Wintermute DeFi Governance Digest — August 2023 | Week 3
This week’s proposals include Wintermute requesting a YFI loan in exchange for buying Yearn Finance’s yCRV, Rocket Pool optimising their RPL inflation rewards for Node Operators to encourage rETH growth, Rune from MakerDAO proposing to set the max EDSR rate to 5% down from 8%; along with votes from JPEG’d to use their CVX to collect bribes for their treasury while the protocol is halted, Cow Swap replenishing their solver reward program and transitioning governance to oSnap, and Frax Finance and Aave acquiring CRV from Michael.
Proposals
Yearn Finance (YFI)
Proposal: YFI Wintermute Loan & CRV Plans
Author: Callen Wintermute
Summary: Wintermute Trading is requesting a loan of 350 YFI for 12 months at a 0.10% interest rate from the Yearn Finance DAO treasury, in exchange for purchasing up to 3M yCRV and deploying a mixture of assets to the yCRV-CRV Curve pool for a minimum of 6 months.
Key Points:
- The past 2 weeks have once again tested the resilience of DeFi off the back of a bug in specific versions of Vyper. Subsequently, CRV’s largest source of on-chain liquidity vanished due to the CRV/ETH Curve pool being drained.
- This once again raised alarm bells for the Aave community as the price of CRV went down and the probability of insolvency inched closer due to Michael’s large CRV position on Aave V2.
- With little on-chain liquidity present and multiple loan positions to manage, a series of OTC trades were conducted with various parties across DeFi, including Wintermute Trading.
- As a result, Wintermute Trading is now looking to deploy some of its CRV tokens on protocols where CRV is locked perpetually, including Yearn.
- Wintermute Trading is requesting a 350 YFI ($2.2M) loan for 12 months at a 0.10% interest rate from the Yearn Finance DAO treasury.
- In return, Wintermute Trading will use up to 3M CRV ($1.73M) to buy yCRV (depending on the ratio of the yCRV-CRV in the liquidity pool) and deploy a mixture of assets to the yCRV-CRV Curve liquidity pool.
- This should help rebalance the pool which currently sits at 69%/31% yCRV/CRV, improve the yCRV peg, and increase the pool’s liquidity which only has $5.25M in TVL.
- Borrowed YFI will be used exclusively for trading purposes.
- Wintermute would also have the optionality to swap between lp-yCRV and vl-yCRV to actively participate in the Curve Wars.
Our Take: We are super excited to put forward this mutually beneficial collaboration with Yearn. We strongly believe in the vision of a truly decentralized world and Yearn has played an extremely positive role in empowering and advancing this vision.
Rocket Pool (RPL)
Proposal: RPL Staking Rework Proposal
Author: Valdorff
Summary: This proposal adjusts how Rocket Pool spends RPL inflation, making the new inflation program in line with growth goals such as promoting rETH supply through incentivizing more minipools.
Key Points:
- Rocket Pool currently emits 981k RPL a year, with 687k (70%) going to Node Operators (NO), 82.4k (8.4%) to Reserves, 73.575k (7.5%) to the Incentive Management Committee (IMC), 60.822k (6.2%) to the oDAO, 44.145k (4.5%) to the Grants and Bounties Management Committee (GMC), and 33.354k (3.4%) to Developers of the protocol.
- Evidently, a significant portion of inflation is spent on Node Operators (NO). However, only 23.5% of NO rewards are spent on incentivizing minipools while 46.5% of NO rewards are spent on compensation for RPL price speculation and overinsuring nodes based on staked RPL collateral.
- A NO can create a minipool that allows them to borrow ETH from Rocket Pool depositors and create a full 32 ETH Ethereum node.
- NOs can bond either 8 ETH (LEB8s) or 16 ETH (EB16s) to create a minipool and borrow the remaining ETH from depositors. However, NOs are also required to stake a minimum of 10% of their borrowed ETH amount in RPL tokens to act as extra collateral.
- NOs are not currently incentivized to increase their number of minipools as they can simply stake more RPL to their current minipools and earn higher/equivalent rewards with less effort.
- This proposal attempts to address these issues by focusing on increasing incentives for minipool creations and therefore rETH.
Specifically,
- Adding a minipool will increase a NO’s RPL rewards.
- Converting an EB16 minipool to a LEB8 minipool will increase a NO’s rewards, assuming they meet the required staked RPL collateral.
- Staking more RPL as collateral for minipool insurance increases RPL rewards, now without a maximum of 150% of borrowed ETH.
- Beyond insuring 15% of borrowed ETH with RPL in a minipool, the marginal reward rate decreases.
- Therefore, NOs with high RPL collateral ratios on EB16s minipools receive fewer rewards than two LEB8s minipools with sufficient RPL collateral.
Our Take: This proposal looks to provide an effective solution for incentivizing more LEB8s minipool creations and therefore rETH growth. Higher rETH growth would then lead to greater protocol revenue.
MakerDAO (MKR)
Author: Rune
Summary: This proposal requests to set the maximum EDSR to 5% from 8%, Tier 1 EDSR (5%) would cover a utilization rate from 0–35%, and Tier 2 would last from a utilization rate of 35–50%.
Key Points:
- Since the successful launch of EDSR which set the Dai Savings Rate to 8%, there has been a massive influx of DAI deposits.
- Within 48hrs of launch, DAI supply has increased by almost 0.5 billion and DSR utilization has nearly hit the 20% threshold which would automatically decrease the EDSR to 5.8%.
- However, given DAI can be borrowed at a fixed 3.19% on Spark Protocol, regular DAI users have been crowded by large ETH & staked ETH whales.
Therefore, Rune has proposed to:
- Change the maximum value of the EDSR to 5% from 8% and adjust Tier 1 of the EDSR to cover the utilization rate of 0–35%. This allows the maximum value of the EDSR to last significantly longer and be more sustainable.
- Adjust the Tier 2 EDSR (with a DSR multiplier of 1.3x) to last from a utilization rate of 35–50%.
- Adjust the DAI borrow rate on Spark Protocol to be equivalent to the EDSR, eliminating the large-scale arbitrage opportunity that is currently happening from large ETH and staked ETH holders.
Our Take: Rune’s changes provide a fairer playing field for native DAI holders, which is the main target audience of the EDSR. Moreover, the reduction in the maximum EDSR value is far more sustainable over the long run.
Votes
JPEG’d (JPEG)
Proposal: PIP-72 Temporarily use the treasury CVX to get bribes (RE-VOTE)
Status: Finished.
Created: August 10, 2023.
Ends: August 13, 2023.
Leading Consensus: Yes, temporarily get bribes — 4.4b JPEG (100% of total votes).
Summary: This proposal requests to use the DAO’s CVX voting power to earn bribes and convert the bribes to USDC/ETH to grow the DAO’s treasury while the protocol is halted due to the Curve hack.
Frax Finance (FRAX)
Proposal: [FIP-278] Acquire CRV with DAO treasury funds
Status: Live.
Created: August 13, 2023.
Ends: August 18, 2023.
Leading Consensus: For — 14k FXS (100% of total votes).
Summary: This proposal requests to acquire CRV with 1 million FRAX from the DAO’s treasury via an OTC with Curve’s founder Michael. The purchased CRV will be locked into veCRV and used to improve liquidity across all FRAX/frxETH/FPI pairs.
CoW Swap (COW)
Proposal: CIP-29: Renewal of the solver rewards program
Status: Live.
Created: August 10, 2023.
Ends: August 17, 2023.
Leading Consensus: For — 24M vCOW (99.11% of total votes).
Summary: This proposal request to renew the solver rewards program and allocate a further 10M COW towards solvers. The previous budget also received 10M COW and was depleted in 5 months. Currently, there are 16 solvers running on CoW Swap.
CoW Swap (COW)
Proposal: CIP-30: Implementing oSnap for Optimistic Governance in CoW DAO
Status: Live.
Created: August 11, 2023.
Ends: August 18, 2023.
Leading Consensus: For — 23M vCOW (99.97% of total votes).
Summary: This proposal requests to integrate oSnap, an optimistic governance tool developed by UMA, into the CoW DAO governance system. This will allow the CoW DAO to execute the results of a Snapshot vote on-chain, eliminating the reliance on multisig wallets, therefore, promoting a more decentralized and efficient execution process.
Aave (AAVE)
Proposal: aCRV OTC Deal
Status: Finished.
Created: August 8, 2023.
Ends: August 11, 2023.
Leading Consensus: YAE — 370k AAVE (57.81% of total votes).
Summary: This vote ratifies the strategic acquisition of 5M aCRV tokens using $2M USDT from the Aave DAO treasury via an OTC with Curve’s founder Michael. The $2M
USDT will pay down Michael’s USDT debt in exchange for 5M aCRV tokens. The CRV tokens will be used to participate in the Curve Wars and improve liquidity for GHO.
