Wintermute DeFi Governance Digest — October 2023 | Week 2

This week’s proposals include MakerDAO incentivizing USDP PSM deposits, Aave increasing the GHO borrow rate to 3%, 1inch introducing an incentivized governance program, Cosmos taking over Stride protocol; along with votes from Uniswap to complete funding for the Uniswap Foundation, Arbitrum’s round 2 of their Security Council election, and 1inch ratifying changes to their Fusion Mode Resolver program.

Proposals

MakerDAO (MKR)

Proposal: USDP-PSM Facilitation Incentives

Author: Steakhouse

Summary: This proposal requests to establish an incentive program to increase USDP adoption by paying MakerDAO 2.25% on the total USDP balance in the USDP PSM if the Max Debt Ceiling is at least 120M.

Key Points:

• Trident Digital Technologies Ltd — a firm contracted by Paxos to increase USDP usage, has put forward a proposal to establish a monthly incentive for USDP in MakerDAO’s Peg Stability Module (PSM).
• Trident will deliver a Monthly Facilitation Incentive on-chain in exchange for the USDP PSM Max Debt Ceiling to be maintained at 120M or more.

• The incentive will accrue daily and will be calculated by multiplying the balance of USDP in the USDP PSM by 2.25% and 1/365 daily.
• After each month, the final incentive number will be calculated by aggregating all daily incentive figures and will be paid as USDP into a Smart Contract owned by MakerDAO.
• All payments made by Trident will be converted into DAI and sent to the MakerDAO surplus buffer.
• Trident has also agreed to pay a one-time upfront incentive of 3.25M USDP within 60 days of the proposal passing.
• Lastly, daily incentives will be waived on days when the USDP PSM is locked and the USDP PSM is no longer redeemable for more than sixteen hours on such day; or if any PSM experiences a breach or failure that leads to funds being stolen.
• The USDP PSM currently has 95.2M USDP with a max debt ceiling of 120M, making it eligible for incentives.

Our Take: This is a great opportunity for MakerDAO to continue earning revenue on their PSM reserves. At current levels, the incentive program earns MakerDAO an additional 2.14M USDP/year excluding the initial upfront payment.

Aave (AAVE)

Proposal: [ARFC] Further increase GHO Borrow Rate

Author: Marc Zeller

Summary: This proposal requests to increase the GHO borrow rate to 3% from 2.5%.

Key Points:

• The GHO borrow rate was recently increased from 1.5% to 2.5% on September 20 2023, to help strengthen its peg.
• This proposal requests to further increase GHO’s borrow rate to 3% from 2.5% to continue the DAO’s efforts towards restoring its peg which currently sits at $0.9729 USD.

• Furthermore, the increased rate will improve the DAO’s revenue earned from GHO which currently has a circulating supply of $23.6M USD.
• stkAAVE holders will continue to earn a 30% discount on GHO borrows, making their effective borrow rate ~2.1%.

Our Take: The GHO peg has remained at a relatively similar level prior to the last increase in its borrow rate. We support the increase but don’t expect it to impact GHO’s peg much until the borrow rate reaches market parity.

1inch (1INCH)

Proposal: 1inch Governance Participation & Delegation Incentive Program

Author: Round Elephant

Summary: This proposal requests to introduce an incentive program for 1INCH stakers who actively participate in governance through delegation and/or self-voting.

Key Points:

• This program intends to encourage active governance participation and delegation by staked 1INCH holders.
• To be eligible, users must either participate in governance by voting on proposals or by delegating their governance power to a delegate who will vote on proposals on their behalf.

• A user’s rewards will be calculated by their participation rate each month, including the participation rate of the user to whom they delegated their Unicorn Power (Unicorn Power = 1INCH staked for x amount of time).
• Users will receive a 0.33x boost on all delegated Unicorn Power who successfully voted and a 0.67x boost for voting directly.
• The program will run for a trial period of 3 months with $25k USDC allocated each month for incentives (total of $75k), funded by the DAO’s Treasury.

Our Take: Incentivizing governance participation is particularly difficult given the anonymous nature of the blockchain. We look forward to seeing the program’s effects on governance participation.

Cosmos (ATOM)

Proposal: Convert entire STRD supply to ATOM

Author: Stride

Summary: This proposal requests to convert the entire STRD supply to ATOM, making ATOM the governance token for Stride.

Key Points:

• Stride is a liquid staking protocol for ATOM and various other IBC Chains with 4.21M (~$29M USD) ATOM actively staked.
• Considering Stride’s role as a liquid staking chain, Stride’s security and decentralization are important — since their stTokens are widely exported across Cosmos’ DeFi ecosystem.

• While Stride is currently secured through Cosmos’ Interchain Security, the team believes that in order to scale the protocol further decentralization is needed.
• The more decentralized Stride gets, the more willing people are to liquid stake; further unlocking liquidity for the Cosmos ecosystem.
• Therefore, the team is proposing to convert the entire STRD supply to ATOM, making ATOM the governance token for Stride.
• To achieve this, the Cosmos Hub would provision an amount of ATOM which will be used for the conversion. In return, ATOM will serve as the sole governance token for the Stride protocol and will collect all Stride rewards (est. $700k/year in revenue at current levels).
• Stride contributors would continue working on the Stride protocol and Cosmos Hub with their new ATOM allocation being subject to a vesting schedule.
• Stride’s (STRD) Market Cap sits at $56.6M USD with an FDV of $64.6M USD.

Our Take: The success of Ethereum’s liquid staking landscape is a testament to the demand for unlocking staked token liquidity. The merger could have great economic benefits for Cosmos and its IBC chains, however, we are cautious about Stride’s development speed post-migration due to more stringent governance consensus.

Votes

Uniswap (UNI)

Proposal: [Temp Check]: Complete initial funding of the UF

Status: Live.

Created: Oct 6, 2023.

Ends: Oct 11, 2023.

Leading Consensus: Yes, fund UF — 33M UNI (100% of total votes).

Summary: This vote requests to fund the Uniswap Foundation with the remaining $46.2M of their budget, previously approved by the community. The funds will be used to continue growing a robust Uniswap ecosystem with a focus on growth and development within governance and Uniswap V4 for the next 2 years.

Arbitrum (ARB)

Proposal: Security Council Election Round 2

Status: Live.

Created: Oct 7, 2023.

Ends: Oct 28, 2023.

Leading Consensus: Dai Dai, 0xJiro, Harry Kalodner, Omer, 0xhombre, Limes.eth.

Summary: Arbitrum’s Security Council Election Round 2 is live with successful candidates from Round 1. A total of 6 candidates will be chosen in Round 2 to officially join the Security Council. The top 6 candidates currently are: Dai Dai (DODO), 0xJiro (Sushi), Harry Kalodner (Offchain Labs), Omer (Chaos Labs), 0xhombre (PlutusDAO), and Limes.eth (ENS).

1inch (1INCH)

Proposal: Optimizing Fusion Mode: Smart Contract-Enforced Gas Fee Limit and Lowered Unicorn Power Threshold

Status: Finished.

Created: Oct 3, 2023.

Ends: Oct 8, 2023.

Leading Consensus: Yes — 11M UP (99.71% of total votes).

Summary: This vote enforces a gas limit for Fusion Mode Resolvers to reduce gas wars amongst resolvers, implement a penalty scheme for abusive Resolvers, and reduce the Unicorn Power requirement to become a Resolver from 10% to 5% of total Unicorn Power.