Ouroboros Governance Review #1: Blur fee switch, ApeCoin ZK L2 powered by Polygon CDK, Sunsetting Lido on Polygon
Welcome to Ouroboros Governance Review where we share interesting governance actions and their respective implications. None of the following is financial advice.
In our first edition, we cover some low probability but potentially high price impact governance actions:
Arca's Blur fee switch proposal
ApeCoin reallocation of ecosystem fund into Ethereum and USDC
ApeCoin to develop and maintain its own Zero-Knowledge Powered L2 using the Polygon CDK
The sunsetting of Lido on Polygon
Governance Action #1: Blur fee switch
Governance proposal: Arca has provided a proposal to 1) turn on 1% platform fees, which will be used to buyback and burn BLUR, 2) Tiered fee discounts depending on amount of BLUR held in users’ wallets to implement a 1% base trading fee for the Blur Marketplace.
Implications: Blur currently does ~$7m daily volume (trough volumes), which is ~$2.6b annualized, assuming fees average 0.8% (with some users enjoying discount fees), this amounts to roughly $20m worth of buybacks yearly, implying a roughly 8% APY on the token or 13x P/E ratio (this is calculated on supply after the 300m BLUR unlock). If volumes recover to Aug’23 peaks, implied APY would be 11% and 9x P/E. We think this is cheap, given the analysis ignores Blend’s (the lending business) value. Blend’s fee switch can also be switched on on 28 Oct’23 (180 days from its launch). If this were to be proposed, we should see the token rerate significantly.
Likelihood of passing: Medium to High. Debate is currently split between 1) in favor of turning on the switch and citing value accrual as a plus and 2) fees will crimp volume, hurting the platform.
Watch out for: Blur Season 2 ends on 20 Nov’23 where a substantial 300m BLUR ($73m) will be distributed to farmers who have largely taken losses while farming. We expect there to be selling pressure and see this as a potential opportunity to pick up what we consider to be a cheap token with good value accrual
Governance Action #2: ApeCoin reallocation of ecosystem fund into Ethereum and USDC
Governance proposal: Proposal to reallocate 10% of the DAO ecosystem fund into USDC and ETH, 5% in each respectively. The primary rationale of the proposal is to ensure the long-term financial health of the ApeCoin DAO.
Implications: As of Q2'23, the DAO has ~150m APE unlocked, this amounts to roughly 15m APE ($20m) of sell pressure if the proposal is to be passed.
Likelihood of passing: Medium. The forum debate has largely been against the proposal given that the fund is aimed to support worthy projects. Selling APE would also cause the treasury book value to drop.
Governance Action #3: ApeCoin to develop and maintain its own Zero-Knowledge Powered L2 using the Polygon CDK
Governance proposal: Polygon founder proposal for ApeCoin DAO to develop and maintain its own zero-knowledge powered Layer-2 with the Polygon Chain Development Kit (CDK). A dedicated ApeChain using Polygon CDK will allow for lower gas fees and mitigate scaling issues. It is likely to cost ~$200k annually to power ApeChain which goes to implementation partners to develop and build ApeChain (not Polygon Labs).
Implications: If passed, this would be net positive for Polygon.
Likelihood of passing: Low. Current sentiment in the forum is against the proposal, due to 1) the lack of reason for a new chain in this current climate, 2) availaibility of other partners, 3) security concerns regarding implementation and migration.
Governance Action #4: Sunset Lido on Polygon
Governance proposal: Proposal to sunset Lido on Polygon. Reasons given include: 1) Over the last 12 months, Lido has spent at least 2,138,000 LDO ($3,421,600) to make $166,683 / year and 2) Brand risk - Lido on Polygon experienced a bug during a technical upgrade that halted withdrawals for 25 days. This proposal comes on the back of the sunsetting of Lido on Solana which is underway.
Implications: Lido currently has $97m of MATIC TVL. If Lido sunsets Polygon, competitors including Ankr and Stadar Labs will benefit. Currently ANKR has a TVL of $69m with just $600k of MATIC staked. Stader Labs on the other hand has $62m of MATIC staked, making up ~41% of its TVL. We think if Lido sunsets its stMATIC, majority of the TVL will accrue to Stader Labs.
Likelihood of passing: Low to Medium. Current forum stance seems to be largely against this proposal, given that 1) sunsetting Polygon will undermine the willingness of other projects to work with Lido, 2) there is no additional funding ask from ShardLabs (the provider maintain Polygon development), 3) incentives for stMATIC has already been halted. Moreover, unlike sunsetting Solana, the incremental tech lift to maintain MATIC staking should be lower.
Other governance actions
Protocol / tokenomics changes
Bancor forum proposal to use protocol owned ETH to buy and burn BNT, separate proposal to use POL to reduce Bancor 3 deficits
Aave temp check by DigiFT to allocate a portion of its treasury’s stablecoin holdings to low risk RWAs (US Treasury bills / notes), through DigiFT
Sperax passed a snapshot vote to decrease SPA emissions from Demeter farms by 50% and curbing SPA bribes dispensed by SPA Gauge by 20%. while shifting Demeter emissions to xSPA. Separate snapshot vote also passed to introduce POL via sales of SPA bonds using the bond protocol and treasury tokens.
Polygon forum proposal to introduce the Protocol Council governance body responsible for performing regular and emergency upgrades to system smart contracts
1inch forum proposal to purchase ETH by executing ladder limit buy orders at price levels of $800, $1000, $1200, and $1400 USD, each with a fixed order size of 250,000 USDC.
Deployments
Aura passed a snapshot vote to deploy on Base
Stargate passed a snapshot vote to deploy on Scroll
Lido's forum proposal to deploy wstETH on zkSync
Great article sers! In addition to analysing fundamentals, I think it's a good idea to also keep track of on-chain movements.
I found a great tool to do just that called Loch. Check it out! Here's the link to BLUR's treasury wallet address - https://app.loch.one/home/0x3f1be79ab382f21c284008df07e3d169867db647?redirect=home
Lmk what you think