Aave Announces Aavenomics Token and Governance Upgrade

https://defirate.com/aavenomics-upgrade/

Aave, the rising money markets protocol, announced its token and governance upgrade Aavenomics: a formalized path to the decentralization and self-sustainability of the network.

For those looking for a quick TLDR, check out the post’s sleek Flashpaper. For those looking to do a deep dive, the full interworking cans be found here.

Token Economics

The upgrade features a handful of key additions and changes to the growing lending protocol. First and foremost, Aave’s native token LEND will migrate to a new token AAVE at a rate of 100: 1 following approval from LEND holders via the Genesis Governance Poll. In turn, the total supply will shift down from 1.3B LEND down to 16M AAVE.

While 13 million AAVE will be claimable by LEND holders at the aforementioned rate, the remaining 3M AAVE will be allocated to the Aave Ecosystem Reserve – a bootstrapping fund for protocol incentives governed by AAVE tokenholders.  The protocol’s ecosystem reserve will be allocated between a handful of different incentives, including both the “Safety” and “Ecosystem” incentives. With that, the reserve’s Safety incentive allocation will be distributed to holders who deposit AAVE into the Safety Module (SM). The Safety Module acts as an insurance reserve for Aave users in the instance of a shortfall event and in return, will receive rewards along with a percentage of the protocol fees. With that, it’s important to note that Aave will be transitioning away from the current burn model in favor of this dividend-like token model.

What’s interesting about the Safety Module is that it not only features vanilla AAVE in the module but it also leverages a Balancer pool to incentivize market liquidity. Naturally, the Balancer pool will also accrue BAL rewards and trading fees for Safety Module Stakers on top of the protocol’s native incentives – showcasing DeFi’s composability at its finest.

The other piece to the incentive puzzle is the introduction of Ecosystem Incentives. In line with the current trends in DeFi, Aave will be implementing a liquidity mining mechanism into the protocol. Therefore, users who supply or borrow assets from Aave will earn rewards.

Lastly, Aave governance may also elect to allocate a portion of the Ecosystem Incentives to fund or bootstrap applications building on the Aave ecosystem.

Governance

With the introduction of the Aave Ecosystem Reserve along with the team’s dedication towards decentralization and self-sustainability, Aave Governance is a critical piece to the Aavenomics upgrade.

The driving force behind Aave Governance is the introduction of Aave Improvement Proposals (AIPs) which represent modifications to the protocol that are ratified on-chain by AAVE tokenholders. An interesting design piece to this is that users who holder AAVE in cold storage or even staked via the Safety Module can use their token weight to vote on AIPs. Passive tokenholders also have the option to delegate their voting power to Aave Protocol Politicians.

Aave tokenholders will also play a role in adjusting Aave Policies, a set of governance defined rules that control the parameters behind the protocol, and individual money markets. As such, there are two main types of policies available for governance changes.

The first is Protocol Policies which dictate the overarching behavior of the Aave Protocol including risks, improvements, and incentives. The second is Market Policies which define the context and parameters behind each market within the protocol, like the Uniswap Money Market or the TokenSet Money Market. Changes to Market Policies may include adding or removing supported assets, adjusting loan-to-value ratios, or modifying interest rate models.

Closing Thoughts

With Aave’s explosion into the DeFi ecosystem this year along with their ability to consistently innovate with new products, like credit delegation, the Aavenomics announcement is right on brand with what the team has built to date.

The protocol is not only introducing emerging trends prevalent in DeFi like yield farming but also leveraging the blooming composability available within Ethereum’s DeFi ecosystem. The introduction of the Aave Safety Module provides AAVE tokens with a claim on the protocol’s cash flows while also featuring a Balancer pool to maximize rewards.

While the exact timeline on the Aavenomics mainnet launch has been kept high-level, we can expect that this upgrade will serve as a driving catalyst for Aave’s next leg in growth similar to Kyber’s recent upgrade in early July or the announcement of Bancor V2.

At the time of the announcement, value locked in the Aave protocol is up 13.2% to $424M in total assets while LEND surges 16% to $0.31 valuing the protocol at $395M.

If you’re interested in staying up to date, make sure to follow Aave on Twitter. For those looking to get involved in the discussions surrounding Aavenomics, make sure to join the official Discord!

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DerivaDEX Raises $2.7M For Decentralized Derivatives Exchange

https://defirate.com/derivadex-exchange-raise/

DerivaDEX – a new DEX for derivatives contracts on Ethereum – is unveiling their new DeFi product along with announcing a $2.7M raise from leading investors.

DerivaDEX is aiming to build a community-owned exchange for traders to speculate on and hedge with a suite of leveraged derivatives products in a non-custodial, transparent nature in line with the ethos of DeFi. On brand with the current trend, the exchange will be underpinned by native governance token (DDX) which will be distributed to users via a liquidity mining model. While details are sparse, DerivaDEX is planning on launching in Q3 2020 while also kicking off a series of incentivized opportunities for early partners and adopters, including testnet competitions, insurance mining, and more.

With today’s announcement, the team also disclosed their $2.7M investment round led by some of the top investors and community members in DeFi. Notable names include Polychain Capital, Dragonfly Capital, Coinbase Ventures, Three Arrows Capital, Calvin Liu, and others.

In the broader lens, DerivaDEX is looking to bridge the gap at the intersection of trading and blockchain engineering to build an intuitive, secure, transparent derivatives exchange that can compete with the liquidity and UXs of centralized exchanges while providing the security and transparency of DEXs.

DerivaDEX is attempting to solve this with three core properties:

  1. DerivaDEX DAO – a decentralized autonomous organization responsible for managing the protocol and minimizing any single point of failure. The DAO will be governed by the protocol’s native token, DDX.
  2. Open Order Books w/ on-chain settlement: DerivaDEX’s system offers capital efficiency by building an order book market style with off-chain price fees, matching engine, and liquidation operators to solve for speed and efficiency. Moreover, this design enables the DEX to represent any asset in existence with minimal slippage.
  3. Liquidity Mining: DerivaDEX is aiming to leverage the emerging trend of liquidity mining to bootstrap and incentivize participation in governance and operations of the DEX.

Closing Thoughts

With current non-custodial derivatives exchanges dominated by dYdX along with the recent entrance of MCDEX, the DeFi derivatives exchange sector is starting to heat up. Given BitMEX’s historical dominance in offering perpetual swaps, there’s no shortage of an addressable market for these protocols either. Billions of dollars in volume are traded on a daily basis with these exchanges, so offering a non-custodial and entirely transparent alternative (with an intuitive UX) should be enticing for the DeFi community.

The cherry-on-top with the recent entrants of MCDEX and now DerivaDEX is the introduction of liquidity mining (or yield farming). Users can now earn some attractive rewards by using the respective exchange products, something that dYdX and CEXs at large currently lack.

As mentioned, the team is planning on launching a suite of incentivized programs for new users to test out the product. If you’re keen on getting involved, you can sign up here to be notified of any of the upcoming programs.

For more details on DerivaDEX, you can read up on their official announcement post here. And if you’re looking to stay up to date on the latest developments with the new exchange, make sure to follow them on Twitter!

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Tornado Cash Launches a DAO to Fund Privacy on Ethereum

https://defirate.com/tornado-cash-dao/

Tornado Cash – the decentralized privacy protocol on Ethereum – announced the launch of Tornado Fund, a fund focused on investing and developing the privacy-preserving technology.

For those unfamiliar, Tornado Cash is a non-custodial privacy technology leveraging zero-knowledge proofs allowing DeFi users to engage in private transactions. Unlike other Ethereum privacy solutions, Tornado Cash deposits user funds into a smart contract in a “black box environment” that’s not visible on-chain.  More importantly, TornadoCash is completely trustless and permissionless. No centralized third party controls take custody or controls the funds at any point.

Now, the introduction of Tornado Fund continues the evolution of the technology to become an unstoppable privacy protocol on Ethereum. Tornado Fund will be responsible for funding the continued development of the privacy technology and ultimately, the release of V3 of the Tornado Cash Protocol. The announcement hints that in V3, there may be a native token for Tornado Cash where the fund will transition to TornadoDAO. The core focus on TornadoDAO will be governance over the future of the privacy protocol.

As stated in the announcement:

Under this scenario, the Tornado Fund (a proto-DAO) will evolve into a fully decentralized DAO that helps ensure that protocol developers and other early supporters of the protocol can continue to fuel network development without centralized control. The entire network and protocol will be decentralized and entirely community-driven. The future of Tornado Cash will be in the Ethereum community’s hands.

With that in mind, The Tornado Fund will be a limited liability entity in Delaware using the Moloch v2 framework. In order to maintain U.S. compliance, any interested members of the Tornado Fund must be an accredited investor. Any prospective members can purchase a 1% interest in the Tornado Fund for 30 ETH in return for a convertible note representing the right to any future tokens reserved by the Tornado Cash team.  In total, the Tornado Fund will comprise of a maximum of 100 members and 3,000 ETH (~$700,000). All of the capital raised by the Tornado Fund will be used to fund the Tornado Cash team (PepperSec, Inc.).

Closing Thoughts

Despite the open and transparent nature of DeFi, privacy should be a right for any Ethereum user. The implementation of Tornado Cash fills this void and provides a non-custodial way for users to preserve their privacy when transacting on the public Ethereum network. Given its popularity in the ecosystem along with the recent investment from The LAO, Tornado Cash is set for another exciting year.

 

At the end of the day, Tornado Cash, along with other privacy-preserving technologies, will serve as a critical piece for Ethereum as a whole. We can expect that with the launch of Tornado Fund, the privacy protocol to continue adding new features, better user experiences, and more.

If you’re interested in becoming a member of the Tornado Fund, you can pre-register here. The fund is expected to launch in the coming weeks.

For those looking to learn more about this Ethereum privacy protocol, check out the “About” page here. For anyone looking to stay up to date on the latest developments, make sure to follow Tornado Cash on Twitter or hop into the Telegram for the latest discussions!

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Synthetix Governance Call Recap: SNX Surges Ahead of Acrux

https://defirate.com/synthetix-governance-call/

Synthetix‘s recent governance call sparked a wave of new interest in the leading derivatives protocol. Coming out of the call, many prominent DeFi Twitter personalities highlighted their bullish outlook on the future of Synthetix given the numerous upcoming launches that will drastically expand the protocol’s product offerings.

 

As such, we’ve decided to compile a brief summary of the recent community governance call to give our readers an idea of what’s coming next for Synthetix

Acrux Release (in 1 week) 

In about a week, Synthetix is launching the Acrux upgrade which will feature a notable new product to the protocol – Binary Options. While Acrux will feature more than just Binary options, like SIP 48 and the stale rates update, the introduction of this new options contract is one of the more notable launches in the product roadmap. Binary options will allow users to take a position on a future event that provides a fixed payout based on the binary outcome in the future (hence the name). Like normal options contract, binary options have a maturity date where the contract will payout on maturity if the price of the chosen asset is above (or below) the specified level. Ultimately, the introduction of binary options allows users to take a position on the future price of any asset supported in the Synthetix system.

With that, we can imagine popular binary contracts where users can bet on whether or not the price of their favorite assets with BTC being the prime example. Users could bet on whether or not the price of BTC will be above or below $10,000 by next week. Users can gain exposure to either side of the trade and earn a fixed payout if they’re right. What’s great about Synthetix’s implementation is that the protocol will allow anyone to come in and mint an options contract with any maturity date of their liking. The only requirements are $1,000 sUSD to seed the contract with a max maturity date of two years. That said, we can imagine that a lot of token communities – LINK being another example mentioned on the call – launching binary contracts with long-term maturity dates betting on the price of LINK reaching astronomical levels. While obviously there’s some joking going on here, it is interesting to highlight that the binary options on Synthetix effectively acts as a prediction market for future asset prices, including SNX.

ETH Collateral

The Acrux upgrade will also feature the launch of a new ETH collateral trial. This would be the second trial for Synthetix to test out ETH-based collateral for the protocol’s Synths. The interest rate on ETH collateralized loans is 10% right now (from the first trial) and will increase to 50% on June 26th in order to force participants to close their loans and prepare for Trial #2.

UI teaser for Synthetix Options – Screenshot from June 23rd Governance call 

Synthetix Futures & Margin Trading

While the highly anticipated Synthetix Futures were originally slated for the Acrux upgrade, the introduction of futures will be rolled out in the Albedaran upgrade at a later date. The team is primarily focusing on R&D right now with the preliminary specification expected to be published in the coming weeks. More details to come on that end! The second upcoming product launch is margin trading on the platform. While this implementation is still in the early stages, the launch of margin trading will allow Synthetix users to capitalize on the volatility and access leverage through Synthetix while minimizing liquidity issues that are present across other similar margin trading exchanges.

In the call, contributors brought up the concerns surrounding too large of product scope for front-end development with futures, margin trading, and options all expected to launch this year. Synthetix CEO – Kain Warwick – refuted this concern as ideally, there’s plenty of room for contributors to build individualized, customized UIs for specific products on top of the protocol. The team is currently exploring ways to incentivize these types of contributions. As such, we can imagine that GrantsDAO may play a significant role in funding the build-out of these interfaces in the coming future.

Launching V2 of sDeFi and sCEX

Daryl Lau, a Research Analyst from CoinGecko, also joined the governance call to propose some new updates surrounding the relaunch of sDeFi and sCEX Synths. The goal was to include some DeFi tokens that have risen to prominence since the original launch of the DeFi index back in November 2019.

As it stands today, the current sDeFi token is missing LEND, UMA, COMP, and BAL to name a few. The goal would be to include these assets and likely re-weight the index’s allocation. While it’s widely accepted that these tokens should be included in the basket eventually, there are some concerns surrounding the liquidity of the tokens along with lacking a diverse range of secure price oracles for the above assets.

Kain suggested that in order to include the asset into the basket, there needs to be sufficient redundancy in the price feeds to ensure the security of the Synth. As a result, the team will likely hold off on updating the sDeFi index until there are deeper liquidity and further price discovery for the newer assets like COMP, UMA, and BAL.

Daryl’s brief also included updating the sCEX Index to include Crypto.com and FTX Exchange into the index – two liquid Centralized Exchange tokens boasting significant market caps of $2B and $976M, respectively.

Chicago DeFi Alliance

While not a major product upgrade, we thought it was important to highlight that Synthetix joined the Chicago DeFi Alliance featuring other DeFi protocols like 0x, Compound, and others as well as many large High-Frequency Trading (HFTs) Firms including TD Ameritrade, Cumberland, CMT Digital, Jump Capital, and VC firms like Volt Capital.

The alliance does a weekly seminar to discuss issues surrounding liquidity provisions and market-making as well as coordinating MM services for prominent DeFi protocols. While Kain highlighted that he was talking 1-on-1 with multiple large players to help with market-making, he did note that Synthetix is still far away from anything of substance and there’s tons of work to do, but the bridge is being built. It’s a positive sign nonetheless.

Growth Strategy 

The governance call also took some time to dive into updates on the protocol’s growth strategy and expanding the Synthetix Community. With that, Synthetix is onboarding Synth Ambassadors, an invite-only group of dedicated contributors to promote usage of Synths across other DeFi protocols, projects and more.

The Synthetix Foundation is also expanding its team into Asia as the foundation recently hired a full-time Korean lead to drive the growth strategy in Korea as well as coordinating and producing localized content for that community. In addition, the Foundation is also exploring its growth strategy in China as they’ve engaged with Chinese markets to replicate the push into Korea. With that in mind, they’re still in the early stages of their China growth strategy, but more to come on that in the coming future.

Lastly, the Synthetix team is working on a handful of branding initiatives including the distinguishment between Synthetix applications like Mintr and the Exchange as well as expanding the income-generating opportunities for SNX holders beyond staking on Synthetix.Exchange.

With all of that in mind, there are tons of opportunities in the pipeline for active contributors as well as SNX holders so be on the lookout!

Closing Thoughts

While this may seem like a lot of new updates, this is just the tip of the iceberg of what was detailed on the governance call. The team and the encompassing community are working on dozens of initiatives to grow and expand the protocol including decentralized circuit breakers, integrating limit order features, working on generalized approaches for converting price data from futures markets into a single reference price, launching S&P 500 indexes with ChainLink V2, introducing Keeper Synths, and more.

The pace of innovation in the Synthetix ecosystem is mindblowing. And it’s being recognized by the broader community too. Since the governance call, SNX has soared to new all-time-highs as the price reaches nearly $2 and a $360M liquid market cap, according to Messari.

If you’re looking to listen to the full governance call, it’s live on Youtube here!

For those looking for a concise bullet-point summary on everything that was highlighted throughout the discussion, this Twitter thread does an amazing job.

Anyone interested in hopping in on Synthetix discussions should join the official Discord which features the most in-depth discussions on the Synthetix ecosystem!

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Balancer Kicks-off BAL Liquidity Mining – SAFG DeFi Governance

https://defirate.com/bal-liquidity-mining/

Balancer – the non-custodial liquidity and asset management protocollaunched liquidity mining earlier this week for its native governance token, BAL.

What is Balancer? 

Balancer is a new DeFi protocol allowing users to contribute liquidity and earn trading fees on their holdings. However, unlike Uniswap which requires users to deposit equal value of two tokens, Balancer pools aren’t restricted by a single token pair. Instead, the protocol supports pools of up to 8 tokens with customizable allocations. As a brief example, the second most valuable Balancer pool today is a 40% ETH, 25% USDC, and 35% DAI liquidity pool.

As a result, Balancer effectively acts as a self-balancing index fund where users are earning trading fees on their assets. This is a stark difference than with legacy financial assets as shareholders typically pay fees when they purchase ETFs and other index funds.

Introducing the BAL – Balancer’s Native Governance Token

While the protocol initially launched without a native token, Balancer Labs is introducing the Balancer governance token (BAL) via the Simple Agreement for Future Governance (SAFG) model. In short, the SAFG is centered around participation and governance. Users who participate in the protocol earn governance tokens that represent the right to vote on future changes.

The key piece to the SAFG is that the underlying tokens are non-transferable and have no economic rights. In turn, the SAFG allows developer teams to quickly and easily launch native protocol tokens as the framework is complicit with regulations in most jurisdictions. The kicker with the SAFG is, that in the future, there’s actually nothing stopping a sufficiently decentralized governance system from lifting the transfer restrictions or implementing economic rights/value accrual mechanisms into the token. Therefore, in the long-run, we may expect to see many of these SAFG tokens evolve into cash flow-generating assets like MKR or KNC.

In order to properly decentralize control over the protocol, Balancer is implementing liquidity mining. Every week, 145,000 BAL will be distributed to users who are providing liquidity to any of the Balancer pools, resulting in 7.5M BAL distributed to LPs every year. With the total supply fixed at 100M BAL, 25M BAL was allocated to founders, advisors, investors, and developers. Assuming decentralized governance doesn’t elect to reduce issuance in the future, the current liquidity mining allocation is set to last the next decade (75M BAL allocation). In order to make the distribution as equitable as possible, Balancer will allocate tokens proportionally to the amount of liquidity each user contributed relative to the total liquidity on Balancer – currently ~$6.4M in total at the time of writing.

Probably the most interesting piece to BAL’s token model and incentive schema is a feeFactor design which encourages liquidity pools to charge the lowest fees possible. The lower the fees, the more BAL the pool receives. The higher the trading fees, the less BAL the pool receives. Ultimately, this creates a rather elegant design as pool creators (as well as liquidity providers) will have to factor in whether they’d prefer to play the short-game and potentially earn higher trading fees or play the long-game by minimizing trading fees to maximize their BAL earnings.

(Above) Rewards model for Balancer trading fees. The higher the feeFactor, the higher the BAL disribution.

Closing Thoughts

With Compound releasing details for a similar token distribution model last week – where depositors and borrowers will earn COMP for using the protocol – it seems that the SAFG model continues to play a bigger and bigger role in DeFi and the proliferation of self-sustaining, open protocols. The coming months for Balancer will act as a pivotal bootstrapping phase with the token distribution taking into effect. With that, it’ll be interesting to see how BAL drives an incentive for DeFi users to contribute liquidity to the protocol and how the fee dynamics will play out in light of the above schema. As it stands today, the most liquid token pool on Balancer is the 75% MKR + 25% ETH pool with $4.2M in total capital followed by the 40% WETH + 35% DAI + 25% USDC pool, aggregating $770K in liquidity.

Now with Balancer effectively in full gear, we may expect to see some increase in overall liquidity as well as trading activity. We’ll keep an eye out on how that progresses in the future.

If you’re interested in learning more about Balancer or want to stay up to date with the latest developments, feel free to join the Discord or follow them on Twitter!

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Compound Shares COMP Governance Token Details & Distribution Model

https://defirate.com/comp-distribution-model/

Compound – a sector-leading lending protocol – released details earlier surrounding the distribution of COMP, the protocol’s native governance token.

With Compound infrastructure holding over $100M in total value across dozens of applications (like Dharma and PoolTogether), the release of COMP governance tokens has been highly anticipated within the DeFi community. For the past two months, COMP tokens have been behind closed doors for a limited group of stakeholders in order to test and improve the protocol’s governance system. Since then, community members have successfully implemented multiple upgrades and additions to the protocol. This includes adding Tether (USDT) led by Compound Labs, updating a new interest model led by Dharma, and the process for phasing out for Maker’s SAI led by community member, Blck.

Now that there’s been sufficient testing on governance, Compound is preparing to publicly launch COMP tokens to the most important group – the users.

Robert Leshner, CEO of Compound echoed this sentiment telling DeFi Rate “When every user is able to participate in governance, there will be an entire ecosystem (of individual voters, and representative governance e.g. DeFi Rate) that can guide the protocol forward, with skin in the game. Decentralization of applications is still early & experimental, but we hope that Compound’s approach can inspire other DeFi projects.”

Here’s what you should know about COMP’s public distribution model.

COMP Distribution

The public distribution will feature 4.2M COMP (out of 10M) in total, distributing 0.5 COMP every block. Tokens will be allocated proportionally to the interest accrued in each market, with an average of 5,760 blocks produced per day. This means we can expect to see ~2,880 COMP entering circulation every day with the public distribution expected to last around ~4 years based on normal block times.

That said, it’s important to recognize that Ethereum has been producing more blocks than normal in recent months, ~6,400 blocks per day as of writing. As such, this may have an effect on the amount of COMP distributed per day and the expected runway with the allocation.

COMP tokens will be distributed evenly between the borrowers and suppliers in each respective market, with users earning COMP proportional to their balance held. With COMP tokens being distributed based on the interest accrued in each market, DAI and USDC markets will dominate the distribution. As of early May, 95% of all interest accrued on Compound comes from DAI and USDC money markets.

Chart via Our Network: Issue #20

 

Closing Thoughts

To start the transition, Compound Labs will retire the Guardian functionality which allows the team to disable Governance in the case of an emergency. Once disabled, Compound will effectively become an unstoppable, censorship-resistant protocol controlled entirely by COMP token holders.

For DeFi and the ethos of trust-minimization, this is a crucial step to the long-term success of the lending protocol. Once the Guardian function is disabled, a team member from Compound Labs will propose a protocol upgrade to support COMP distribution – expected to launch next month.

With this upgrade, we’re beginning to watch the SAFG model play out first hand. To summarize, early adopters of DeFi protocols are the first to earn governance tokens through usage, and Compound is the perfect protocol to lead this charge.

In case you missed, DeFi Rate was fortunate to have an opportunity to participate in Compound’s governance testing. Our team voted on both sides of the aisle across a handful of proposals including voting “against” USDT support, voting “for” on the DAI interest rate model, as well as supporting the deprecation of Maker’s legacy stablecoin, SAI. To us, this has been an awesome testing ground for our governance initiative and we’re extremely excited to kick things into full-gear in the coming months. If you’re looking for someone to delegate COMP to in the coming months, we’d be happy to vote on your behalf using the address defirate.eth

To stay up with Compound, follow them on Twitter, or join the conversation on Discord.

The post Compound Shares COMP Governance Token Details & Distribution Model appeared first on DeFi Rate.

Introducing the SAFG – An Emerging Governance Framework in DeFi

https://defirate.com/safg/

First came the SAFE. Then came the SAFTE. Now comes the SAFG.

It should go without saying that there’s been a constant evolution in token distribution frameworks. Last week, IDEO CoLab Ventures took the next step in the evolution by introducing the Simple Agreement for Future Governance (SAFG) – a framework that distributes tokens granting future governance rights based on participation in a network or protocol.

Unlike traditional token frameworks where investors and issuers sign off on an agreement, the SAFG contract is embedded directly into the protocol and requires no lawyers. It’s a simple, permissionless token distribution mechanism where participation in X and earns Y tokens that grant the ability to vote on future changes.

This rather simple yet elegant design enables decentralized protocols to more effectively launch, grow, and govern their communities in a legally compliant manner.  With a SAFG framework, anyone can participate in a series of value-added ways to earn future voting rights on important protocol decisions. The structure for this distribution framework:

  • Can only be earned through the participation of the protocol
  • Is likely non-transferable and cannot be acquired on the open market at launch
  • Guarantees no additional benefits (i.e. economic rights)
  • Is used as the primary mechanism for voting on protocol changes

While on the surface these tokens seem marginal given their non-transferrable and non-economic attributes, the design provides a simple mechanism for getting the tokens into the hands of the people that matter – the community.

SAFG In the Wild

In the past month, we’ve seen the launch of Futureswap’s FST token. The native token behind the decentralized futures exchange is distributed to the users of the protocol and will primarily be used for governance. As it stands today, FST tokens are non-transferable and cannot be acquired on the open market. That said, the only way to acquire FST is by active participation in the exchange as a trader, referrer, or liquidity provider. Moreover, while the tokens don’t represent direct economic rights, users are given the option to hold the token for discounted trading fees.

We’ve also seen a similar framework with the leading money markets protocol, Compound. The protocol’s governance token, COMP, allows the holders and its delegates to vote on protocol changes. Like FST, COMP tokens are currently non-transferable and only guarantee the holder the right to participate in the governance process (i.e. no economic rights).

The Big Picture

While on the surface the SAFG seems like a rather meaningless way to distribute tokens until focusing on one key factor. All of the limitations surrounding the token (i.e. non-transferable, non-economic) are all malleable.

The important part is that this framework allows project teams to quickly launch their project in almost any regulatory environment.

Upon a successful distribution and active governance, there’s nothing stopping stakeholders from voting away these limitations. Once the community is meaningfully decentralized, token holders could simply vote to make the tokens transferable or have economic rights.

With the SAFG, there’s no reason to force economic models into the protocol off the bat that may siphon away from the growth. Instead, the protocol can focus on incentivizing usage by distributing tokens to active community members and then fine-tune the long term incentives from there.

With Compound and Futureswap seemingly adopting this framework, we can expect more to come in the future. At the same time, we’ve also seen UMA take on this model to some capacity. While there were a group of investors and the Foundation launched a sale in the form of an Initial Uniswap Offering, roughly 35% of the token supply will be distributed to the community under a similar framework as the SAFG.

In the coming year, we can expect more and more DeFi projects adopt the SAFG model, especially seeing as it provides a legally compliant and fair distribution where active community members earn the right to govern the protocol in the future.

If that’s true, we’ll be here to report it.

For all things DeFi, make sure to sign up for our newsletter!

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The post Introducing the SAFG – An Emerging Governance Framework in DeFi appeared first on DeFi Rate.

Compound Governance Bid

https://defirate.com/compound-governance-bid/

With last week’s launch of Compound’s governance token along with our recent announcement surrounding DeFi Rate’s Governance initiative, it should come as little surprise that we’re pursuing Compound as our first DeFi political campaign.

 

This article will go into why we believe DeFi Rate would make a strong Compound delegate.

For those interested, you can delegate COMP tokens to our official governance wallet: defirate.eth.

Our post earlier this week outlined a few topics to keep in mind when considering governance delegation. With that, we’ve decided it would only be fair to go through it step by step and detail why we believe we’re a great fit for the job.

Towards the end, we also detail some initiatives we’d like to help lead and how we intend to grow the Compound protocol in the coming future.

Let’s get into it!

Specialized Knowledge – Is this party well versed on the subject?

Since starting DeFi Rate in July, the lending sector has undoubtedly been our primary area of coverage and is the driving reason behind our bid as a Compound delegate. Our lending dashboard has grown to become one of the go-to resources for the DeFi community when comparing lending rates across different projects – Compound included.

Compound was one of the first projects we covered and we continue to cover it extensively. We’ve seen first hand how the lending protocol has grown in the past year along with how it faired relative to the rest of the market.

In summary, here’s some of the content our team has produced around Compound in the past few months, hopefully giving you plenty of assurance that we’re well-versed in the DeFi’s biggest lending protocol.

Is there an area of Compound you believe we should be more well-versed on? We’re open to hearing any and all feedback!

Experience – Does this party have a background that makes them well suited to make the right choices?

As we outlined above, the lending sector is our biggest focus here at DeFi Rate.  With that, we’ve been fortunate enough to have a front-row seat to the growth of permissionless lending in the past year. We’ve watched Compound evolve from a lending protocol with only $20M in value locked heading into the Summer of 2019 to watching it cumulate over $1.5B in total deposits last month.

Our extensive coverage on Compound has given us our fair share of experience and opportunity in understanding the leading lending protocol.

Intent – How does this party stand to benefit from being a delegate?

By becoming a Compound Delegate, our hope is to grow Compound, the lending sector, and DeFi at large to reach a mainstream audience. We want the world to experience the benefits of open finance and the potential it holds for shaping our financial future.

Seeing as lending is one of our specialties at DeFi Rate, we obviously stand to benefit from growth in the lending protocol as more users explore the range of lending rates available on the market. Our ability to hone in on lending makes us a great candidate for the future of Compound.

Direction – Where would this party like to see the project go? How will this influence their decisions?

We want Compound to succeed. As it stands today, it’s clear that Compound is the sector leader when it comes to lending – and rightfully so! We want to see Compound proliferate as an open money market protocol for global finance. We believe that all assets, both crypto and traditional, could benefit from the underlying money markets that Compound can provide.

We want to aide in Compound being able to offer a wider range of assets, other loan types like stable rates and flash loans, and the integration of insurance in the form of intuitive covers into the protocol to better protect the less experienced userbase.

All in all, we want to create a seamless lending and borrowing experience that’s competitive with the wider market. We want to see the protocol be adopted by the global population, and in turn, have the protocol recognized as a valuable piece of software within traditional financial markets.

Lastly, we want to continually explore the composable nature of cTokens and Compound smart contracts. Using projects like Dharma, Set Protocol PoolTogether, Opyn and SwapRate as examples, (all of which use Compound in some shape or form) it’s quite clear that a strong foundation has been laid for lending products to emerge higher up the stack. We aim to bring those opportunities to the table for consideration and support.

Commitment – Will this party be active in its governance participation and due diligence?

We’re dedicated to leading Compound to the best of our ability. We aim to run a transparent governance process via Discord (as it’s likely the only way to succeed) so all delegators have an opportunity to weigh in their thoughts on any governance decisions.

In addition, we’ll publish governance reports outlining any and all pertinent information surrounding Compound Governance decisions and our rationale behind those decisions.

Governance Initiatives

Now that we have that stuff out of the way, let’s propose what we’d like to work on as a part of the governance committee.

Expanded Asset Listing Framework

An expanded asset listing framework is a critical piece for the long-term success of Compound. By easily being able to qualify assets for listing on the money markets protocol, we can strategically expand offered assets to expand the protocol’s user base into other token communities.

Initially, we’d draw on Synthetix’s Asset Listing Framework for a basic reference on how to approach this. In short, it should come down to two core characteristics: (1) liquidity and (2) secure price oracles. There must be a significant amount of liquidity to minimize slippage and price manipulation. In turn, this is only possible with a secure price oracle backing asset.

We’d like to recognize that this initiative may take time to properly dial-in and would love to welcome all participation in this endeavor.

New Assets Proposals

Upon establishing an Asset Listing Framework, we aim to propose new assets to be listed on Compound as the governance committee sees fit. Currently, supported assets on Compound are rather limited compared to competing lending protocols like Aave. Importantly, outside of stablecoins, most lending pools are offering negligible returns to depositors.

In order to change this, we’d like to explore assets that have seen success on other lending protocols when used as collateral as well as assets that offer relatively attractive rates due to the nature of their economics.

This could include:

  • LINK
  • SNX
  • Other stablecoins (BUSD, USDT, PAX, TUSD, sUSD, etc.)

We recognize that a US-based entity, Compound has a fine line to walk in terms of compliance and signal. We do not intend to rush any listings, rather to curate discussions surrounding the introduction of new assets so that they may be implemented in a timely fashion.

Generally speaking, Compound’s ability to support in-demand assets in a secure, permissionless fashion is what we believe will drive future growth. By opening up the number of supported assets, more users may be attracted to the protocol either seeking leverage using their favorite ERC20 token as collateral or by capitalizing on the attractive yields they may offer relative to returns on the assets currently being supported.

Driving this point home, the diverse nature of DeFi lending protocols is one of the core differentiators between centralized providers like BlockFi. Instead of trying to stimulate demand by inflating interest rates through other mechanisms, we view the introduction of highly tested and clearly demanded Ethereum-based tokens to be a great middle-ground.

Coordinating Governance & Risk Meetings

Communication is key. We’ve seen multiple other DeFi protocols, namely MakerDAO, successfully orchestrate governance and risk meetings which have been critical for distributing key information and gathering signals on different topics.

As such, DeFi Rate can organize routine governance meetings. The frequency of these meetings will likely change over time as governance plays an increasingly important role in the success of Compound.

The important note here is that we are willing to commit to the organization, maintenance, and note-taking during these meetings – ultimately aiming to become a trusted resource for other delegates who may be unavailable due to prior commitments.

Intuitive Insurance

Insurance is quickly becoming a vital piece for investor protection. As a Compound Delegate, we will push for the native integration of an insurance provider into the protocol. With this feature, users will be able to make a deposit or borrow from the protocol and protect that capital directly from Compound’s front-end – rather than having to navigate to another platform as we see today.

As of now, there are two potential fits for an insurance provider: Opyn and Nexus Mutual.

Both have their benefits and drawbacks and we’d love to explore a potential integration with Compound’s key players on which platform would be best suited for end-users.

DeFi Rate has established relationships with both of these teams, most notably through exclusive interviews with the project’s founders which can be found here (Hugh from Nexus) and here (Aparna from Opyn). We believe this makes us well equipped to further these conversations in the event that there is a clear demand for these integrations.

Additional Loan Types

While variable loans are great, it’s important that Compound expands its product offering for a growing user base. Notably, we’ve seen two core innovations within DeFi lending in recent months.

The first is fixed-rate loans. Fixed-rate loans act as one of the biggest debt markets in traditional finance and should undoubtedly be considered as a product for Compound. While the exact implementation needs to be explored deeply, this is a product we’d love to offer Compound users in the future.

The second is a crypto-native loan type – flash loans.  Despite the fact that flash loans have received a bad rep by the DeFi community, they’re ultimately one of the most innovative creations we’ve seen to date in DeFi. As such, it’s important for Compound to offer innovative solutions that can’t be found anywhere in traditional finance.

Aave’s flash loans have seen massive success in recent months as DeFi users capitalize on the potential arbitrage opportunities while DeFi aggregators like DeFi Saver are leveraging the financial primitive for novel use cases like advanced management strategies for Maker Vaults.

We believe flash loans could act as one of the next catalysts to propel the lending protocol further. That said, we’d love to explore the possibility of integrating flash loans into Compound.

Protocol & Token Economics

The Compound Protocol and COMP token economics are still in its early stages. Fortunately, our Governance team is equipped with individuals who’ve spent years working on token economics, DAOs, and DeFi.

We want to ensure the protocol is properly incentivized and funded for its long-term success. We’d like to explore the potential for protocol fees directed towards a DAO. By implementing these economics, we can ensure that Compound is self-sustainable well beyond Compound Lab’s runway.

The DAO’s treasury fund could be managed by COMP holders at large (not just delegates) who direct the protocol’s capital how they see fit. This could include hiring Elected Paid Contributors (EPCs) like MakerDAO, Marketing initiatives, along with funding protocol integrations and other tools for developers.

The most crucial aspect of DAOs is that of community and coordination. Building off our team’s experience with DAOs like MetaCartel and Raid Guild, we believe we would be well suited to spin up a suite of experiments to better align incentives regarding any new protocol & token economic designs.

Conclusion

We’re extremely excited to be kicking off our governance initiative with a protocol that’s so closely aligned with our work at DeFi Rate. Compound’s potential to act as the backbone for global money markets is extremely profound. The fact that this opportunity is even a reality is a strong testament to the exciting future DeFi is building each and every day.

Beyond Compound itself, this thought-process has generated a lot of exciting discussions for the future of DeFi Rate and the emerging role of specialized knowledge providers in the web3 ecosystem. What’s perhaps most interesting about Compound is there is no inherent speculation with COMP tokens – making it drastically different from virtually every other ERC20 governance token on the market.

It’s this core component that makes us that much more motivated to solidify our reputation as a trusted resource for the DeFi community at large. All in all, everything outlined in this proposal is exactly that – a proposal. We’re hoping to garner some feedback from the community on what they’d like to see with the future of Compound.

While there will likely be minimal delegation in the next few weeks given COMP tokens are still being slowly rolled out, we wanted to take the leap and highlight our plans and thoughts on how we’d grow the protocol in the future given the opportunity to do so.

Please feel free to reach out to us with your feedback or any questions. In the coming week, we’ll be opening the official DeFi Rate Discord for discussions on our governance plans.

If you’re a COMP holder and you believe in our vision and passion for DeFi, you can delegate your tokens to our official governance wallet – defirate.eth

This is just the beginning of a long road for our governance initiative. More details surrounding other protocol governance initiatives will be released in the near future.

Get fired up! We surely are.

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The post Compound Governance Bid appeared first on DeFi Rate.

Compound COMP Governance Goes Live

https://defirate.com/comp-launch/

Compound – the permissionless cryptocurrency lending platform – has replaced the administrative controls of the Compound protocol with community governance.

With community governance going live, all changes to the lending protocol including supported assets and system parameters will be governed by COMP token holders.

For those unfamiliar, the Compound governance token, COMP, is an ERC20 token on Ethereum allowing owners of the token to delegate voting rights to the address of their choice; the owner’s wallet, another user, an application or a DeFi expert. Anybody with 1% of COMP delegated to their address can propose a governance action.

Compound’s governance token is not a fundraising device or an investment opportunity, it specifically empowers community governance. At the start, Compound’s stakeholders will share the ability to upgrade the protocol with the goal to continuously decentralize over time.

The initial distribution for COMP tokens are as follows:

  • 2,368,307 COMP allocated to shareholders of Compound Labs, the core team behind the protocol
  • 2,226,037 COMP allocated to Compound Labs Founders and team, subject to a 4-year vesting period
  • 373,707 COMP distributed to future team members
  • 5,004,949 COMP will be distributed to users of the protocol (more details on this will be released in the coming weeks)
  • 0 COMP will be sold or retained by Compound Labs

We can imagine that the COMP tokens allocated to the users of the protocol will be distributed over time to users who have deposits or loans on the platform, however, exact details are waiting to be released.

According to the Compound Governance dashboard, there are currently 45 COMP token holders with 586K votes delegated across 20 voting addresses. With that, we’ve yet to see a proposal created.

Looking at voting power, it’s interesting to see Dharma – the DeFi savings app – at the top of the leaderboard, holding over 100k COMP. Other notable voters on the leaderboard include ParaFi Capital, Compound Founder Robert Leshner,  Zerion, Kyber Network, and Compound’s Strategy Lead – Calvin Liu.

Key Takeaways

With Compound making the move to transition the protocol’s control to a decentralized community, we’re beginning to see a broader trend emerge within DeFi.

Prominent DeFi protocols like Maker, Kyber, and Synthetix (among others) are all looking to make the leap towards decentralized governance and control over each respective protocol. With Compound being one of the first to initiate this transition on mainnet, it’s great to see DeFi protocols putting a focus on decentralizing the protocol and fulfilling the core envisionment of decentralized, open finance.

If you’re interested in learning more about Compound’s governance process, feel free to visit the official Medium post here. For those looking to see Compound’s governance activity and tokenholdings, you can visit the governance dashboard here.

Lastly, if you’re looking for day-to-day updates on Compound and its lending platform, feel free to follow the official Twitter account here!

The post Compound COMP Governance Goes Live appeared first on DeFi Rate.