The Tally Newsletter, Issue 15

January 20, 2021

Welcome back for issue 15 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:

  • Yearn exploring increased token cap

  • Saddle Finance launches Curve competitor


Controversial YFI Minting Proposal Gains Support

TL;DR: The community is discussing minting new YFI for contributor incentives.

When Yearn first launched over the summer, it was bootstrapped with a 1 week liquidity incentive period where users earned YFI in exchange for depositing capital. While founder Andre Cronje had initially wanted to continue distributing YFI, the community voted to end distribution and cap supply at 30,000 tokens.

Over time, this supply cap became a core part of the YFI narrative, with subsequent inflationary funding proposals shot down by voters. Failed attempts at minting more tokens include YIP-8 and YIP-30

In September, the community voted to burn YFI minting keys and permanently adhere to the 30,000 token hard cap. But while token holders showed strong support for the initiative, the vote was held off-chain via Snapshot and was never executed.

With the minting keys still under control of the Yearn multisig, an anonymous community member started a thread to advocate for additional YFI issuance to support contributor incentives. While most other protocols reserve a sizable portion of token supply for contributors to help align incentives, Yearn’s hectic launch left the current devs without a stake. 

The lack of follow through on key burning led to frustration among some community members, who thought their governance rights were being violated by core contributors intransigence. 

While support for minting has grown in the following days, this episode laid bare the limitations of signal voting as a governance primitive. Signal votes are unable to trigger proposal execution, forcing YFI holders to rely on the multisig and Yearn contributors to follow through on their preferences.

Yearn had been planning to deploy an Aragon DAO with full on chain governance functionality, but Aragon’s recent upheaval and uncertainty over the project may hinder this initiative. Luckily, alternative frameworks such as the Compound governance system (with support from platforms like withtally.com) are available to facilitate a transition to on chain voting.

Assuming the current leading proposals are implemented, Yearn would amass a warchest of roughly ~3,000 YFI tokens, worth over $100 million at current prices. This represents a huge opportunity for Yearn to fund sustainable development, but also poses operational and governance risk to multisig signers and the wider community. Token holders will likely expect more direct voting control in exchange for supporting new token issuance.

Saddle Finance Launches Stablecoin AMM

TL;DR: Saddle Finance implemented the Stableswap whitepaper in an alternate programming language, representing a stark challenge to Curve’s dominance.

It’s been only a day since Saddle Finance launched their stablecoin AMM, and it is already stirring up controversy and challenging collective assumptions. 

The platform is fundamentally based on the Stableswap/Curve whitepaper, but is implemented in the Solidity programming language instead of Vyper. It also plans to integrate with Synthetix to support cross asset trading, with initial work on this predating Curve’s support for synthetic asset trading.

Curve stands out in the defi space as one of the few protocols to use a restrictive, closed source software license. This has limited competitor’s ability to fork their code, with the Swerve protocol relying on reference to Curve’s deployed contracts to make their system work. Saddle sidestepped this by re-implementing the underlying invariant functions and math in a new programming language, but Curve founder Michael Egorov remains unconvinced of the distinction.

The Saddle team has also taken some heat for their large VC led funding round, as well as for failing to implement gas optimizations and other features present in the Curve codebase.

From a governance perspective, the most interesting aspect of Saddle Finance’s launch has actually been demonstrated through Curve. One aspect of veCRV voting is setting gauge weights, which determine the relative amount of CRV inflation rewards allocated to each liquidity pool. Voting to increase or reduce a pool’s weight can have a large impact on liquidity and demand for the underlying assets.

In the most recent gauge weight votes, the weight for the tBTC pool has been almost entirely eliminated. Matt Luongo’s involvement in both the tBTC and Saddle projects may have drawn the ire of Curve whales, who voted against the tBTC pool as a form of retaliation. 

In brief:

  • Nexus Mutual invites nominations for community fund multisig.

  • Yearn releases first v2 vaults.

  • Compound autonomous proposal would increase WBTC collateral factor to 75%.

  • Tornado Cash community member launches governance forum.

  • Aave team proposes “exposure ceiling” to limit economic attacks and risk concentration.

  • Synthetic and Curve launch cross asset trading.


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