The Tally Newsletter, Issue 20

February 24, 2021

Welcome back for issue 20 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 recent defi partnership proposals:

  • Balancer and Aave work on improving AMM capital efficiency

  • Yearn proposes loan and referral program to Aave community

  • Solana ecosystem reached out to Sushiswap

Plus a roundup of key proposals and protocol news from the last week!


Balancer Works to Integrate Aave for Additional LP Yield

TL;DR: Balancer v2 will support lending funds through Aave as their first “asset manager”, employing dynamic management to reduce gas costs for traders.

As part of Balancer’s v2 upgrade, the protocol will give “asset manager” contracts the ability to reinvest assets from AMM pools into external protocols. This helps improve capital efficiency, as a large portion of liquidity held in current AMMs remains unused unless there are very large price changes.

Curve was a forerunner in pursuing capital efficiency in AMMs, supplying stablecoins in the initial Compound and Y pools to money markets to earn passive income in addition to trading fees. But while this was efficient for LPs, the additional gas costs of wrapping and unwrapping assets made the pools inefficient for all but the largest trades in the current gas environment. 

Balancer’s asset manager framework helps address this by keeping a reserve of native assets within AMM pools to facilitate low cost trading. Only excess assets that are unlikely to be used at current price levels will be supplied to external defi protocols.

With consistently high deposit rates and a wide range of supported assets, Aave is a natural choice to serve as Balancer’s first v2 integration.

While keeping native assets available should reduce gas costs for traders, it creates additional complexity of managing inventory for the asset manager and pool. Any swaps attempted with insufficient native liquidity in the AMM pool will fail, so asset managers will need to preemptively move tokens between platforms in anticipation of trading activity and price changes. 

It’s also not yet clear how gas expenses will be socialized among AMM liquidity providers. Potentially fees could be withheld from yield earned, but it may be difficult to estimate future earnings and gas expenses to determine the appropriate allocation strategy. But with bright minds from Aave and Balancer plus Placeholder’s Alex Evans working on the problem, we can look forward to some elegant and well founded solutions.

Yearns Outreach on Aave Governance Forum

TL;DR: The proposal from Yearn envisions a special lending facility and potential for partnering on a referral program. 

Yearn recently made the news opening a large credit line with MakerDAO, pledging the treasury’s newly minted YFI tokens to secure $11 million, which was then used to backstop the losses incurred in the yDAI hack.

This has served Yearn well so far, and even provided additional revenue potential by allowing them to borrow more funds for yield farming opportunities. But even though the Maker community has shown strong support for granting Yearn competitive loan terms and being accommodating, this still presents an operational risk of relying heavily on a single service provider.

This may have prompted Yearn community members’ recent outreach to Aave with a multi point proposal for deepening cooperation. 

First, Yearn is proposing to work together on affiliate rewards. Using Aave’s credit delegation feature, depositors could grant funds to Yearn vaults to boost their earnings. This would potentially increase Aave’s utilization of idle funds, and also give a source of income from referral fees based on TVL provided to the Yearn ecosystem.

Second, Yearn would request disabling borrowing of YFI. While this initially seems like a one sided request, giving YFI holders greater confidence in depositing funds could help Aave gain market share. By restricting borrowing, Yearn would also add YFI staked as collateral in Aave to the governance whitelist to enable voting.

Lastly, and most controversially, Yearn requested a fixed rate credit line with preferential terms: 3% borrowing rate and up to 85% loan to value ratio before liquidation (compares with 55% maximum LTV currently). 

The first two elements are likely to gain consensus with the Aave community, but the loan request may not gain equivalent support. Unlike the MakerDAO system, where new DAI is minted to fulfill loan requests with a cost of capital equal to the DAI savings rate (currently 0%), Aave is a two sided market between borrowers and lenders. For a borrower to pay a lower rate, some combination of other stakeholders would have to bear the costs. 

Despite economic limitations, the potential for future collaboration between Yearn and Aave runs deep. Stablecoin liquidity on Aave v1 was substantially boosted by Yearn’s Curve Y pool (which deposits idle assets to Aave money markets), and with Aave now a dominant protocol it’s reasonable to expect liquidity to flow in the opposite direction as well.

Raydium Propose Bridging Sushiswap to Solana

TL;DR: The “Bonsai” proposal would incentivize Sushiswap development on Solana, but transaction terms remain unclear.

In its immediate post launch period, Sushiswap received considerable engagement from VCs and prominent individuals associated with the Solana ecosystem. This is evidenced by Sam Bankman Fried’s organization of the Sushiswap multisig (still in effect today), which includes several SOL and SRM investors. 

With this backdrop, there was initially a lot of movement towards development on Solana and Serum, but this gradually faded as Sushiswap’s fundamentals and market share improved within the Ethereum DEX space.

With a lack of action coming from the Sushiswap community’s side, newly launched Solana protocol Raydium reached out on the Sushiswap forum to suggest a plan for partnership. Raydium is a proposed AMM platform that would link in with the Serum orderbook based exchange, potentially benefiting liquidity providers with greater trading volume.

The proposal included a few key elements, including development and deployment of co-branded Sushiswap pools and staking on Raydium’s platform, dual SUSHI and RAY rewards for liquidity providers, and SRM token grants to Sushiswap governance contingent on project completion. 

While the potential for collaboration is significant, details of ownership of the joint protocol were not fully explained. This may have prompted prominent commentator Fiskantes to rally the community against the proposal.

The initial poll on the Sushiswap forum shows around 65% support among 200 voters, but these polls are not token weighted or sybil resistant, so next steps will depend on building consensus around a proposal and a successful Snapshot poll in support. 


In Brief:

  • New York State settles USDT case with Tether and Bitfinex:

  • Craig Wright claims ownership of proceeds of MtGOX hack:

Twitter avatar for @fluffyponyRiccardo Spagni @fluffypony
Finally we have confirmation, via his lawyers, that Craig Wright is the Mtgox hacker (see his claim of ownership on the 1FeeX address:
ontier.net/ia/a1letter-be…). I'd imagine those affected by the Mtgox hack will want to pursuing Craig Wright for his theft of their BTC.

Riccardo Spagni @fluffypony

Just so we're clear, Craig Wright has just openly admitted (via his lawyers) to be the guy that stole 80k BTC from Mtgox. The screenshots below show the court documents indicating the "1Feex" address is where the stolen Mtgox funds were sent. What do you have to say, @CalvinAyre? https://t.co/Yh1esDar6J
  • NFT enthusiasts consider long term persistence and centralization risk: 

  • Alpha and Cream agree resolution plan for $35M hack, Alpha to post collateral with Cream writing off interest accrual:


Thanks for joining us for issue 20 of the 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