Uniswap funds DAO incentive improvement project

April 11, 2023 Coin Telegraph

The project will provide at least three proposals for Uniswap incentive mechanisms by June.

Financial modeling platform Gauntlet has been awarded a grant from Uniswap Foundation to improve DAO incentive mechanisms, according to an announcement from Gauntlet.

Very excited to announce our engagement with @gauntletnetwork and their new Applied Research Group!

Gauntlet will be focused on designing and specifying incentive programs to benefit the Uniswap Protocol. https://t.co/RjzV02hFhf
— Uniswap Foundation (@UniswapFND) April 11, 2023

Gauntlet describes itself as a “crypto-native financial risk management solutions provider.” It uses economic models to optimize fees and rewards for decentralized finance (DeFi) protocols, according to the announcement. The company is creating a new division, Gauntlet Applied Research, which will specifically focus on problems related to the growing decentralized autonomous organization (DAO) ecosystem.

In its announcement, Gauntlet said that it will provide three pieces of research to UniswapDAO. The first will be a quantitative framework that the DAO can use to evaluate the success or failure of the Uniswap protocol. The second will be an analysis of trader and liquidity provider behavior, and the third will be at least three proposals for incentive mechanisms to allow the DAO to achieve its goals.

Gauntlet said that it expects all three of these deliverables to be completed by June 2023.

Devin Walsh, executive director of Uniswap Foundation, expressed hope that Gauntlet’s research will help to improve not only the Uniswap protocol, but also the crypto ecosystem as a whole, stating:

One of our goals at the Uniswap Foundation is to build long-term relationships with the most talented and values-aligned teams in the space, and work with them on the most complex and interesting questions facing the Uniswap Protocol.

DAOs have become a basic feature of the crypto economy over the past few years, with DAO analytics provider DeepDAO currently listing over 2,300 existing DAOs. Most DAOs are governed by token holders, who are allowed to vote directly on the blockchain to support or reject proposals for changes to a protocol.

However, token-based DAO governance has also been criticized by some industry experts, including Ethereum Founder Vitalik Buterin, who stated that this system could lead to “vote-buying” and “outright attacks.”

Over the past few months, some DAOs have attempted to provide better incentive mechanisms in the hopes of preventing vote-buying attacks. For example, MakerDAO passed a constitution on March 27 to formalize governance processes and provide checks and balances to prevent concentration of power.

Community wants Arbitrum Foundation to return 700M ARB to DAO Treasury

April 9, 2023 Coin Telegraph

Arbitrum

A new proposal asks the Arbitrum Foundation to return 700 million ARB tokens after community backlash. Voting ends on April 14.

As per the proposal, the Foundation should proceed with its budget plan only after returning the tokens. "This is a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation," said a community member.

Voting will end on April 14. At the time of writing, 55% of voters supported the proposal, 42% opposed it, and 2% abstained.

*Screenshot: AIP 1.05: Return 700M ARB to the DAO Treasury. Source: Arbitrum's DAO.*

The dispute between Arbitrum's Foundation and its community started at the end of March, following the Foundation's first governance proposal (AIP-1) which called for funding its operations with 750 million ARB tokens — worth nearly $1 billion.

Following backlash from community members, the Foundation said in a forum post on April 2 that AIP-1 was a ratification, not a proposal. It added that some of the tokens were already sold for stablecoins. At that time, the Foundation noted that its symbolic first governance attempt failed due to communication problems and decisions that were “clearly not articulated correctly.”

A few days later, the Arbitrum Foundation released a set of new improvement proposals aimed at restoring community dialogue. The new proposals include AIP-1.1, which covers a smart contract lockup schedule, spending, budget and transparency. The other, AIP-1.2, tackles amendments to current founding documents and lowers the proposal threshold from 5 million ARB tokens to 1 million ARB “to make governance more accessible.”

The efforts, however, did not resolve the issues with ARB holders. "The Foundation has unilaterally been allocated $750M tokens from the DAO that was not approved by the governance token holders. Any funds must be returned until it has been properly allocated by the DAO and the DAO only," claims the proposal seeking the return of the funds.

The Arbitrum community initiated a new proposal requesting the Arbitrum Foundation to return 700 million ARB tokens to its DAO Treasury. The move comes after the Arbitrum Foundation transferred the funds without receiving the community's approval in March.

Arbitrum’s first governance proposal sparks controversy with $1B at stake

April 2, 2023 Coin Telegraph

Arbitrum

The Arbitrum Foundation announced that it was only ratifying an existing decision when it proposed a 750 million ARB tokens budget.

A proposal to fund the Arbitrum Foundation with 750 million ARB tokens — nearly $1 billion — raised controversy in the ARB community over the weekend, as the Foundation announced that it was only ratifying a decision that had already been made.

The conflict comes after a few days the layer-2 protocol airdropped its governance token.

According to the AIP-1 proposal on Arbitrum's DAO, the 750 million tokens would be used to cover "Special Grants, reimbursing applicable service providers [...] and covering ongoing administrative and operational costs of The Arbitrum Foundation."

Among tokens holders, over 70% are against the move at the time of writing.

*Screenshot: AIP-1: Arbitrum Improvement Proposal Framework. Source: Arbitrum DAO.*

After facing backlash from community members, the Foundation said in a forum post on April 2 that AIP-1 was a ratification, not a proposal. It also noted that part of the tokens were already sold for stablecoins. In other words, its billionaire budget and allocations would not be subject to an on-chain governance process.

The Arbitrum Foundation claims the symbolic first governance attempt failed due to communication problems and decisions that were "clearly not articulated correctly":

"One of the mistakes in the drafting of AIP-1 was a failure to note at the outset that this proposal was intended to act as a ratification of the initial setup of both the Arbitrum DAO and the Foundation that has been created to serve the DAO. [...] the point of AIP-1 was to inform the community of all of the decisions that were made in advance."

Commenting on the governance forum, members of the community pointed out that Arbitrum's team "has been dumping tokens that were initially informed to the community as locked tokens," claiming that "all tokenomics page shows only User airdrop + DAO airdrop tokens as unlocked" with remaining "tokens to unlock in March 2024."

Arbitrum foundation made a proposal (AIP-1) to allocate 750M ARB tokens for admin and op costs, but $ARB holders voted against it

Now they said the vote was just a formality, and they have already spent 50.5M (6.7%) of the proposed 750M $ARB

Your vote is not vote pic.twitter.com/lvhBbBesum
— Eden Au (@0xedenau) April 2, 2023

Others highlighted that under the United States securities laws, the anticipated sale would be considered fraud, and that U.S. citizens who have bought ARB tokens or claimed the airdrop "are eligible for legal remedies."

"I will be pursuing this with my lawyers and expect to file a securities fraud lawsuit in the next few days. [...] Immediately, the Arbitrum Foundation is advised to halt all illegal sales of the token that are being done without any authorization and against the provisions of the law," said a community member.

Arbitrum's blockchain holds 65% of the Ethereum layer 2 market share, shows data from the layer-2 analytics site L2Beat. The highly anticipated launch and airdrop of its native governance token took place on March 23, with hundreds of thousands of eligible users and DAOs claiming ARBs. Overwhelming user demand led the airdrop claim page to crash shortly after its launch, Cointelegraph reported.

Arbitrum’s Governance Token ARB Ranks Within Top 40 Market Capitalizations Following Airdrop

March 25, 2023 Bitcoin.com

ARB Token Airdrop: Anticipation Spurs IOU Markets for Arbitrum’s Native Cryptocurrency Asset

March 23, 2023 Bitcoin.com

Arbitrum Launches Native Governance Token ARB and Self-Executing DAO Governance Model

March 17, 2023 Bitcoin.com

Uniswap’s BNB deployment should use multiple bridges, claims LIFI CEO

February 8, 2023 Coin Telegraph

Coin Governance System

The LIFI executive proposed that a team of four researchers be appointed to study the idea of a multi-bridge approach.

As Uniswap DAO’s vote to deploy to BNB chain continues, LIFI CEO Phillip Zentner argued in a February 6 forum post that the current proposal is flawed. According to him, the plan to use Wormhole as the sole governance bridge for Uniswap should be abandoned. Instead, he claimed that Uniswap researchers should work on a standardized system for using multiple bridges to handle governance decisions.

The ongoing discussion on @Uniswap's forum is critical for the multi-chain ecosystem in 2023.

TL;DR: Uniswap's model for x-chain governance will likely become industry standard.

As an unbiased member of the community, @lifiprotocol is rooting for a multi-bridge implementation
— Philipp Zentner | LI.FI (@PhilippZentner) February 6, 2023

In the post, Zentner stated that LIFI strongly recommends “that Uniswap not select one bridge provider for its BNB Chain Deployment Proposal” because “no single AMB [arbitrary messaging bridge] is tested enough to be considered a robust and secure solution that a project of Uniswap’s size can solely rely on at this point.”

As evidence of this, Zentner reminded readers of the slew of bridge hacks the crypto community has suffered over the past two years, stating:

“Lest it be forgotten, two major AMBs were exploited in the past twelve months (Nomad and Wormhole), while LayerZero has also come under fire recently for its security model (Prestwich 2, L2Beat). We do not say this as condemnation, rather, we point this out to highlight just how difficult it is to build secure AMBs and the subsequent risks a dApp is exposed to by choosing a single bridging solution.”

For this reason, LIFI wants to see “a multi-bridge, agnostic approach” to Uniswap governance. Zentner proposed that this could be accomplished by appointing a team of four engineers to study the subject and submit a proposal.

The LIFI CEO seemed to imply that the current proposal should be voted down and the date of BNB Chain deployment postponed until at least March 27. According to an image posted by Zentner, the Uniswap team had previously set a deadline of March 27 for a “final report published with community recommendations.” Zenter said that he believes this deadline can still be met, even if the current proposal is voted down.

Venture capital firm a16z recently attempted to use its 15 million UNI tokens to vote the BNB proposal down, due to the firm’s concerns about Wormhole bridge security. However, Metamask developer ConsenSys has used its 7 million UNI votes to support the proposal. The vote is scheduled to end on Feb. 10.

Wormhole wins second ‘temp check’ to become bridge for Uniswap governance

January 31, 2023 Coin Telegraph

Coin Governance System

Wormhole got over 60% of the vote in the Uniswap DAO referendum, with LayerZero coming in second.

The Uniswap DAO has approved a second non-binding proposal, called a “temperature check,” to make Wormhole the official bridge for cross-chain governance of the protocol between BNB Chain and Ethereum, according to the official proposal page.

BREAKING: Wormhole has won the vote to be Uniswap's designated bridge to the Binance Chain! This is a major step forward in the development of the DeFi ecosystem. #DeFi #BNBChain #Uniswap #Wormhole
— BitArchive (@ChainArchives) January 31, 2023

The proposal will now become part of a final plan to deploy Uniswap V3 to the BNB Chain, which will go up for a binding governance vote at some point in the future.

Wormhole was up against three rival bridge solutions in the DAO’s referendum: LayerZero, deBridge and Celer. It got a clear majority with 62.31% of the vote. LayerZero was second with 37.58%, and DeBridge and Celer each got less than 0.1%.

This is the second time the Uniswap DAO has attempted to reach consensus on the choice of bridging solutions. On Jan. 21, the DAO voted in a temp check to deploy Uniswap V3 on the BNB Chain and to utilize Celer bridge to handle cross-chain governance votes. However, even before this vote had finished, some community members had started to express security and centralization concerns regarding using Celer bridge.

On Jan. 27, DAO members began voting on this second temperature check to decide specifically on the choice of bridge, with the understanding that the decision to deploy to BNB chain had been settled in the previous vote.

The Solana-Ethereum version of Wormhole was hacked in February 2022, allowing the attacker to gain $321 million worth of crypto in one of the largest decentralized finance exploits ever. However, the Wormhole team replaced the Ether (ETH) in the bridge to reimburse users, and the BNB-Ethereum version of the bridge doesn’t seem to have been affected by the exploit.

LayerZero was recently the subject of controversy, as a rival developer accused the bridging protocol of having security vulnerabilities. The LayerZero team has rejected the accusation, claiming it is misleading.

Lido Protocol Reveals Plans for Withdrawal Feature Ahead of Ethereum’s Shanghai Hard Fork

January 26, 2023 Bitcoin.com

Ethereum’s Shanghai upgrade could supercharge liquid staking derivatives — Here’s how

January 6, 2023 Coin Telegraph

Coin Telegraph

Traders are contemplating what will happen to ETH price and staked Ether derivatives after the next network upgrade opens withdrawals for stakers.

The crypto market witnessed the DeFi summer of 2020, where decentralized finance applications like Compound and Uniswap turned Ether (ETH) and Bitcoin (BTC) into yield-bearing assets via yield farming and liquidity mining rewards. The price of Ether nearly doubled to $490 as the total liquidity across DeFi protocols quickly surged to $10 billion.

Toward the end of 2020 and early 2021, the COVID-19-induced quantitative easing across global markets was in full effect, causing a mega-bull run that lasted almost a year. During this time, Ether’s price increased nearly ten times to a peak above $4,800.

After the euphoric bullish phase ended, a painful cool-down journey was exacerbated by the UST-LUNA crash which began in early 2022. This took Ether’s price down to $800. A ray of hope eventually arrived in the third quarter as the market experienced a positive rally led by the Ethereum Merge narrative.

The shift to an environmentally-friendly proof-of-stake (PoS) consensus mechanism was a big step forward. The event also reduced Ether inflation post-merge. During a lead-up to the Merge on Sept. 15, 2021, ETH peaked at over $2,000. However, the bullish momentum faded quickly, turning the Merge into a buy-the-rumor and sell-the-news event.

A similar bullish opportunity could be brewing in Ether as the upcoming Shanghai upgrade scheduled for March 2023 grabs the market spotlight. The upgrade will finally enable withdrawals from Ethereum staking contracts, which are locked presently. The upgrade will significantly reduce the risk of staking ETH.

It will provide an opportunity for liquidity staking protocols to grow. The governance tokens of some of these protocols have jumped since the start of the new year as hype builds around.

There’s a possibility that the upgrade can push these tokens toward last year’s Merge highs. Moreover, Ethereum’s staking space is still in its early stages, providing a market opportunity for the growth of these protocols.

The percentage of staked Ether is low

Currently, 13.18% of Ether’s total supply is staked on the Beacon Chain, which is low compared to other proof-of-stake (PoS) chains like Cosmos Hub (ATOM) with a staking ratio of 62.5%, Cardano (ADA) with 71.8%, and Solana (SOL) at 71.4%. The reason for Ethereum’s low staking ratio is that the staked Ether is locked in its current state, but this will change in March.

*Ethereum has the lowest staking ratio compared to other L1 blockchains. Source: Staking Rewards*

The upcoming Shanghai upgrade will include a code known as EIP 4895 that will allow Beacon Chain staked Ether withdrawals, enabling a 1:1 exchange of staked Ether for Ether. Ethereum’s staking ratio should reach parity with other leading PoS networks after this update. A significant portion of which will likely move to liquid staking protocols.

De-risking of liquid staking derivatives

Liquid staking protocols like Lido and Rocket Pool let Ether holders stake without running a validator node. Since Ether is pooled, a single user doesn’t have a minimum threshold of 32 ETH (worth around $40,000) for staking. People can stake fractions of Ether, reducing the entry barrier for staking.

The protocols also enable liquidity provision for staked assets, which would otherwise be locked in the staking contracts. The DeFi contracts give a derivative token (for instance, Lido’s stETH) in exchange for staked Ether on the proof-of-stake (PoS) network. A user can trade with stETH while earning yields from the staking contract.

As Ethereum’s staking ratio increases after March’s update, the use of liquidity staking protocols will likely increase with it. Currently, the liquid staking protocols account for 32.65% of the total staked Ether. Due to the benefits mentioned above, their market share should remain near or above current levels after the Shanghai upgrade.

The governance tokens of liquid staking protocols could also benefit from their increased locked value, similar to DeFi tokens, which benefited from a rise in total locked value (TVL) in the latest bull run.

How are LSD governance tokens performing ahead of Shanghai?

Lido DAO (LDO)

Lido DAO is the leader of the liquid staking space with higher annual yield and market share than other protocols. Lido commands 88.55% of the total staked Ether in these protocols.

Let's take the amount of staked Ether as a proxy for evaluating the protocol. We again find that Lido has the most competitive market capitalization to staked Ether ratio.

The weak point of the project’s token economics is that LDO is a governance token. It doesn’t entitle holders to a share of the generated yield or fees. Moreover, the token has additional inflation from investor token unlocking until May this year.

*LDO 4-hour price chart. Source: TradingView*

Technically, the LDO token broke above the short-term resistance of around $1.17 with significant buying volume. Bulls will likely target $1.80, capitalizing on the hype around the Shanghai upgrade.

The token is heavily shorted in the futures market after the recent 26% rise in its price since Jan. 1. The funding rate for LDO perpetual swap turned negative with a large magnitude, providing an opportunity for a further uptrend in a short-squeeze. The current support levels for LDO are $1.17 and $1.

Rocket Pool (RPL)

Rocket Pool is similar to Lido, albeit smaller in size. The market capitalization to the staked Ether ratio of the platform is five times larger than Lido, which likely makes it overpriced.

Nevertheless, the RPL token has additional utility besides governance as an insurance token for users. Node operators stake RPL as insurance, where users receive the staked RPL in case of losses due to the operator's fault.

The Ethereum Merge high of RPL in September 2021 was $34.30. Since the start of 2023, its price has increased by 10%, last trading at $22.40. If buyers are successful in building support above the $20 level, there's a possibility that RPL can reach last year’s high of $30, which was attained around the Ethereum Merge.

Ankr (ANKR)

Ankr is a blockchain infrastructure provider which offers API endpoints and runs RPC nodes besides staking solutions. Similar to LDO, ANKR is only used for governance purposes.

The token’s price has stayed relatively flat over the last few days. The market capitalization to the staked Ether ratio of Ankr is on the higher side at par with Rocket Pool, which is a negative sign.

Still, if the hype around Shanghai upgrade increases, ANKR can reach August 2021 highs of $0.05. The recent breakdown level of $0.03 will act as resistance for buyers. Currently, the token is trading around $0.015.

Stakewise (SWISE)

Stakewise offers the highest staking yield of 4.43%. Its governance token is comparatively less inflated than RPL and ANKR in the market capitalization to staked Ether ratio, making it cheaper than RPL and ANKR.

However, the token distribution is adversely skewed towards private investors and the founding team, which have 46.9% of SWISE’s total supply. According to data from Nansen, wallets identified as “smart money” have been slowly accumulating SWISE since April 2021.

*Smart wallet holdings of SWISE tokens. Source: Nansen*

The Ethereum Merge high for SWISE was $0.23, which will be the likely target for buyers. The support lies near 2022-lows around $0.07.

Shared Stake is flagged red because the protocol was suspected of an insider exploit, which caused a 95% decline in the token’s price in June 2021. The high staking return of the Shared Stake compared to others is also an eyebrow-raising detail to take note of. On the other hand, Cream Finance has discontinued its Ether staking service.

The upcoming Ethereum Shanghai upgrade provides an opportunity for the liquid staking space to grow. Lido DAO is the clear leader in this space with an optimum market price. The de-risking of ETH staking and hype around the event could translate to a series of rallies that could push the price of LDO and other liquid staking protocols back to their Merge highs from last year.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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