Wintermute DeFi Governance Digest — November 2023 | Week 2

This week’s proposals include CoW Protocol experimenting with various fee switches, Sushi presenting an updated tokenomics vision, and Cosmos adopting EIP-1559; along with votes from Aevo ratifying their new governance system, Uniswap delegating UNI from their treasury to underrepresented delegates, and Lyra gradually winding down incentives in preparation for their V2 launch.

Proposals

CoW Protocol (COW)

Proposal: Testing Fee Models for CoW Protocol

Author: Marshy

Summary: This proposal requests to trial a 6-month fee-switch program with various fee models to begin generating revenue from the CoW Protocol.

Key Points:

• One of the CoW DAO’s long-term objectives for CoW Protocol is to ensure financial self-sustainability and not rely on external funding for growth or development.
• To achieve this, the CoW Protocol must begin experimenting with methods of generating revenue in the short term.

• Currently, the fees charged by the protocol are to cover gas costs and are passed on to solvers.
• The only form of revenue the protocol collects comes from an overestimation of gas costs when charging users.
• This is not sustainable or aligned with promoting the usage of the platform.
• Therefore, this proposal requests to embark on a 6-month fee experiment to collect data that will inform CoW Protocol’s long-term fee model.

The fee models that will be tested during this period are:

• Quote improvement fees: charging a fee on the “extra” amount received by a trader, thanks to the performance of CoW Protocol.
• Surplus fees: charging a fee on surplus (surplus = amount received — quoted amount — slippage).
• Volume-based fees: charging a small % (e.g. 1bp) on certain token pairs.
• Fixed fees: charging a fixed amount for every trade.
• During this period the core team will monitor the effects of certain fees on market share, retention rate, and other relevant user metrics.
• All revenue generated from the experiment will be retained by the DAO and be used to benefit the DAO and ecosystem.

Our Take: It’s important for protocols to begin experimenting with pricing models to ensure their longevity. We look forward to seeing the data that is generated from the 6-month of experimentation.

Sushi (SUSHI)

Proposal: [RFC] Deploy new tokenomics for Sushi

Author: Jared Grey

Summary: This proposal introduces a revised version of Sushi tokenomics focusing on protocol sustainability, token utility enhancement, and treasury diversification.

Key Points:

• As SUSHI approaches full distribution, the Sushi core team have put forward a proposal to redesign the SUSHI token model which attempts to promote decentralization, amplify liquidity, encourage sustainable growth, treasury diversification, and bolster SUSHI utility.
• Currently, the largest issue thus far has been the overspending of SUSHI emissions relative to revenue capture. Followed by the misalignment between the protocol and xSUSHI holders (stakers of SUSHI).

This proposal introduces various changes such as:

• Greater rewards for LPs who lock their stake for extended periods, represented in the form of an NFT which can be freely sold on a secondary market. Locked LPs will also receive greater voting power through loyalty points.
• Dynamic reward adjustments to ensure LPs are rewarded during adverse conditions, market growth, changes in demand, etc.
• A Boost Distribution System that allows loyalty points and SUSHI holders to direct boosts to top LP pools, refund fees to top traders, and reward partnerships and integrations.
• A focus on generating POL by diverting 50% of fees to accumulating POL and 50% of fees towards buying SUSHI.
• Governance will move to Quadratic voting to provide a more equitable governance model. Furthermore, to receive voting power users must have locked their SUSHI for a sufficient period before and after the voting period.
• Overall, the proposal attempts to target long-term sustainability, growth, and alignment between LPs and tokenholders.

Our Take: The newly proposed SUSHI tokenomics provides a holistic approach to solving current issues. There is a pretty strong feedback loop introduced that could have great effects on liquidity, treasury income, and stakeholder alignment. We look forward to watching the positive benefits large POL bring to the protocol.

Cosmos (ATOM)

Proposal: Cosmos Hub adopt the Skip Block SDK

Author: Hxrts

Summary: This proposal requests for the Cosmos Hub to adopt Skip’s open-source Block SDK (which includes EIP-1559 fee market lane) after the next planned upgrade to version 0.47.

Key Points:

• Currently, the Cosmos Hub’s functionality is still based on a dated Cosmos chain design formulated just as IBC was coming online.
• Thus, it does not take advantage of any of the new developments including ABCI++, vote extensions, or enhanced block-production capabilities.

• The current fee market on the Cosmos Hub is controlled by the Global Fee Module which is rudimentary and overdue for an upgrade.
• Transactions are charged a minimum fee regardless of network load or demand, which is set by governance.
• As a result, Validators have to actively increase fees by changing their local configuration leading to many inefficiencies such as:
• Requiring validators to run their own pricing models.
• Users/clients have to guess what fee to set beyond the base fee level.
• The Hub is overcharging users for transactions during times of minimal block space demand.
• The Hub’s performance and liveness will significantly degrade during times of high block space demand.
• Therefore, it’s time for the Hub to adopt EIP-1559 — a protocol developed within the Ethereum community and has proven to be robust and offer a UX-friendly fee market design.
• If adopted EIP-1559 will implement a base fee and a priority fee.
• The base fee is variable and dynamic, which adjusts with demand and is easy to calculate for end users.
• The priority fee is an optional tip that users can add on top of the base fee to receive priority execution.
• By adopting the Block SDK developed by Skip, Cosmos would be able to leverage this EIP-1559 module.

Our Take: If successfully implemented, Skip’s Block SDK and integration of EIP-1559 will be a great value add for user experience and chain liveness.

Votes

Aevo (AEVO)

Proposal: AGP-1 — Aevo New Governance

Status: Live.

Created: Nov 2, 2023.

Ends: Nov 9, 2023.

Leading Consensus: I approve AGP-1–7.8M RBN (98.57% of total votes).

Summary: This vote ratifies the acceptance of Aevo’s new governance system. This includes definitions relating to proposal thresholds, voting mechanism, staking mechanism, voting quorum, revenue, tokenomics, and DAO committees.

Uniswap (UNI)

Proposal: [Temperature Check]: Delegation of UNI to Active but Underrepresented Delegates

Status: Live.

Created: Nov 2, 2023.

Ends: Nov 7, 2023.

Leading Consensus: For — 17M UNI

Summary: This proposal requests to delegate up to 2.5M UNI from the DAO’s treasury to 3–5 underrepresented delegates within the Uniswap Governance ecosystem.

Lyra (LYRA)

Proposal: Newport Rewards Reduction and Terminal Rate

Status: Live.

Created: Nov 5, 2023.

Ends: Nov 8, 2023.

Leading Consensus: Abstain— 2M stkLYRA (56.97% of total votes).

Summary: This proposal requests to gradually reduce incentives for the current version of the protocol — Newport. This change will apply to deployments of Newport on both Arbitrum and Optimism. The reduction is due to the expected launch of Lyra V2 in Q4 2023, where incentives will then be focused.