Wintermute DeFi Governance Digest: July 2024 | Week 2


9 JULY 2024 | RESEARCH | AUTHORED BY CALLEN



This week’s proposals include Frax Finance rewarding veFXS holders in FXB, EtherFi deploying a staking contract for ETHFI, Aave deploying a V3 instance for weETH to meet market demands, and Karpatkey requesting to establish a 250M ARB treasury management program; along with votes from MakerDAO to transition to a new USDC PSM and Arbitrum allocating 35M ARB to RWA products.


Proposals


Frax Finance (FXS)


Proposal: Change veFXS Reward Distribution Token


Author: C2tP, Sam Kazemian


Summary: This proposal requests to change the veFXS reward distribution token to a wrapped version of FXB – Frax’s zero-coupon FRAX bond.


Key Points:



  • There have been long discussions about how veFXS rewards should be distributed, whether it be buying back FXS, sFRAX, or sfrxETH.

  • The choice of the token should be one that does work for the protocol and user, for example, Curve Finance used to distribute 3Crv LP tokens as revenue to veCRV stakers as 3Crv was a major source of protocol revenue.




  • Now Curve has transitioned to crvUSD as every crvUSD in circulation is equivalent to crvUSD being lent out and creating fees.

  • For Frax the best asset choice for the protocol to issue would be FXB – Frax’s zero-coupon bond that converts to FRAX on maturity.

  • FXBs are auctioned off at a discount to face value by the FXB AMO (Automatic Market Operations) effectively providing yield to buyers.

  • FXBs are bought with FRAX which is then used by the protocol to earn yield on US Treasury Bills and RWAs.

  • Given that FXBs give an implied yield to holders while also allowing the protocol to earn revenue, it is the best form of protocol asset to use as the veFXS reward distribution token.

  • If approved, FXBs will be distributed as a wrapped asset which will automatically use FXB as collateral on FraxLend and borrow FRAX for sFRAX if interest rates are profitable, allowing for compounded FXB gains.

  • There will be a 10% management fee on any revenue earned from the borrowing aspect of the wrapper.


Our Take: In the current market environment FXB certainly makes sense as the reward token for veFXS.


EtherFi (ETHFI)


Proposal: ETHFI DAO Proposal: Staking Contract Implementation


Author: Etherfi Admin


Summary: This proposal requests to implement a staking contract for ETHFI tokens to increase utility, establish governance voting rights, and provide future incentives.


Key Points:



  • This proposal requests to create an ETHFI staking mechanism that will provide genuine utility to the token by linking rewards to governance participation and effective balances in the ecosystem.

  • The staking contract will be able to receive future incentives, keep track of governance participation, take into account balances across DeFi integrations, and provide voting rights for stakers.




  • The contract will be deployed initially on Ethereum mainnet with the potential for L2 expansion if demand is sufficient.

  • Users will earn loyalty points by staking ETHFI into the contract which tracks the following:


–> The amount of ETHFI staked over time

–> Amount of weETH/eETH held overtime including across DeFi



  • Furthermore, users will receive a 1.1x-2x boost on their loyalty points when staking ETHFI worth at least 10% of their total effective balance.


Our Take: The proposed staking contract is rather simple but effective at rewarding positive activities and users for the protocol.


Aave (AAVE)


Proposal: [TEMP CHECK] Deploy an Etherfi/Stablecoin Aave v3 Instance


Author: Marc Zeller


Summary: This proposal requests to deploy an Aave V3 instance specialised in providing stablecoin liquidity for weETH holders.


Key Points:



  • The weETH market on Aave sits at ~$2b generating ~$12.5M in yearly revenue for the DAO.

  • Currently, the borrowing demand for wETH on Aave using weETH as collateral is extremely high with supply caps being filled within minutes each week.




  • The contract will be deployed initially on Ethereum mainnet with the potential for L2 expansion if demand is sufficient.

  • Currently, the borrowing demand for wETH on Aave using weETH as collateral is extremely high with supply caps being filled within minutes each week.


    • Such events are causing frustration from users looking to borrow stablecoins against their weETH collateral but are not quick enough to react to supply cap increases.

    • Thus, this proposal requests to deploy a weETH/Stablecoin Aave V3 instance with markets including weETH, USDC, and a new GHO facilitator.

    • The new instance will have a higher LTV/LT status for weETH, a lower GHO borrow rate for the first 6 months, and a stablecoin deposit incentive program via Merit to bootstrap liquidity.


    Our Take: This is the second custom instance of Aave V3 for LSTs/LRTs to tailor to high market demand while segmenting risk. Overall, we expect this to continue and be highly beneficial for Aave and partnering protocols.


    Arbitrum (ARB)


    Proposal: Strategic Treasury Management on Arbitrum


    Author: Karpatkey


    Summary: This proposal requests to establish a Strategic Treasury Management Group with 250M ARB under management in efforts to diversify the treasury, earn yield, and foster on-chain liquidity.


    Key Points:



    • Karpatkey and Aera are proposing to establish an Arbitrum Strategic Treasury Management Group (STMG) that will be responsible for managing a portion of the DAO’s treasury to ensure long-term sustainability for the DAO.

    • The proposal requests 250M ARB tokens for its first phase which will be held in an Aera vault owned by the DAO, meaning the DAO can recall funds at any time.




    • STMG will have a 3-member DAO oversight committee that will be responsible for the Treasury Mandate, setting guardrails for the treasury vault, evaluating performance, and facilitating governance procedures for capital recall.

    • The program will allocate 80% of the funds towards yield optimisation to help fund DAO operations and initiatives and 20% towards POL programs across the Arbitrum ecosystem.

    • Overall, the program is aimed to improve Arbitrum’s balance sheet, diversify the treasury, build a sufficient runway, and improve ARB’s onchain liquidity.

    • There will be a 1% management fee, no performance fee, and the oversight committee members will receive 5k ARB per month for their duties.


    Our Take: We agree with the overall direction of the proposal. Arbitrum is in desperate need of finding more sustainable solutions to fund DAO initiatives.


    Votes



    MakerDAO (MKR)


    Proposal: Out-of-Schedule Executive Vote – Approve LitePSM (LITE-PSM-USDC-A) DAO Resolution


    Status: Finished.


    Created: Jul 4, 2024.


    Ends: Jul 6, 2024.


    Leading Consensus: For – 102k MKR


    Summary: This vote approves the DAO resolution to set up a Coinbase Prime Web3 Wallet and migrate the PSM-USDC-A to the new Lightweight Peg Stability Module (LITE-PSM-USDC-A). The LITE-PSM provides the same benefits of a regular PSM design while also earning Coinbase’s USDC marketing rewards, meaning DAI/USDC liquidity remains onchain without the need for TradFi banks and RWA trustees. Lastly, the new PSM can authorise specific addresses to pay 0 fees on swap to help with keeping DAI’s peg in line.



    Arbitrum (ARB)


    Proposal: Approval of STEP committee recommendations


    Status: Live.


    Created: Jul 4, 2023.


    Ends: Jul 11, 2024.


    Leading Consensus: For – 33M ARB (98.7% of total votes).


    Summary: This vote approves the STEP committee’s recommendation to allocate 35M ARB into stable, liquid, and yield-bearing assets across several service providers. The recommendations were: Securitize BUIDL (11M), Ondo USDY (6M), Superstate USTB (4M), Mountain USDM (4M), OpenEden TBILL (4M), Backed Finance blB01 (4M).