This Week’s Forum Threads (June 21st)

It has been a relatively quiet few weeks regarding governance proposals, but I recommend you follow some to stay abreast of how DAOs and protocols are moving. 

Aave TUSD Analysis

Aave has received a proposal from Gauntlet, which provides risk management options for TUSD. TUSD has recently come under some regulatory scrutiny associated with Binance. As such, Gaunlet, responsible for some risk analysis at Aave, recommends that Aave take action to limit any potential issues – although their risk analysis is limited due to TUSD being centralized. There is 22M TUSD supplied, and 20M TUSD borrowed from Aave. According to Gaunlet, Aave is at risk of around $700K in liquidations if TUSD de-pegs to $.90. Although a small risk overall to Aave, according to Gaunlet, Aave should take some action. 

Gauntlet recommends Aave take one of two actions:

  1. Lower the LT of TUSD to 77.5% and the LTV to 75% – removing some of the debt TUSD supports. 
  2. Freeze TUSD supply. 

Decentralized protocols do carry some risk when they incorporate centralized assets. And with the space coming under regulatory scrutiny, there is some risk in stablecoins – I expect more protocols to examine how changes to centralized stablecoins could threaten them. This proposal could signal how protocols will approach it moving forward.

Arbitrum Grants, Plural

Over the last few months, many projects have quietly mothballed or wrapped up their grants program. The shutting down of grants programs is probably due to declining treasury value due to falling token prices. Additionally, grant programs suffer from unclear application processes, opaque funding decisions, and nepotism. This proposal, however, seeks to address all of these by adopting something they call a Pluralistic grants program.

The Pluralistic Grants program uses appointed program managers responsible for stewarding their funds and issuing grants as they see fit, with Plurality Labs acting as an accountability layer. Additionally, a multisig will control the funds. The proposer also designed the grant program to decentralize progressively, so Arbitrum DAO will eventually phase out the program managers altogether in favor of a fully on-chain process for fund distribution. The proposal does state that they will source ideas and areas of focus from the community, but it is light on details on how exactly the program will accomplish this. For the grant program’s initial stage, the proposal asks for 3.971M ARB tokens.

As I said prior, grant programs have a lot of issues, and I have noticed them quietly disappearing. But, when they function well, they can be an essential source of information on upcoming projects and tools built by new teams. As this proposal seems above board and contains ex-Gitcoin people, this is a grants program to watch.

Stakewise Goes DLP

Stakewise, an ETH LSD protocol akin to Rocket Pool or Lido has received a proposal to update SWISE tokenomics for their v3. Due to some perceived limitations with the current xSWISE incentive model, this proposal recommends that Stakewise adopt Radiant Capital’s dynamic liquidity provisioning approach for SWISE tokens.

The DLP approach means that instead of staking single SWISE tokens, users would stake an 80/20 SWISE/osETH LP position. Additionally, if users stake 5% of their osETH capital in the SWISE/osETH pool, they will receive additional SWISE incentives to 20%-30%. This incentive scheme seeks to increase TVL by leveraging the treasury’s 350M SWISE tokens to pay extra yield to their LSD users if they also stake some capital in the SWISE/ETH liquidity pools.

Tokenomic and incentive changes can drastically shake up existing markets – as could this proposal. Creating an additional 20%-30% yield on top of the existing ETH yield could be a powerful draw to Stakewise’s protocol. As more ETH supply falls into prominent LSD protocols like LIDO, competing protocols like Stakewise will have to get creative to attract users.

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