DeFi Governance Digest: 18 April 2023

Proposals

Aave (AAVE)

Author: bgdlabs

Summary: BGDLabs has introduced the concept of an ‘Aave Forest’ — a monitoring and prevention framework to monitor and protect Aave against potential exploits. The proposal explores new types of DeFi technologies that provide real-time exploit monitoring.

Key Points:

Given the public and transparent nature of blockchains and DeFi protocols, the ecosystem is constantly battling to protect against malicious exploits.
This is further compounded by the fact that flash loans in DeFi make the entry barrier for exploits extremely low as there is little to no upfront capital cost.

Therefore, as bad actors get more sophisticated, protocols must employ active exploit-preventative measures on top of regular bug bounties and audits.
BGDLabs has suggested that Aave begin considering the use of real-time exploits and monitory prevention services.
These services infer patterns from exploits and the pre-exploit behaviour of an attacker by collecting, analyzing, and processing historic security incidents and their metadata.
In order to act on these real-time potential threats, a framework of actors would be introduced:
Owls — are external platforms that provide exploit monitoring and alerts to Rangers.
Rangers — are smart contracts or entities trusted by the community that have the power to act on these alerts by adjusting Aave V3’s granular permissions I.e., freezing a market.

Our Take: The real-time monitoring industry for DeFi has improved significantly over the past year and is starting to provide credible signals to DeFi protocols. While there is still the risk of false positives, DeFi protocols with granular permission sets will benefit the most including Aave. We think this is a great initiative and it complements Aave’s Safety Module well.

Cosmos (ATOM)

Proposal: Stride to join ATOM Economic Zone and Adopt ICS

Author: Stride

Summary: This proposal is a signal for Stride to join the ATOM Economic Zone and adopt interchain security (ICS) from Cosmos Hub. This would result in the Cosmos Hub providing economic security from its validator set to Stride, as well as providing an injection of ATOM liquidity to be paired with stATOM.

Key Points:

Stride is a Cosmos Zone/Blockchain that facilitates liquid staking for various Cosmos Zones through Cosmos’ Inter-Blockchain Communication (IBC) protocol.
They currently support liquid staking for ATOM, OSMO, JUNO, STARS, EVMOS, and LUNA.

This proposal requests for Stride to join the ATOM Economic Zone and adopt Inter-Chain Security (ICS) from Cosmos Hub.

In return, Stride would share its various revenues with the Cosmos Hub as follows:

15% of liquid staking rewards.
15% of STRD inflationary staking rewards.
15% of maximal extractible value (MEV) revenue.
15% of transaction fees.
These rewards will accrue to ATOM validators & delegators in return for sharing ATOM’s economic security which will increase Stride’s economic security to ~$2.5B USD from ~$22M USD.
The ATOM Economic Zone is a select group of Cosmos blockchains that work together to mutually benefit and support each other.
If approved by governance, Stride would join the ATOM Economic Zone and receive 450,000 ATOM from the Cosmos Hub to provide liquidity for a stATOM/ATOM liquidity pool on Astroport DEX.
Importantly, the 450,000 ATOM remains in control of the Cosmos Hub and will not be spent.

Our Take: If passed, Stride will be the first blockchain to adopt Cosmos’ Inter-Chain Security (ICS) which will be a major milestone for the Cosmos Hub. As more Cosmos Zones/Blockchains spin up, Stride’s liquid staking opportunities will increase which will lead to more revenue for both Stride and the Cosmos Hub.

Yearn Finance (YFI)

Proposal: Launch yETH

Author: 0xPickles

Summary: This proposal requests to launch yETH — a permissionless and self-governing representation of a basket of ETH Liquid Staking Tokens (LSTs).

Key Points:

With an increasing number of liquid staking tokens, users have to make decisions between the yield, risk, liquidity, and decentralization aspects of each option.
yETH is minted whenever a user deposits into a basket of various ETH liquid staking tokens. This will allow users to diversify their Ethereum PoS staking rewards amongst various LSTs.

yETH will function as a Curve-style stable asset pool, containing a dynamic number of assets that have a target weight as a % in the pool.
Once a user deposits into the pool and receives yETH, they will have to stake yETH for st-yETH in order to earn compounding yETH according to staking rewards.
st-yETH holders will govern all aspects of the protocol including which liquid staking tokens to include in the pool, the pool’s target composition of assets, and protocol parameters.
This will allow st-yETH holders to be bribed/rewarded to increase the pool’s composition towards a specific LST or whitelist a new protocol to join the pool.
Lastly, users can burn yETH and receive liquid staking tokens in return.

Our Take: Yearn has introduced an interesting approach to launching a diversified ETH LST basket. By allowing for programmable weights, yETH holders will be able to adjust the pool according to their risk preference.

Votes

Arbitrum (ARB)

Proposal One: AIP-1.1 — Lockup, Budget, Transparency

Status: Live.

Created: Apr 11, 2023.

Ends: Apr 18th, 2023.

Leading Consensus: For — 137M ARB (98.13% of total votes).

Summary: This proposal is a follow-up from the previous unsuccessful AIP-1 vote, addressing the community’s concerns around the transfer of 750M ARB to the Foundation’s “Administrative Budget Wallet”. Specifically, it proposes (1) a lockup, (2) a budget, and (3) transparency reporting regarding the Foundation’s administrative budget.

Proposal Two: AIP-1.2 — Foundation and DAO Governance

Status: Live.

Created: Apr 11, 2023.

Ends: Apr 18th, 2023.

Leading Consensus: For — 138M ARB (99.15% of total votes).

Summary: This proposal requests to make amendments to the Constitution, The Arbitrum Foundation Amended & Restated Memorandum & Articles of Association, and Bylaws to remove references to previous unsuccessful AIP-1 vote and make changes reflecting feedback from the community.

Aave (AAVE)

Proposal One: [TEMP CHECK] — Whitelist Stargate for V3 Portals

Status: Live.

Created: Apr 14th, 2023.

Ends: Apr 19th, 2023.

Leading Consensus: YAE — 655k AAVE (99.97% of total votes).

Summary: This proposal is a temperature check for the community to decide if Stargate/LayerZero should be whitelisted for Aave V3 Portals. If approved, this will allow users on Aave V3 to mint debt across different chains where Aave V3 is deployed, without having to deposit collateral on the same chain.

Proposal Two: [ARFC] Aave V1 Offboarding Plan

Status: Finished.

Created: Apr 13th, 2023.

Ends: Apr 16th, 2023.

Leading Consensus: YAE — 428k AAVE (99.98% of total votes).

Summary: This proposal seeks to offboard Aave V1 by implementing new rate strategies for all assets listed on the platform, this will help encourage users to migrate their assets to Aave V2 or Aave V3.