Wintermute DeFi Governance Digest: March 2024

Wintermute DeFi Governance Digest: March 2024 | Week 3

18 MAR 2024 | RESEARCH | AUTHORED BY CALLEN

This week’s proposals include Index Coop buying out DPI from Scalara, dYdX staking 20M DYDX from the DAO treasury, MakerDAO preparing for the launch of Endgame, Synthetix launching V3 on Arbitrum; along with votes from Aave adding sUSDe on V3 Ethereum mainnet, and Lido enabling onchain delegation.

Proposals

Index Coop (INDEX)

Proposal: Buyout DPI from Scalara

Author: Allan.g

Summary: This proposal requests to buy out the DeFi Pulse Index (DPI) from Scalara for 45k USDC, securing 100% of the product’s revenue for Index Coop.

Key Points:

The DeFi Pulse Index (DPI) was launched in 2020 as the flagship product for Set Protocol V2 and Index Coop.

Since its launch, Scalara – formerly known as DeFi Pulse, has continually served as the product’s methodologist.

This proposal requests to buy out Scalara’s interest in DPI and have Index Coop take over as the methodologist moving forward.

If approved, Index Coop will pay Scalara 45k USDC and in return receive 100% of DPI’s revenue; which was previously split 70/30 Index Coop/Scalara.

DPI will continue to operate on Set Protocol V2, however, if DPI is migrated to a new token in the future it will no longer use DeFi Pulse branding.

Our Take: We support Index Coop’s acquisition of DPI and thank Scalara for their continued support. DPI has been a flagship product for Index Coop and we look forward to it being fully brought in-house.

dYdX (DYDX)

Proposal: [DRC] dYdX Community Staking Proposal

Author: Reverie

Summary: This proposal requests to stake 20M DYDX from the DAO’s Treasury to Stride’s liquid staking DYDX token (stDYDX).

Key Points:

Since the launch of dYdX V4, the dYdX Chain has 60 active validators, $140M USDC in deposits, and 114M DYDX (~$456M) staked.

Importantly, the rate of USDC deposits is significantly outpacing the amount of DYDX staked with validators, increasing the economic incentive for validators to perform malicious activities.

To combat this, Reverie is proposing to stake 20M DYDX tokens (~$70M) from the Community Treasury with Stride to help secure the dYdX Chain.

The dYdX Community Treasury has over 230M DYDX of which 80M has vested and is available for distribution by the community through governance.

In return for staking with Stride, the dYdX Community will receive a rebate on staking rewards of 2.5% paid in USDC to the Community Treasury.

Thus, an effective reward fee of 7.5% of staking rewards will be paid to Stride, while all other staking rewards (~90%) will be autocompounded into more stDYDX.

If approved, it’s expected that the current APR from staking DYDX will drop from ~21.32% to ~18% for all DYDX stakers.

Stride will automatically handle the delegation of DYDX to Validators in a manner that will improve the distribution of voting power amongst Validators.

Our Take: This proposal is a net benefit for the dYdX Chain. While DYDX stakers are getting diluted, improving the economic security of the chain and distribution of voting power is arguably more important.

MakerDAO (MKR)

Proposal: MakerDAO Endgame: Launch Season

Author: Rune

Summary: Rune has presented a series of Phases mapping out the beginning and evolution of MakerDAO’s endgame. Most importantly, it introduces a new stablecoin and a new governance token for MakerDAO.

Key Points:

Endgame is a fundamental transformation of MakerDAO that attempts to improve growth, resilience, and accessibility, with the aim of scaling the Dai supply to 100 billion and beyond.

Endgame was proposed almost two years ago and accepted by the MakerDAO. After years of development, the DAO is now ready to move into its launch phase (Phase 1).

Phase 1 will entail the launch of the most critical elements that will drive the underlying growth engine for the DAO. It will consist of a:

–> NewGovToken (Yet to be named) – A governance token redenominated at a rate of 24k NewGovToken for each MKR and a two-way bridge with MKR.

–> NewStable (Yet to be named) – A stablecoin that can be used to farm subDAO tokens and will consist of a two-way bridge with DAI.

–> New user-friendly website and app to simplify access to key features – farming, savings rate, key ecosystem features etc.

–> Lockstake Engine Launch – encourages long-term governance participation by allowing MKR and NewGovToken to be locked for increased ecosystem benefits and risks (e.g., protocol yield, subDAO token farming.)

–> NewBridge (Yet to be named) – a bridge to connect NewGovTokens, NewStable, MKR, and DAI from Ethereum Mainnet to a major L2 (TBD).

–> SparkDAO – the launch of SparkDAO, the SPK token, protocol asset expansion to RWAs and Perpetual Swap yields.

Phase 2 will start once all key launches in Phase 1 have been realized. Phase 2 will focus on scaling up the key launches from Phase 1 by introducing up to 6 more subDAOs to cover major communities and business models.

Phase 2 will also include expansions to major popular L2s like Arbitrum, Optimism, Base, or even L1s like Solana.

Once subDAOs have reached full autonomy, Phase 3 will begin which involves the final technical iteration of the Endgame consisting of NewChain (yet to be named).

NewChain will be a stand-alone L1 blockchain that hosts the core tokenomics and governance mechanisms of Maker Core and the subDAOs.

Phase 4 is the final Endgame and is realized once all technical and foundational governance mechanisms have been completed.

When Final Endgame is activated, all the foundational governance mechanisms of Maker Core become immutable.

Our Take: It’s great to see a clear vision outlined by Rune and the realization of MakerDAO’s Endgame coming to fruition. We look forward to watching the Endgame execution unfold.

MakerDAO (MKR)

Proposal: Governance changes to prepare for Launch Season

Author: Rune

Summary: This proposal introduces changes to increase USDC reserves and activate cash-and-carry yield strategies for the DAO in preparation for the launch of Endgame.

Key Points:

The first change to get MakerDAO ready for the launch of Endgame is to improve DAI’s robustness by increasing the USDC reserve target.

The current system targets 22% exposure to stablecoins but allows the exposure to dip down to 18% before rebalancing to 22% again.

This proposal requests to introduce a new mechanism that targets 25% exposure to stablecoins and will rebalance back to 25% if exposure falls below 20%.

New RWA treasury exposure will now only be added if the stablecoin exposure goes above 30%.

goes above 30%.

The second change will activate hedged perpetual exposure strategies (i.e., cash and carry) through an immediate solution such as sUSDe.

sUSDe will be acquired through Coinbase using the existing Andromeda Arranged Structure.

In the medium term, a direct deposit module will be created on Morpho for an overcollaterlized sUSDe/DAI lending market. Assuming Morpho remains to be functional and secure most of MakerDAO’s sUSDe exposure will be migrated to this lending market.

In the long term, MakerDAO will aim to enable RWA Arrangers to begin setting up their own legal rails to perform the cash and carry trade. This should give the DAO much more flexibility in structuring and accessing the respective yield.

The last change will adjust the Smart Burn Engine rate to 400 million Dai per year from 120 million.

This is due to the protocol acquiring excess funds in the surplus buffer faster than the current rate of burn, leaving the protocol with an opportunity to burn more MKR at a faster rate.

However, if the MKR price rises too quickly and hits an upper price of $8000 USD. The system will stop buying MKR and begin to store excess cash.

Our Take: Rune presents some pretty important changes in preparation for the launch of Endgame that all positively impact the future growth of the DAO and DAI’s stability.

Synthetix (SNX)

Proposal: SIP-367: Synthetix V3 Deployment to Arbitrum

Author: Cavalier, Mike

Summary: This proposal outlines a plan to deploy Synthetix V3 & Synthetic Perps on Arbitrum.

Key Points:

Synthetix will launch an isolated deployment of Synthetix V3 & Synthetix Perps on Arbitrum with a focus on progressively scaling.

The launch will happen in 4 phases:

–> Pre-Launch preparation: Deployment to Arbitrum testnet, risk assessment, analyze differences between Arbitrum & existing deployments.

–> Beta Launch Phase: Deploy Synthetix V3 on Arbitrum, initially activating LP Deposits and stablecoin minting.

–> LP Rampup & Collateral Onboarding: Attract a critical mass of LP collateral which can be used to issue stablecoins.

–> Enabling Synthetix Perps: gradually enable trading activities, starting with limited volumes to manage risk.

Assuming Synthetix receives an Arbitrum LTIPP grant, there will be an incentive program for liquidity providers during the initial phase; an incentive for stablecoin liquidity support; and a one-month incentive to stimulate trading activity.

Users will be able to add USDC, DAI, ETH, and ARB as collateral while minting an Arbitrum-native stablecoin.

Our Take: Arbitrum is known to be the home of DeFi derivatives trading. We looking forward to seeing Synthetix deploying on Arbitrum.

Votes

Aave (AAVE)

Proposal: [TEMP CHECK] Onboard sUSDe to Aave V3 on Ethereum

Status: Live.

Created: Mar 16, 2024.

Ends: Mar 19, 2024.

Leading Consensus: YAE – 446k AAVE (99.57% of total votes).

Summary: This proposal requests to onboard sUSDe to Aave V3 on Ethereum. sUSDe is a synthetic dollar created by Ethena to allow users access to delta-neutral perpetual yields.

Lido Finance (LDO)

Proposal: Simple On-chain Delegation

Status: Live.

Created: Mar 15, 2024.

Ends: Mar 22, 2024.

Leading Consensus: Support – 14M LDO (100% of total votes).

Summary: This proposal requests to incorporate a simple onchain delegation model into Lido’s Governance Smart Contract Architecture. This will allow for the delegation of governance rights onchain.