Wintermute DeFi Governance Digest: February 2023 | Week 4

28 FEB 2024 | RESEARCH

This week’s proposals include PancakeSwap opening up a friendly fork program, Uniswap incentivizing governance participation through protocol fees and an incentive program, Frax Finance merging FPIS into FXS; along with votes from GMX to list more assets to V2, Lido launching their DVT module, and Aave deprecating their stable rate.

Proposals

PancakeSwap (CAKE)

Proposal: Discussion on “PancakeSwap Affiliates” – a multichain expansion strategy

Author: ChefMochi

Summary: This proposal kicks off a discussion around a multichain franchise strategy for PancakeSwap, allowing for recognised and supported forks across new chains.

Key Points:

• PancakeSwap is currently deployed across BNB Chain, Ethereum, Aptos, Arbitrum, zkSync Era, Base, OpBNB, Linea, and Polygon zkEVM.


• Such a large amount of chains requires a significant amount of resources and investment to maintain and the team is physically unable to keep up with the constant uptick in new chain deployments.

• Thus, to ensure PancakeSwap can keep up with the rate of new chains and continue expanding, the team is proposing to establish an affiliate program.


• The “PancakeSwap Affiliate” program will allow projects to deploy forks of PancakeSwap on new chains if approved by the team on a case-by-case basis.


• Each fork must exhibit alignment with PancakeSwap’s core platform (all-in-one DeFi platform) and general tokenomics model; there must also be a deep focus on providing deep liquidity and top-class execution for native tokens and offer value accrual back to PancakeSwap and CAKE token holders.


• Furthermore, any recognized affiliate fork must have an:

–> LP Fee

–> Token incentives for LPs

–> Buy-back and burn of the native DEX token

–> Allocated a % of the native token supply to PancakeSwap and veCAKE stakers

–> Pay PancakeSwap a % of product revenues

• In return, each affiliate fork will receive:

–> Recognition from PancakeSwap as an affiliate network with a link on PancakeSwap’s webpage

–> A full set of PancakeSwap-developed products with deployment guidance

–> 6-month exclusivity for PancakeSwap to not deploy on that chain; further exclusivity if the DEX stays in the top quarter by trading volume on the native chain.

Our Take: PancakeSwap’s affiliate fork program allows the protocol to capture DEX growth across multiple chains with little downside. We look forward to seeing how well affiliate PancakeSwap deployments grow vs. a native deployment.

Uniswap (UNI)

Proposal:[RFC] – Activate Uniswap Protocol Governance

Author: eek637

Summary: The Uniswap Foundation is proposing to use Uni V3’s fee switch to capture protocol revenue and distribute this to UNI stakers and delegators to improve governance.

Key Points:

• One of the Uniswap Foundation’s core goals is to foster a vibrant and successful governance community which in turn will lead to the long-term sustainability and growth of the Protocol.


• However, despite previous efforts (which have been successful) such as delegating 10M UNI to active delegates and the Uniswap Delegate Race, apathy and free-riding persist.

• For example, less than 10% of circulating UNI is used to vote on a given proposal and as of Feb 1, 2024, 14 of the top 30 delegates by voting power had not voted over the last 10 proposals.


• Thus, this proposal requests to invigorate governance by tying delegation to protocol fees.


• Such a change will not only increase governance participation but also push delegators to thoughtfully select their delegates as they will be largely responsible for the growth of the protocol.


• To achieve this, Uniswap’s governance architecture will integrate 2 new smart contracts:

–> V3FactoryOwner.sol – allows for the programmatic and permissionless collection of protocol fees. It’ll incentivize collected fees to be converted into WETH to be distributed to UNI stakers.

–> UniStaker.sol – manages UNI delegation and fee distribution to UNI stakers.

• In conjunction, the new smart contract upgrades will enable the collection of protocol fees to directly go to UNI stakers who have delegated their governance abilities


• Importantly, a separate governance proposal will be needed to activate the Fee Switch on specified pools.

Our Take: The Uni “Fee Switch” has been widely debated with multiple proposed implementations, this proposal by Uniswap Foundation takes the best of these previous approaches while directly tying it to governance activity which is an awesome initiative.

Uniswap (UNI)

Proposal: Uniswap Delegate Reward

Author: Doo_StableLab

Summary: This proposal requests to establish a 6-month Uniswap Delegate Reward program with a total budget of $600k in UNI to incentivize Uniswap delegates.

Key Points:

• Following on from StableLab’s proposal to Delegate Uni to Active but Underrepresented Delegates to improve governance participation, there still exists a major disincentive to actively participate in governance due to high gas costs, time, and resources.


• This proposal attempts to tackle these issues by establishing a 6-month incentive program to reward Uniswap delegates.

• Rewards will focus on Voting participation, Communication, and Badge Ownership to promote growth and accountability over purely voting power competition.


• To be eligible, delegates must have had an 80% participation rate for the past 3 months. They will also be required to have 500k UNI or more in delegated voting power, however, for those under the 500k threshold they can be endorsed by other eligible delegates.


• Furthermore, each eligible delegate will be required to post their voting rationale under their delegate profile in the Uniswap forums.


• Each eligible delegate’s rewards will then be scaled by their voting participation rate and delegated voting power.


• The requested budget for this trial is $600k of UNI for 6 months of which a total of $564k will go to eligible delegates broken down into monthly payments. The remaining $36k will go to StableLab as the program organiser.

Our Take: Delegate incentivization schemes are common amongst top DAOs. We appreciate that this approach is more inclusive and focuses on other aspects other than just voting power.

Frax Finance (FRAX)

Proposal: FPIS to veFXS Merger

Author: Sam Kazemian

Summary: This proposal requests to merge FPIS tokens into the FXS distribution at a fixed exchange rate of 1 FPIS to a 4-year veFXS lock (i.e., after 4 years 1 FPIS = 1 FXS).

Key Points:

• FPI (Frax Price Index) is a stablecoin by Frax Finance that tracks the US CPI-U average, intended to allow users to maintain their purchasing power.


• FPIS (Frax Price Index Share) is the governance token of the FPI system that earns a portion of excess FPI yield, which can also be minted and sold to ensure FPI’s yield is on par with US CPI.

• Lastly, a portion of excess FPI yield is also distributed to veFXS holders.


• While veFXS holders still benefit from FPI, there exists a value divide between veFXS and FPIS making it harder for the Frax team to balance demand drivers for both ecosystems.


• Therefore, this proposal requests to merge FPIS into veFXS at a rate of 1 FPIS = 1 veFXS. I.e., after 4 years 1 FPIS can be redeemed for 1 FXS.


• The FPI protocol treasury will become the Frax Protocol treasury, including profits/surplus.


• FPI stablecoins will remain in existence but veFPIS stakers will become unlocked and veFPIS yield will be deprecated.


• At the end of 4 years and if this proposal passes, the FXS supply will expand proportionally to the amount of FPIS that is redeemed for FXS.


• By merging FPIS into veFXS, the Frax team can solely focus on FXS value accrual for all the Frax Finance ecosystem products.

Our Take: Merging FPIS into FXS provides an interesting opportunity to acquire FXS at a significant discount with the forced 4-year lock-up. The overall merger makes sense from the Team’s perspective, however, some veFXS holders seem to be against the proposal.

Votes

Lido Finance (LDO)

Proposal: Staking Router Module Proposal: Simple DVT

Status: Finished.

Created: Feb 21, 2024.

Ends: Feb 24, 2024.

Leading Consensus: Yes – 52.9M LDO (99.99% of total votes).

Summary: This onchain proposal ratifies the deployment of Lido’s Simple Distributed Validator Technology (DVT) module on mainnet, new Easy Track factories, and an adjustment of the Oracle Report Sanity Checker parameters. With the approval of DVT, Lido can now quickly add many new diverse Node Operators to the Lido Node Operator set.

GMX (GMX)

Proposal: Q1 2024 Token Listings

Status: Finished.

Created: Feb 23, 2024.

Ends: Feb 27, 2024.

Leading Consensus: AAVE, OP, AVAX, ATOM, NEAR, MATIC/POL (>50% of total votes).

Summary: This proposal determines the listing of new assets to GMX. Assets that received greater than 50% of total votes will be deemed eligible and will be added to GMX V2.

Aave(AAVE)

Proposal: Stable rate deprecation

Status: Finished.

Created: Feb 24, 2024.

Ends: Feb 27, 2024.

Leading Consensus: For – 546k AAVE (99.22% of total votes).

Summary: This proposal requests to deprecate Aave’s stable rate mode on Aave v2 and Aave V3, all user positions will be swapped to variable. The change comes from a critical bug that was disclosed to Aave devs through Immunefi’s bug bounty program.