The Tally Newsletter, Issue 13

January 5, 2021

Welcome back for issue 13 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:

  • Mithril Cash launch upends lending markets

  • MakerDAO rushes through debt ceiling raises

  • Futureswap launches v2 perpetual swap system

  • Sushiswap and Gnosis team up on grant for new multisig apps


Mithril Cash Causes Defi Frenzy

TL;DR: The Mithril Cash algorithmic stablecoin temporarily sucked in hundreds of millions of dollars in assets, causing heightened demand across defi platforms.

Mithril Cash, a fork of the Basis Cash algorithmic stablecoin, was released last week to great fanfare. Similar to the original Yam Finance farming mechanism over the summer, a wide variety of crypto assets were selected to participate in a one week token distribution.

While the selected farming tokens represented a broad sample of defi protocols and stablecoins, they had widely varying liquidity profiles and ownership distributions. 

First on the list was MITH, a closely held, low liquidity token without any widespread adoption or clear use case. This token was presumably included by the Mithril Cash developers/promoters as a means of profiting from their work, while maintaining the appearance of a “fair launch”. Promoters could have profited either from farming and selling Mithril Cash rewards, or selling tokens during the predictable jump in MITH price.

With farming yields of hundreds of percent APY available through Mithril Cash’s CRV pool, the newly launched Aave CRV market experienced nearly a week of full utilization and 300% APY deposit rates. This was likely amplified by Curve’s vote locking mechanism leading to lower supply elasticity (tokens locked in governance can’t be withdrawn to balance supply and demand).

Stablecoin rates were pushed up across the board, with both Compound and Aave touting double digit supply rates and nearly full utilization of available funds. At times, supply was so constrained on Aave v1 that traders were unable to use certain Curve pools.

One takeaway from the Mithril Cash distribution is users’ continued willingness to put their governance tokens at risk in unaudited farming contracts. While the promoters were likely just interested in profiting from their MITH token holdings, a more sophisticated adversary could potentially steal tokens or use their voting power in unexpected ways. 

MakerDAO Pursues Expedited Debt Ceiling Raises

TL;DR: Increased market bullishness has fueled massive borrowing demand, forcing Maker to rush through increases to key debt ceilings.

Over the past week, the ETH and wider cryptocurrency markets have gone on a tear. This in turn has greatly increased MakerDAO’s borrowing demand, to the point where several vault types are approaching their maximum debt ceilings. 

For those who are less familiar with MakerDAO, debt ceilings are governance controlled parameters that limit the maximum permitted amount to be borrowed against each asset/vault type. Setting appropriate ceilings helps MakerDAO limit collateral risk, and also limits potential damage from flash crashes that impact price faster than Maker oracles’ 1 hour update cadence.

While debt ceilings are key risk management tools, they can also leave Maker on the sidelines when borrowing demand increases rapidly. The dual impact of increasing market confidence, plus Mithril Cash farming pushing up rates with competing lenders like Compound and Aave, have driven both of Maker’s ETH vault types to full utilization. 

Source: Makerburn ETH-A debt ceiling (blue) and debt exposure (green)

To ensure sufficient borrowing capacity, Maker put up an expedited executive vote on Monday, including debt ceiling increases for ETH-A and USDC vault types. While this is not entirely out of the ordinary, many of the “mandated actors” that have authority to expedite a vote in Maker’s soft governance framework (eg. domain team leads, etc) were still coming back from the holiday break.

In the end, the vote was scheduled with little controversy, as the vast majority of community members support additional ETH borrowing capacity. At the time of writing, it is less than 100 MKR short of passing.

Futureswap Launches v2 Perpetual Swap Contracts

TL;DR: Futureswap v2 improves on the short lived alpha from last year, and introduces FST as a non-transferable governance token.

Futureswap was a victim of its own success in Spring 2020. The guarded alpha launch of their v1 perpetual swap contracts drew so much usage, they were forced to end their trial period early for safety reasons.

Having built out and tested the product in the ensuing months, Futureswap has now released their v2 perpetual on Ethereum mainnet.

Futureswap is planning to incentivize liquidity in their underlying AMM pools via distribution of the FST governance token. FST will entitle holders to rewards and voting rights over system parameters, but will not have any direct financial value as Futureswap chose to make the token non-transferable. This is similar to B.Protocol’s design for non-transferable user scores, and was likely chosen to minimize regulatory risks and improve incentive alignment between users and governance.

While non-transferable tokens are becoming a trend among new governance systems, there is an implicit acknowledgment that governance could vote to support transfers in the future (potentially via a token exchange).

Gnosis and Sushiswap Propose Joint Grant

TL;DR: The proposed grant would support development of Gnosis Safe multisig apps for Sushiswap and other parts of the Yearn ecosystem. 

The Gnosis and Sushiswap teams have partnered to offer a $6,000 grant, consisting of $3,000 of DAI and $3,000 of SUSHI. The allocation will focus on building Gnosis safe apps, specific multisig modules that allow for safely accessing defi protocols. 

Interestingly, the modules targeted in the grant go beyond just Sushiswap products. In addition to Sushiswap’s exchange, pool management, and forthcoming “bento box” pair lending systems, the funds also cover Yearn’s yGift and Cream Finance. While the $3,000 sum provided by Sushiswap is fairly small, this collaboration indicates that the Yearn collaborations announced last year are beginning to develop into deeper partnerships.


Thanks for joining us for this week’s Tally Newsletter! Be sure to check out the Tally governance app, and join us on Discord for the latest updates!

Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com

Best,

Nate, Tally