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PowerPool: 2021 Meta-governance vision and roadmap

Meta-governance will transform the Defi governance market in 2021. This article describes how, when, and why.

Self-governed decentralized protocols are the most wanted bet on the Defi market. Almost all significant Defi protocols implemented on-chain governance mechanics and governance tokens back in 2020. Almost all new Defi projects have governance implemented by design. On-chain governance is attractive as it allows to transfer of decision-making to the community and introduce the utility token that can power the project in different ways.

Today on-chain governance is an obvious trend. But, in practice, it faces several fundamental problems.

They are well known: Voters’ Apathy and Whales domination. In simple words, only a small share of governance token holders with the majority of tokens tracks proposals and votings, and most of them are early backers/VCs/whales.

The minority token holders who have small stakes aren’t engaged in this game. The reasons are simple — they cannot influence the outcome, in the majority of cases they aren’t rewarded for that, and they need to spend money on gas. Some protocols try to address it via snapshot (saving gas costs, but it isn’t really on-chain governance), vote delegation, and rewards. But, it doesn’t solve the mentioned problems — the rate of participation is still low (for example, for two recent votes.

To address the mentioned problems PowerPool invented the meta-governance concept back in early August. The first-ever meta-governance votes were created in Compound on 19 Oct 2020 (the block number 11085689). The idea was simple:

  1. Let’s accumulate a lot of governance tokens into a single contract (a single, but huge stake), properly rewarding liquidity providers to achieve high TVL
  2. Delegate the rights of decision-making regarding pooled tokens to a wide social consensus using a new token with a built-in meta-governance value creation pattern. The token should represent a share in inter-protocol voting power, accumulated in the protocol. Read the CVP meta-governance value creation pattern article to understand more.
  3. Vote in every voting using tokens, stored on the contract.

The mechanism above is a generic meta-governance concept that was introduced at the initial stage of PowerPool. Practical implementation is more complex and basically comes down to two challenges:

  1. How to accumulate a huge stake (TVL) in governance tokens? What is the proper product for that and incentive design for LPs?
  2. How to implement meta-governance from the tech side? Defi protocols have different governance mechanics (logic, code, and voting mechanics), but for the majority of protocols, it requires a custom implementation.

PowerPool’s community decided to implement a meta-governance concept based on the idea of Smart Defi indexes. The rationale behind this idea was simple — index products have huge potential TAM (Total Addressable Market) and can attract huge TVL in governance tokens offering the useful tool (smart index, using underlying assets in a productive way) for Defi users at the same time.

Two indexes (PIPT and YETI) are launched and currently holding $16m TVL in governance tokens. Three more indexes are proposed on the governance forum: ASSY by Marc Zeller, the Oracles index, and the NFT governance tokens index.

PowerPool can be used for launching various indexes, using underlying tokens in a productive way (meta-governance + cashflow generation), and offering flexible token weights. We developed our own implementation of the Dynamic weights changing algorithm in the Balancer AMM pool.

Meta-governance 2021 vision

We think that meta-governance is one of the major 2021 Defi trends. Other protocols started using it in production or adding a meta-governance approach to their roadmap in recent months. The examples are Defi Pulse Index, Compound, PieDAO, and several other projects. It is definitely a good idea to use pooled tokens in a productive way and offer additional value to protocol users.

So, here is the first 2021 vision prediction:

Protocols, using pooled governance tokens for meta-governance will become one of the most influential players in Defi governance.

Let's turn this into numbers: Protocols, using pooled governance tokens for meta-governance will control over 20% of the circulating supply in one of the DeFi TOP-5 protocols ranked by TVL.

So, a significant share of votes in every voting in some protocols will come from protocols with meta-governance functionality applied to governance tokens, pooled into smart-contracts. Meta-governance will become a real force on the market.

But, it is important to point out that the integration of protocols’ governance is not a free lunch. For COMP and UNI it is quite easy (and it is the reason why all projects, offering meta-governance besides PowerPool integrated these two tokens first), but for example YFI, AAVE require more complex technical solutions for correct and secure operation.

Here comes the second 2021 prediction:

Governance systems will be standardized. New protocols will develop their governance systems keeping in mind easy meta-governance implementation.

Governance proposals affect decision-making in the protocol, cumulatively holding billions of TVL. However, Defi is still in its early stage of development, and TVL will grow to new levels, so stakes in voting will also grow accordingly.

Third prediction:

Votes, coming from protocols using tokens for meta-governance will affect billions of USD of investors capital

The fourth prediction is related to meta-governance indexes. In our vision, Defi index market will grow, the ecosystem will mature, and most of them will try to use underlying assets for meta-governance purposes:

The capital in governance tokens in indexes with the meta-governance function will surpass $1B TVL in 2021

Looks crazy, isn’t it? According to Coingecko, the Defi market cap is $18B at the moment of writing this article. But, remember the Defi market cap one year ago. The industry grows incredibly fast.

Fifth prediction:

Meta-governance indexes will act as synergetic tool for multiple Defi projects, merged into special ecosystems (like Yearn finance ecosystem), offering aligned cashfow-generating strategies, single governance end-point and help them to grow faster

We already launched YETI based on Ryan Watkins's proposal as the first “R&D in prod” product to unite Yearn finance ecosystem governance and cashflows generating strategies.

PowerPool long-term roadmap and product development vision

In recent months we’ve been developing tech for community-owned indices, offering productive usage of underlying tokens and meta-governance to its users. Together with the CVP community we did a great “R&D in production” work and established our vision roadmap for 2021. Here we publish only highlights and directions, the detailed explanation will be provided in the following articles.

Smart dynamic AMM, changing weights and other pool parameters based on external events

AMM is a simple and secure solution. But, in the case of applying it to decentralized indexes and portfolios, it has several drawbacks. One of them is endless rebalancing. To fix this, our community members shared an idea of AMM, changing weights based on projects’ market cap, ADTV, and TVL. Such a Smart dynamic AMM can extend AMM functionality and make it more efficient for indexes and token portfolios. We understand that security is the number one concern here and such a model will rely on oracles. We are working on it right now and will provide more details in future articles. Subtasks: Using oracles for weight changing, Blocking swaps in case of external events.

Creation of indexes for productive assets such as vault tokens with dynamic weights changing

Indexes can be created using any ERC20 assets, not only protocol tokens. For example, it can be productive assets such as LP tokens, cTokens, aTokens, yVaults tokens, etc. All these generate value flows by design. An index based on such tokens will act as a diversified portfolio of cashflow generating assets or strategies and establish a liquid market for exchanging these assets at the same time, generating swap fees for index LPs and the CVP community. All community fees are collected into the CVP treasury contract. We assume at least several indexes of this type launched on top of PowerPool based on community proposals.

L2 solution for low-cost governance participation

We assume that you don’t need an introduction here. People should have a chance to participate in governance without paying huge gas fees for casting their vote. Our team has vast experience in development using xDAI and Matic and in 2021 we plan to implement an L2 voting solution for the PowerPool and assets in meta-governance indexes.

Self-rebalancing vault strategies for yield maximization

One of the main features of PowerPool indexes is capital efficiency. Power indexes use pooled tokens for the generation of an additional yield for index token holders. In 2021 we decided to extend the concept of “vault strategies for pooled tokens” and make it self-balancing. How does it work?

For example, the SNX token is an index component. The index uses 80% of SNX for staking, and 20% for reserves (for swaps). This 80% are placed in different rebalancing vault strategies, aimed to provide diversified cashflow sources based on SNX. If necessary, funds allocation can be changed to maximize efficiency.

Launch of permissionless indexes

The opportunity of launching indexes in PowerPool attracted a lot of attention from the Defi community, including Delphi Digital (the PIPT proposal), Ryan Watkins (the YETI proposal), and Marc Zeller (the ASSY proposal). Several other proposals were published on the forum as well.

In the coming year, we plan to launch “permissionless” indexes as an experiment. It means that the index will be launched, and the community can add/remove tokens from it based on CVP stakes aka skin in the game for token weight. The basic idea is that if someone supports a token in the index, he should stake CVP into the Controller contract (with an opportunity to remove his stake after a specified cooldown period).

The case: there are four tokens in the pool (Token1, Token2, Token3, Token4), and CVP stakes are 10%, 25%, 35%, 30% accordingly. It means that currently, the weights of these tokens are 10%, 25%, 35%, 30%. Changing CVP stakes = changing token weights. Also, stakes can be placed for any new ERC20 token, and after a minimal amount of 3% overall weight, it will be automatically added to the index. Note, that it is only an experiment. But, we think that permissionless community-owned indexes can be attractive for the Defi/NFT community.

PowerPool short — term technical roadmap

  • Integrations with YFI, AAVE, and SUSHI: automatic staking YFI in YFI Governance, AAVE in Safety Module, Sushi in xSUSHI pool;
  • Integration voting function for pooled tokens (besides already implemented COMP, UNI, and upcoming YFI AAVE SUSHI)and receive rewards wherever possible;
  • Snapshot integration with the ability to vote using staked LP tokens, CVP, tokens locked in the Power Oracle, as well as CVP tokens in vesting contracts;
  • “Permanent Voting Power contract” rewards for active CVP token holders in PowerPool on-chain governance;
  • Development of a router for enabling token swaps using all indexes (for example, COMP will be able to swap to SUSHI using PIPT<->YETI integration via the router);
  • Staking rewards for fishermen in Power Oracle;
  • notification system for launched voting in composite protocols(e.g Compound, AAVE, YFI, etc);
  • Analytical UI/UX portal for indexes(index price, prices of tokens, trading volumes, charged fees, etc.)
  • Interface for swapping PIPT and YETI tokens via Balancer;
  • Rewards boost contract for LPs: LPs will be able to lock CVP to get an additional boost of rewards in indexes (if the community approves that separately for every index)
  • Referral contract for indexes. Permanent Voting Power commission will go to referral partners;
  • Telegram and Discord bots for LP notifications. They will receive updates on accrued rewards and APY changes;
  • Telegram and Discord bots with notifications regarding significant events in Power Pool smart contracts (e.g. 100 ETH supplied to PIPT, Governance proposal has been created, proposal has been approved, etc. );

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PowerPool

PowerPool

A solution for accumulating governance power in Ethereum based protocols