Original title: Wintermute DeFi Governance Digest: July 2024 | Week 2

Original author: CALLEN

Original source: Wintermute

Compiled by: Mars Finance, Eason

This week's proposals include:

  • Frax Finance rewards veFXS holders with FXB.

  • EtherFi deploys a staking contract for ETHFI.

  • Aave deploys V3 instances for weETH to meet market demand.

  • Karpatkey called for the establishment of a $250 million ARB fund management program.

  • As well as MakerDAO voting to transition to the new USDC PSM and Arbitrum allocating 35 million ARB for the RWA product.

suggestion

Frax Finance（FXS）

Proposal: Change veFXS reward distribution token

Author: C2tP, Sam Kazemian

Summary: This proposal calls for changing the veFXS reward distribution token to a wrapped version of FXB (Frax’s zero-coupon FRAX bond).

key point:

  • There has been a long discussion on how to distribute veFXS rewards, whether it is to buy back FXS, sFRAX or sfrxETH.

  • The choice of tokens should be useful to the protocol and users. For example, Curve Finance used to distribute 3Crv LP tokens as income to veCRV stakers because 3Crv is the main source of income for the protocol.

Figure 1: Frax Finance: Total Monthly Fees

Image source: DeFiLlama

  • Now Curve has transitioned to crvUSD, because every crvUSD in circulation is equivalent to a crvUSD being borrowed and incurring fees.

  • For Frax, the best asset choice for protocol issuance is FXB - Frax's zero-coupon bond, which can be converted into FRAX at maturity.

  • FXB auctions at below par through FXB AMO (Automated Market Operations), effectively providing a yield to buyers.

  • Use FRAX to buy FXB, then use it to earn yield on US Treasuries and RWAs under the agreement.

  • Given that FXB provides implicit yield to holders while also allowing the protocol to earn revenue, it is the optimal form of protocol asset to use as a veFXS reward distribution token.

  • If approved, FXB will be distributed as a wrapped asset which will automatically use FXB as collateral on FraxLend and, if rates are profitable, borrow FRAX for sFRAX, thereby compounding FXB earnings.

  • Any revenue earned on packaging loan will be subject to a 10% administration fee.

Our take: In the current market environment, FXB certainly makes sense as a reward token for veFXS.

EtherFi (ETHFI)

Proposal: ETHFI DAO Equity Contract Implementation

Author: Etherfi Admin

Summary: This proposal calls for the implementation of a staking contract for the ETHFI token to increase utility, establish governance voting rights, and provide future incentives.

key point:

  • The proposal calls for the creation of an ETHFI staking mechanism that provides real utility to the token by tying rewards to governance participation and effective balance in the ecosystem.

  • The staking contract will be able to capture future incentives, track governance participation, account for balances from DeFi integrations, and provide voting rights to stakers.

Figure 2: Data on ETHFI holders who still received the airdrop in the first quarter

Image credit: Dune (@Ether_fi)

  • The contract will be deployed on the Ethereum mainnet first, with the potential for L2 expansion if demand is sufficient.

Users earn loyalty points by staking ETHFI into a contract that tracks:

–> Amount of ETHFI staked over time.

–> weETH/eETH holdings including DeFi over time.

  • Additionally, when users stake at least 10% of their total effective balance in ETHFI, their loyalty points will receive a 1.1x to 2x boost.

Our take: The proposed staking contract is fairly simple but effective in rewarding active activity and users of the protocol.

Aave (AAVE)

Proposal: [Temporary Check] Deploy Etherfi/Stablecoin Aave v3 instance

By Marc Zeller

Summary: This proposal calls for the deployment of an Aave V3 instance dedicated to providing stablecoin liquidity to weETH holders.

key point:

  • The weETH market size on Aave is approximately $2 billion, generating approximately $12.5 million in revenue for the DAO each year.

  • Currently, demand for wETH lending on Aave using weETH as collateral is extremely high, and the supply cap is filled within minutes every week.

Figure 3: Aave V3: weETH deposits

Image source: DeFiLlama

  • The contract will be deployed on the Ethereum mainnet first, with the potential for L2 expansion if demand is sufficient.

  • Currently, demand for wETH lending on Aave using weETH as collateral is extremely high, and the supply cap is filled within minutes every week.

  • Such events led to frustration among users who wanted to borrow stablecoins with weETH collateral but were unable to react quickly enough to supply cap increases.

  • The proposal therefore calls for the deployment of a weETH/Stablecoin Aave V3 instance with markets including weETH, USDC, and the new GHO facilitator.

  • The new instance will have higher weETH LTV/LT status, lower GHO borrow rates for the first 6 months, and provide a stablecoin deposit incentive program through Merit to bootstrap liquidity.

Our take: This is the second custom instance of Aave V3 for LST/LRT, designed to meet high market demand and segment risk. Overall, we expect this to continue and be of great benefit to Aave and Fusion Protocol.

Arbitrage (ARB)

Proposal: Strategic Treasury Management on Arbitrum

Author: Karpatkey

Summary: This proposal calls for the establishment of a strategic treasury group to manage 250 million ARB to diversify funds, earn yield, and promote on-chain liquidity.

key point:

  • Karpatkey and Aera proposed establishing an Arbitrum Strategic Treasury Group (STMG) that would be responsible for managing a portion of the DAO’s funds to ensure the DAO’s long-term sustainability.

  • The proposal calls for raising 250 million ARB tokens in the first phase, which will be stored in an Aera vault owned by the DAO, meaning the DAO can withdraw funds at any time.

Figure 4: Arbitrum DAO: Treasury Value

Image source: DeFiLlama

  • The STMG will have a 3-member DAO Oversight Committee responsible for fiscal delegation, setting guardrails for the treasury, evaluating performance, and facilitating governance procedures for capital recalls.

  • The program will allocate 80% of funds to yield optimization to help fund DAO operations and initiatives, and 20% to POL initiatives across the Arbitrum ecosystem.

  • Overall, the plan aims to improve Arbitrum’s balance sheet, diversify funding, establish ample runway, and increase on-chain liquidity of ARB.

  • There will be a 1% management fee, no performance fee, and members of the Oversight Committee will receive 5k ARB per month for their duties.

Our take: We agree with the general direction of the proposal. Arbitrum urgently needs to find a more sustainable solution to fund the DAO initiative.

vote

MakerDAO（MKR）

Proposal: Out of Schedule Executive Vote - Approve LitePSM (LITE-PSM-USDC-A) DAO Resolution

Status: Completed.

Creation date: July 4, 2024.

End date: July 6, 2024.

Consensus: Yes – 102k MKR

Summary: This vote approved the DAO resolution to build the Coinbase Prime Web3 Wallet and migrate PSM-USDC-A to a new Lightweight Peg Stable Module (LITE-PSM-USDC-A). LITE-PSM offers the same benefits as the regular PSM design while also receiving Coinbase's USDC marketing rewards, meaning DAI/USDC liquidity remains on-chain without the need for TradFi Bank and RWA trustees. Finally, the new PSM can authorize specific addresses to pay 0 fees for swaps to help keep DAI's peg consistent.

Arbitrage (ARB)

Proposal: Approve STEP Committee Recommendation

Status: Active.

Creation date: 4 July 2023.

End date: July 11, 2024.

Main consensus: Yes - 33 million ARB (98.7% of total votes).

Summary: This vote approved the STEP committee's recommendation to distribute 35 million ARB to stable, liquid, and yielding assets across multiple service providers. The recommendations are as follows: Securitize BUIDL (11 million), Ondo USDY (6 million), Superstate USTB (4 million), Mountain USDM (4 million), OpenEden TBILL (4 million), Backed Finance blB01 (4 million).