The Tally Newsletter, Issue 4

November 3, 2020

Welcome back for issue 4 of the Tally Newsletter, a publication focusing 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. 

In this issue, we cover:

  • Aave team relinquishes admin keys

  • Aave and Compound host first community calls

  • Yearn Finance contributors propose new funding mechanism

  • Uniswap proposal 2 final results

  • Compound proposal 28 for cUNI vote participation

  • MakerDAO’s recent flash vote

Aave’s Admin Key Handover

TL;DR: The Aave core team has transferred admin rights to AAVE governance. 

While the Aave community just recently completed their first vote to authorize token migration from LEND to AAVE, all key system controls continued to rest with the Aave core team. Until now!

Transferring control to governance reduces centralization and custody risk for users, while giving AAVE token holders direct responsibility for managing the system. The process of submitting proposals to governance remains centrally managed, but the team has committed to further upgrades to allow for community led proposals.

Aave and Compound Embrace Community

TL;DR: Compound hosted its first developer call last week, while Aave’s inaugural community call will take place this Thursday.

While Aave and Compound have decentralized their governance systems this year, the focus has often been on infrastructure and technology over community building. Both projects made great strides in the past week by initiating their first community calls.

Compound hosted the first in a series of biweekly developer calls this past Wednesday, Oct 28. Members of the compound community demoed various projects, including a mechanism for batching and relaying votes to improve governance participation introduced by Arr00 and TennisBowling. Judging by the healthy attendance, the community clearly appreciated an opportunity to learn more about what their fellow builders are up to.

Aave has also scheduled its first governance community call for this coming Thursday. While they’ve been tight lipped on topics so far, one can expect to hear more about recent governance upgrades and the future outlook for proposals and Aave v2. 

Yearn Finance Considers New Revenue Model

TL;DR: Yearn contributors have proposed a revamped revenue framework to improve incentive alignment.

Yearn’s current vault fee model comprises a 5% performance fee (deducted from gains) and a 0.5% withdrawal fee. While this has served YFI reasonably well since launch, there’s some potential for misalignment between users, governance, and Yearn’s contributors. 

As an example, Yearn could have a perverse incentive to drive down assets under management to capture withdrawal fees. Additionally, the existing strategist fee of 0.5% of gains may not be sufficient to compensate strategists for their work, and long term contributors gain little financial benefit from YFI’s success.

To address these points, members of the YFI community proposed to restructure vault fees based on a “2 and 20” model common to hedge funds. Retained earnings would then be used to purchase YFI and shared between governance stakers and Yearn’s workforce, giving committed contributors a share of Yearn’s financial upside.

Uniswap Proposal 2 Final Results

TL;DR: Proposal 2 narrowly failed to reach quorum, potentially marking the end of the retroactive airdrop debate.

It’s deja vu all over again. Similarly to Uniswap proposal 1, proposal 2 narrowly failed to reach the 40 million UNI quorum requirement. And just as with the prior vote, the Uniswap voting user interface displayed an erroneous end time, leaving some users with a sour taste in their mouth.

As the end of the voting period drew near, Dharma made a last ditch effort to persuade Gauntlet to vote in favor and help meet quorum. 

In the end, both Gauntlet and Univalent stuck to their decision to abstain, leaving the vote 2.5 million UNI short of reaching the quorum requirement. Given Dharma’s commitment to accept the results of this vote, the retroactive airdrop initiative is likely finished unless another delegate can gather sufficient voting power to sponsor the proposal for resubmission.

Compound Proposal 28 is Live

TL;DR: Compound’s current proposal will delegate cUNI’s voting power to the community multisig, enabling depositors to participate in Uniswap governance.

While discussions have been ongoing for the past few weeks, Compound is nearly ready to activate vote participation for the cUNI market. If proposal 28 passes, UNI liquidity in the cUNI market will be delegated to the Compound community multisig, which will then vote on behalf of depositors according to cUNI Shapshot poll results.

With current market liquidity of over 10 million UNI, the cUNI market could instantaneously become one of the biggest UNI delegates. As the first instance of money market voting, Compound is taking a cautious approach to participation and internal Snapshot polling that addresses the risk of vote manipulation. Voting on proposal 28 is live now through November 4 at 4pm UTC.

MakerDAO’s First Flash-Voting Event

TL;DR: Flash-borrowed MKR was used to pass last week’s executive vote.

While flash loans have been a key consideration for DeFi risk since the beginning of the year, they resurfaced as a key governance risk this past week.

In MakerDAO’s voting system, it is possible to borrow MKR, use it to pass a vote, and then withdraw from governance to repay the loan all within a single block. This opens up risk of malicious governance actions being snuck through before the community can respond. When this risk initially came to prominence in February, Maker instituted a proposal timelock delay to allow governance time to address malicious proposals, but the underlying vulnerability allowing flash voting was left unpatched.

In this particular case, the executive vote had been vetted previously and was non-malicious, so there was no need for the MakerDAO community to take action to cancel the proposal. But it brought governance safety back to the top of the agenda, with Maker voting to increase its proposal timelock period from 12 to 72 hours.

Later this week, we’ll be sharing our interview with B.Protocol’s founder Yaron Velner, where we discuss the flash voting incident, how B.Protocol works, and the outlook for collaboration between communities. Don’t miss it!

Thanks for joining us for issue 4 of the Tally Newsletter. We look forward to having you back for our next update, and stay tuned for our interview with B.Protocol founder Yaron Velner out later this week!

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

Best,
Nate, Tally