Welcome back for issue 14 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:
Compound adjusts token distribution
Aave activates slashing for insurance module
Andre pursues new partnership to support high Yearn vault returns
1inch Exchange adjusts liquidity incentives
We’re also adding an “in brief” section to help you keep up with more news from around the ecosystem. Let us know what you think, any feedback is appreciated!
Compound Passes Proposal 35 to Update COMP Distribution
TL;DR: Gauntlet’s governance proposal reallocates rewards from DAI and USDT markets towards other supported assets.
Prior to the passage of Compound proposal 33, COMP rewards were allocated between markets based on total dollar amount borrowed. This was periodically reset via the “refresh comp speed” function in the comptroller contract, ensuring rewards closely followed borrowing volume.
While this mechanism allowed governance to focus on more pressing issues, the resulting distribution has been skewed by users’ yield farming strategies. The DAI market became a Schelling point for the rewards program, with over 70% of the total COMP distributed to DAI borrowers and suppliers.
Proposal 33 removed the link between borrow volume and COMP rewards, allowing governance to manually set the distribution speed for each market. Proposal 35 is the first update to the program since governance gained these capabilities.
The proposal has passed, and COMP allocations will be updated once the two day timelock period elapses. DAI and USDT will see a substantial reduction in rewards, while certain collateral assets such as ETH, WBTC, and BAT will receive larger allocations. Higher returns on collateral assets should favor organic borrowing demand over leveraged stablecoin farmers, helping to improve Compound market health and community alignment.
Aave Activates Protocol Insurance
TL;DR: AIP-7 increases AAVE staking rewards from 400 to 550 per day, and activates protocol insurance from the staking module.
Aave’s recently passed Aave Improvement Proposal (AIP) 7 activates a key feature of Aave’s v2 money markets. The staking module is a form of protocol insurance, covering users against economic losses or technical issues. While Aave has already built up hundreds of millions in staked tokens since activating staking in the fall, the insurance function had remained inactive, until now.
AIP-7 increases the daily inflation rewards for staking from 400 to 550 AAVE per day (over $20 million per year at current prices), while also activating “slashing” for protocol insurance. If a loss event is recognized via governance vote, up to 30% of staked AAVE tokens will be seized and sold on the market to cover the shortfall.
This change positions Aave as one of the best protected money market platforms in the space. But while protocol insurance may help draw in more risk averse users, reliance on governance to recognize losses introduces certain risks.
As we’ve seen with Compound’s DAI market liquidation event (and proposal 32 submitted in response), it can be difficult to build consensus around user payouts, particularly if the scope of coverage is not well defined beforehand.
Yearn Partnership Supports Levered Vaults
TL;DR: Links with Cream Finance money markets and Alpha Homura lending facilities will support higher vault farming returns.
Andre’s most recent partnership announcement welcomes Alpha Finance to the Yearn ecosystem.
Alpha Finance Lab @AlphaFinanceLab#Alpha is starting a new year with #AlphaHomoraV2 that'll be launched this month in January! 🔥 @CreamdotFinance, @SushiSwap, @CurveFinance, and @BalancerLabs officially join #AlphaHomoraV2 as partners to bring growth the whole #DeFi. Thread 👇🔥 https://t.co/Bmsy2JV117
While these partnership announcements have not always shown immediate promise in the past, the synergies between Alpha and the rest of the Yearn ecosystem are significant. Alpha’s preeminent product, Alpha Homura, offers leverage to AMM liquidity providers, which can help users increase their yield farming rewards. Integrating this with Cream lending pools and Yearn vaults can help deliver the highest possible yield to end users.
Yearn may also be able to take advantage of Alpha’s interest bearing ETH product to boost returns in a forthcoming yETH vault.
1inch Exchange Launches New Liquidity Incentives
TL;DR: The updated liquidity reward program will support large cap trading pairs with less focus on the 1inch token.
After launching their token in late December, 1inch Exchange’s initial liquidity incentive program was fairly unorthodox. Instead of targeting the most popular pairs for incentives to gain market share, all incentivized pools included the 1inch token itself. This token centered distribution may have helped contribute to initial token price discovery and liquidity, but didn’t prove effective in boosting the 1inch AMM.
1inch launched a revised liquidity incentive program beginning on January 9, with a renewed focus on ETH trading pairs. Around $500 million has been deposited to the 1inch AMM since the program started, but so far it looks like liquidity is remaining fairly steady on competing platforms such as Uniswap and Sushiswap.
While 1inch has managed to acquire a decent chunk of liquidity, some community members are skeptical of the benefits of incentivizing the AMM protocol when 1inch’s key focus is exchange aggregation and order routing.
Aragon faces mass resignations amid contentious merger:
Sushiswap SIMP 3 will determine how vested SUSHI tokens are handled:
Fei Protocol introduces a new undercollateralized stablecoin design:
Furucombo launches liquidity bootstrapping pool for COMBO governance token:
Acting OCC commissioner Brian Brooks encourages “self driving banks”:
Andre releases part two of his defi manifesto: https://andrecronje.medium.com/building-in-defi-sucks-part-2-75df9ee7871b
Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at firstname.lastname@example.org