ingested the latest liquidity and market data from the recent crypto crash. 

Takeaway: Increased collateral factors hopefully lead to an increase in borrow usage (projected to increase from 33.47% to 33.75%). Value at risk and liquidations at risk are predicted to remain constant after these changes.  

This image has an empty alt attribute; its file name is aave-logo.png

Proposal: Add StakeWise’s sETH2 on Aave v2 Mainnet Market

Created: May 19th, 2022

Passed: Yes,
125K AAVE For,
9.8 Against

What does it do: Adds borrow/lend support on AAVE for StakeWise’s sETH2. 

Why: Given the importance and popularity of liquid staking within the Ethereum network, one of the most sought after feature requests is the ability to utilise sETH2 as collateral to borrow against. The success of Lido’s stETH being used as collateral to borrow against within Aave has accelerated demand for this feature. 

Takeaway: sETH2 is great collateral for borrowing ETH given the high price correlation between the two, making this a relatively low risk feature. Also, it’ll likely bring StakeWise customers over to Aave. 

Proposal: ARC: Risk Parameter Updates for Aave V2 and Aave Arc (Fireblocks)

Created: May 26th, 2022

Passed: Not yet but looking likely,
11K AAVE For,
0 Against

What does it do: Adjusts the following 9 risk parameters of Aave V2 assets:

  • LINK
    • Loan to Value from 70% to 67%
    • Liquidation Bonus from 6.3% to 5%
    • Liquidation Threshold from 78% to 75% 
  • WBTC
    • Loan to Value from 70% to 69%
    • Liquidation Bonus from 6.5% to 5%
    • Liquidation Threshold from 75% to 76%
  • WETH 
    • Loan to Value from 82.5% to 81% 
    • Liquidation Bonus from 5% to 4%
    • Liquidation Threshold from 85% to 83%

Why: This is a move by Aave to maintain the overall risk tolerance of the protocol, based on Gauntlet’s parameter recommendations off the back of the market crash. 

Takeaway: Lower risk and protection for the protocol and users should be increased with the above changes. 

This image has an empty alt attribute; its file name is MMI-NL-Banner-MakerDao.png

Proposal: Raise the ESM Minimum Threshold, MKR Vesting, Adjust the lid Parameter on the Rate-limited Flapper

Created: May 25th, 2022

Passed: Not yet but looking likely,
77,904 MKR For,
0 Against

What does it do: Implements the following changes: 

  • Increases the Emergency Shutdown Module (EMC) Minimum Threshold from 100,000 MKR to 150,000 MKR
  • Distributes 599.6553 MKR to the following Core Units:
    • 355.86 to the Development and UX Core Unit (DUX-001)
    • 243.7953 MKR to the Sidestream Auction Services Core Unit (SAS-001)
  • Adjusts the lid Parameter for the Rate-limited Flapper from 150,000 DAI to 30,000 DAI

Why: EMC Minimum Threshold is being increased to increase the cost of a potential hostile emergency shutdown of the Maker Protocol, however it does make it more challenging to perform a beneficial emergency shutdown of the protocol. 
The Core Unit MKR distributions are to continue their growth, through new hires, and the repricing of the program in case of a bear market. 
The Rate-limited Flapper was introduced to rate limit the number of parallel running flap-auctions (this is the process of buying MKR using surplus buffer DAI and burning the MKR). This means that in the case of a mass liquidation event the liquidations would be spread out over a longer period of time. This change means that during huge spikes on the System Surplus spilling over the Surplus Buffer, it will spreads out auctions over 5x the amount of time, creating a more steady burn. It will however limit the amount of MKR burnt a day from 7.2MM DAI to 1.44MM DAI 

Takeaway: The bear market, and likely the Terra crash, has people worried. These measures look to counter malicious activity, whilst also funding a couple of the Core Units. 

Sushi Swap

Proposal: Provide transparency on finances

Created: May 23rd, 2022

Passed: Not yet but looking likely,
3.7M SUSHI For,
0 Against

What does it do: Provides greater transparency into all expenses and other employee outgoings (salaries, bonuses etc.). All Sushi team members should use public wallet addresses, with any payments going to these addresses.

Why: There is a lack of public trust in Sushi DAO right now and this move plans to fix that by providing greater visibility into compensation. 

Takeaway: If you’re worried about the integrity of the Sushi team, you can now at least see how they’re being compensated for their salaries/bonuses/rewards.  

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  • Rari Capital
  • Uniswap

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