Wintermute DeFi Governance Digest — July 2023 | Week 1

This week’s proposals include Yearn Finance launching oYFI and activating rewards for veYFI holders, Osmosis requesting to burn OSMO revenue from their ProtoRev module; along with votes from Arbitrum launching an RPC to support account abstraction, Radiant Capital launching on Ethereum Mainnet, and Aave freezing TUSD markets and temperature checking whether or not a portion of GHO rewards should be distributed to the Safety Module.

Proposals

Yearn Finance (YFI)

Proposal: Activate veYFI rewards with oYFI Gauges

Author: 0xJiji

Summary: This proposal is the next step of Yearn’s YFI token evolution and utilises YFI buybacks as rewards for Yearn vaults in the form of oYFI tokens.

Key Points:

• This proposal introduces an oYFI as a reward token for vault gauges with a dynamic emission rate based on the amount of veYFI locked.
• Currently, YFI holders can lock their YFI as veYFI for up to 4 years to participate in governance decisions, however, there are no incentives other than purely gaining voting power.

• If approved, this proposal will activate veYFI rewards using Yearn’s YFI Buyback program and wrap the bought YFI as oYFI.
• Since its inception, the YFI Buyback program has purchased 1,311 YFI amounting to ~$23.7M USD.
• oYFI will allow veYFI holders to buy back YFI at a discount depending on the amount of veYFI currently locked in the protocol. The more YFI locked the lower the discount.
• The proceeds from oYFI purchases will be used to purchase more YFI, creating a positive feedback loop.
• Every 14 days, veYFI voters chose the distribution of oYFI rewards for each eligible gauge for the following epoch. Therefore, gauges with more votes receive a higher proportion of rewards.
• Similar to Curve’s gauge system, users can deposit their vault tokens into oYFI gauges to earn oYFI rewards. Users can then boost their earning potential by locking YFI to veYFI.
• A user can receive a boost ranging from 1x to 10x which is based on their vault deposit and their veYFI balance. However, if a user does not reach their max boost of 10, a portion of their rewards are distributed to veYFI holders.
• Lastly, veYFI holders will earn YFI from users who exit their veYFI locks early.

Our Take: This proposal introduces a variety of positive feedback loops for the protocol’s total value locked and alignment of users and veYFI holders. Given that rewards are purely driven by buybacks and not inflationary supply, this could result in a notable increase in demand for YFI.

Osmosis (OSMO)

Proposal: Disposition of ProtoRev Collected Revenues — Burn

Author: Johnny Wyles

Summary: This proposal established a new burn mechanism for all past and future revenues collected by the ProtoRev Module on Osmosis. Specifically, all non-OSMO token revenue will be sent to the community pool and any OSMO token revenue will be burnt.

Key Points:

• The ProtoRev module was developed by Skip Protocol which employs a backrunning strategy to restore pre-trade price equilibrium across pools on Osmosis DEX.
• This helps prevent asset prices from going stale, improving overall UX for both traders and liquidity providers.

• However, unlike MEV opportunities on other blockchains, ProtoRev’s profits from MEV activities are distributed back to Osmosis and controllable by governance (minus the share of revenue that goes to Skip Protocol).
• Since its inception, ProtoRev has produced $3.7k USDC, $27.2k ATOM, and $97.9K OSMO in revenue.
• This proposal requests to distribute all past and future non-OSMO revenue to the Osmosis Community Pool and all past and future OSMO revenue to be burnt.

Our Take: The ProtoRev module is a novel mechanism that seems to do pretty well in capturing MEV opportunities. This would translate into a moderate amount of OSMO burnt, however, using OSMO and pairing it with other assets to generate protocol-owned liquidity could be more beneficial for both trade execution and increased revenue for ProtoRev.

Votes

Arbitrum (ARB)

Proposal: Activate support for account abstraction endpoint on One and Nova

Status: Finished.

Created: June 20, 2023.

Ends: June 27th, 2023.

Leading Consensus: For — 61M ARB (99.7% of total votes).

Summary: This proposal activates support for a new RPC endpoint on Arbitrum One and Nova that allows for ERC-4337-compliant transaction bundles. This permits account abstraction functionality for L2 sequencers on Arbitrum One and Nova.

Radiant Capital (RDNT)

Proposal: Radiant Expansion & Deployment to Ethereum Mainnet

Status: Finished.

Created: June 23, 2023.

Ends: June 28, 2023.

Leading Consensus: In Favor — 27M RDNT (99.47% of total votes).

Summary: This proposal requests to deploy the Radiant protocol on Ethereum Mainnet. Given that v2 has been successful on both Arbitrum and BNB Chain, 10xing the number of protocol users and token holders; the move to Ethereum will allow the protocol to begin tapping into the vast amount of Ethereum Mainnet liquidity.

Aave (AAVE)

Proposal 1: [TEMP CHECK] Allocating part of GHO Revenue to Safety Incentives

Status: Finished.

Created: June 29, 2023.

Ends: July 2, 2023.

Leading Consensus: YAE — 747k AAVE (99.99% of total votes).

Summary: This proposal requests to introduce a dual reward system for Safety Incentives, where a portion of GHO revenue is directed to Safety Module stakers. If approved, 20% of GHO revenue will go to stkAAVE and stkBPT holders, while the remaining 80% will be sent to the DAO’s treasury.

Proposal 2: Freeze TUSD Reserve on Aave V2 Ethereum

Status: Finished.

Created: June 28, 2023.

Ends: July 2, 2023.

Leading Consensus: YAE — 571k AAVE (83.76% of total votes).

Summary: Following the recent events with TUSD regarding Prime Trust and redemption mechanisms, this proposal requests to freeze the TUSD reserve on Aave V2 Ethereum. This prevents users from depositing or borrowing TUSD, however, users are still able to repay or withdraw TUSD.