Wintermute DeFi Governance Digest — August 2023 | Week 5

This week’s proposals include Zero Protocol requesting to deploy a friendly fork of Uniswap V3, dYdX accepting dYdX V4 as their next official deployment and recognising DYDX as the official L1 token for V4, and Aave increasing the GHO borrow rate; along with votes from Uniswap to deploy V2 on all chains with a V3 deployment, Yearn Finance ratifying the launch of V3, and dYdX extending their grants program.

Proposals

Uniswap (UNI)

Proposal: Deploy Friendly Fork of Uniswap V3; ZERO Protocol on Polygon zkEVM

Author: Kila

Summary: This proposal requests to establish a partnership between the Uniswap DAO and Zero Protocol by launching a friendly fork of Uniswap V3 on Polygon zkEVM.

Key Points:

• Zero Protocol aims to introduce the ve(3,3) DEX concept to Polygon zkEVM using Uniswap V3 as its core trading engine.
• If approved, Zero Protocol will also receive access to all existing and future tooling for Uniswap V3 (e.g., OkuTrade, Uniswap.fish, Seedle.finance etc.)

• By establishing a friendly fork relationship with Uniswap, the Uniswap DAO will receive 10% of the ZERO token supply, locked for 2 years as veZERO.
• This will allow the Uniswap DAO to make governance decisions and generate revenue through voting on Zero Protocol.
• Moreover, this will provide Uniswap the opportunity to experiment with certain changes to V3 without affecting recognized canonical V3 deployments.
• All costs of the fork will be borne by Zero Protocol, and the proposal will be sponsored by GFX Labs.

Our Take: This is an interesting proposal by Zero Protocol which seeks to leverage Uniswap’s brand and trust as a friendly fork. However, treating this fork as a representative research landscape is rather difficult due to the extremely different incentive mechanisms that come with ve(3,3).

dYdX (DYDX)

Proposal: V4 Adoption & DYDX Token Migration to dYdX Chain

Author: Callen_Wintermute

Summary: This proposal requests to adopt the dYdX V4 open-source software as the next version of the dYdX protocol, adopt DYDX as the L1 token of the dYdX Chain, and update dYdX’s Governance Strategy contract to include wethDYDX as a voting strategy.

Key Points:

• With the potential mainnet launch of the dYdX Chain quickly approaching, the dYdX Foundation published a blog post highlighting the necessary requirements for launching an L1 Proof-of-Stake blockchain.
• This included the need for an L1 protocol token that can be staked to validators in order to secure the chain.

• Therefore, this proposal requests token holders to officially adopt dYdX V4 open-source software as the next version of the dYdX Protocol and accept DYDX as the protocol’s L1 token.
• For the above changes to materialise, the community would need to adopt the one-way bridge Ethereum Smart Contract commissioned by the dYdX Foundation.
• The one-way bridge allows users to deposit their DYDX on ETH mainnet into a Smart Contract, users will then receive wethDYDX 1:1 with the amount of DYDX they’ve bridged/locked, dYdX Chain Validators will then credit native DYDX to a user’s specified wallet on the dYdX Chain.
• Importantly, all DYDX deposited into the Smart Contract will be permanently locked.
• wethDYDX will retain all the trading benefits and governance rights of regular DYDX.

Our Take: This is a monumental moment for dYdX as it signifies the official adoption of their V4 protocol.

Aave (Aave)

Proposal: [ARFC] Increase GHO Borrow Rate

Author: Marc Zeller

Summary: This proposal requests to increase the GHO borrow Rate from 1.5% to 2.5%.

Key Points:

• GHO has witnessed strong growth, reaching a circulating supply of 23M in just a few weeks since its launch.
• A lot of this growth can be attributed to GHO’s fixed 1.5% borrow rate which is notably lower than market rates.

• However, with such a low rate and little established utility, GHO’s peg (currently at $0.978) has been suffering due to users borrowing and then selling GHO for other tokens.
• This reduces confidence for borrowers, affecting the long-term growth of GHO.
• Therefore, this proposal requests to raise the GHO borrow rate from 1.5% to 2.5%, retaining an attractive borrow rate, but, hopefully increasing the rate at which people buy back GHO to pay off their debt.
• stkAAVE holders would continue to receive a 30% discount on borrowed GHO, with their new rate being 1.75%.

Our Take: The proposed increase in GHO’s borrow rate could potentially help alleviate some short-term peg pressure, however, we expect most of GHO’s peg restoration to come from increasing utility and the GHO Peg Stability Module.

Votes

Uniswap (UNI)

Proposal: [Temperature Check] — Deploy Uniswap V2 on all chains with V3

Status: Live.

Created: August 26, 2023.

Ends: August 31, 2023.

Leading Consensus: Yes — Deploy V2–12M UNI (97.92% of total votes).

Summary: This proposal requests to deploy Uniswap V2 on all chains where Uniswap V3 has been deployed, providing a safer environment for users who are forced to use potentially malicious V2 forks.

Yearn Finance (YFI)

Proposal: Launch V3

Status: Live.

Created: August 26, 2023.

Ends: August 31, 2023.

Leading Consensus: For — 194veYFI (83,47% of total votes).

Summary: This vote ratifies the launch of Yearn V3. Yearn V3 will provide a significant upgrade of V2 and will provide a fully ERC4626 infrastructure stack for their vault system. Furthermore, it’ll be extremely easy for non-technical users to deploy vaults and strategies using V3 infrastructure.

dYdX (DYDX)

Proposal: dYdX Grants Program v1.5 Extension

Status: Finished.

Created: August 24, 2023.

Ends: August 28, 2023.

Leading Consensus: Yes — 60M DYDX (100% of total votes).

Summary: This proposal ratifies the extension of the dYdX Grants Program, starting September 1st, 2023 and expiring on March 1st, 2024. The extension will focus on funding Protocol infrastructure, MEV research and Migration, and Validator/Staking Tools and Resources.

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