Wintermute DeFi Governance Digest — October 2023 | Week 4
This week’s proposals include Lido sunsetting their Polygon service and launching wstETH on both zkSync Era and Base, and Frax Finance whitelisting sFRAX and FXB as collateral to mint FPI; along with votes from Osmosis to incentivize a DYDX/USDC pool with OSMO incentives, and the Nouns DAO unstaking 4491 stETH to cover operational expenses.
Proposals
Lido (LDO)
Proposal: Sunset Lido on Polygon
Author: Kentie
Summary: This proposal requests to wind down Lido on Polygon and deprecate stMATIC as future and current costs outweigh the program’s expected benefits.
Key Points:
- Lido’s current Total Value Locked (TVL) on Polygon is ~151M MATIC ($86M) and The Lido DAO currently makes ~$166.8k on Polygon off of fees.
- In the past 12 months, Lido DAO has spent 450k LDO tokens on compensating Shard Labs the developers of Lido on Polygon, for reaching the 3% staking market goal.
- Additionally, another 150k LDO will soon be paid to Shard Labs for meeting the 4% staking market goal. This brings Lido’s overall spending on Polygon incentives to 1,538,500 LDO (~$2.6M) for the past year.
- Furthermore, Polygon is also undergoing a token migration and a multi-year technical architecture overhaul, resulting in higher risks and additional audit costs for the Lido DAO.
- Therefore, given such high costs, return on investment, and future uncertainty, this proposal requests to sunset Lido on Polygon
Our Take: There is a clear deficit between the DAO’s expenditure and expected income for Lido on Polygon. However, before sunsetting the service a deeper evaluation should occur to fully understand the DAO’s minimum viable costs to keep the service running.
Frax Finance (FXS)
Proposal: Whitelisting sFRAX and FXBs as FPI Collateral
Author: Amirnader
Summary: This proposal requests to whitelist sFRAX and FXBs as collateral assets for FPI.
Key Points:
- sFRAX and FXBs were recently announced as part of FRAX V3, Frax’s next version of the FRAX stablecoin.
- sFRAX represents FRAX staked into a vault that earns revenue from protocol activities and interest that targets the United States Federal Reserve Rate.
- FXBs are tokens that resemble zero-coupon bonds that convert into FRAX at the time of maturity. This ultimately allows users to trustlessly lend FRAX to the protocol for a discount on FRAX at the time of maturity.
- The Frax Price Index (FPI) is a stablecoin that is pegged to a basket of real-world consumer items as defined by the US CPI-U average. It allows users to own a stablecoin without a decay in their purchasing power.
- Currently, only FRAX can be used to mint FPI.
- This proposal requests to whitelist sFRAX and FXBs to be used as collateral to mint FPI to allow for greater capital efficiency and ecosystem growth.
Our Take: By allowing sFRAX as collateral to mint FPI there should be less of a need to mint and sell FPIS to maintain the FPI peg.
Lido (LDO)
Proposal: wstETH Deployment on zkSync & wstETH Deployment on Base
Author: Matter Labs (zkSync), KyberSwap (Base)
Summary: The Lido DAO has two proposals to deploy wstETH on zkSync and Base by Matter Labs and KyberSwap, respectively. With the future expectation of accepting ownership of wstETH’s bridging components by the Lido DAO.
Key Points:
- wstETH/stETH has continued to show its demand throughout DeFi making it the 7th largest cryptocurrency by market capitalization.
- These proposals request to deploy wstETH on zkSync and Base, further increasing wstETH’s reach and usage throughout DeFi.
- The zkSync Era deployment will be done by Matter Labs and the Base deployment by KyberSwap.
- Once deployed, it’s expected that the Lido DAO will take ownership of the bridging contracts by setting the addresses ownership to Lido’s governance-controlled smart contracts.
- zkSync Era has ~$118M TVL while Base sits at ~$303M TVL.
Our Take: This is a great initiative by both KyberSwap and the Matter Labs teams to expand Lido’s wstETH presence on both chains. ETH LSTs have proven to carry demand no matter what chain they’re deployed on.
Votes
Osmosis (OSMO)
Proposal: DYDX Incentive Spend
Status: Live.
Created: Oct 21, 2023.
Ends: Oct 26, 2023.
Leading Consensus: Yes — 120.7M OSMO (84.6% of total votes).
Summary: This proposal requests to incentivize liquidity on Osmosis for the new DYDX token from the dYdX Chain. The pool will have a 0.05% fee and will be paired with USDC. 200,000 OSMO will be used to incentivize liquidity in the pool over 50 days.
Nouns DAO
Proposal: Unstake 50% of stETH
Status: Live.
Created: Oct 19, 2023.
Ends: Oct 26, 2023.
Leading Consensus: For — 28 Nouns (100% of total votes).
Summary: This proposal requests to unstake 50% of the Nouns DAO’s stETH in its treasury which is ~4491 stETH ($7.5M) to keep funding proposals and operational expenses.
