Ouroboros Governance Review #3: Backfunding of Arbitrum's Short-Term Incentive Program, Sushi tokenomics revamp, Rocketpool tokenomics overhaul
We released this article one week prior to Ouroboros Lifetime Access Pass holders.
Welcome to Ouroboros Governance Review where we share interesting governance actions and their respective implications. None of the following is financial advice. This week, we will be covering:
The backfunding of 26 projects for Arbitrum's Short-Term Incentive Program
Sushiswap tokenomics revamp
Rocketpool tokenomics overhaul
None of the following is financial advice.
Governance Action #1: Backfunding of 26 projects for Arbitrum's Short-Term Incentive Program
Governance Proposal: Arbitrum Short-Term Incentive Program (STIP) concluded on 13 Oct'23 and has since started distributing proceeds. Initially a total of 50m ARB was reserved as grants and the STIP was intended to have two stages. However, the first round of STIP saw the DAO voting "for" for more than 50m ARB worth of proposals.
This resulted in some projects that had achieved quorum and majority in favor votes failing to secure their requested grant as a result of missing the 50m ARB cut-off (projects were ranked by # of yes votes).
A new proposal has been put up by SavvyDAO to backfund these projects and is now up for snapshot voting. The proposed AIP increases the total budget by 21.4m ARB to 71.4m ARB while increasing the total participating protocols by 26, for a total of 56 funded projects.
Implications: If the proposal is successful, the ARB incentives would likely see these 26 projects increase in activity which will likely have a positive price impact. Notable ones include Gains Network (4.5m ARB, used largely for trading incentives), Wormhole (2m ARB, USDC CCTP minters on ARB to get 8% APY) and Vela (1m ARB for various purposes).
Likelihood of passing: Medium to High. Discussions for this proposal was highly in favour with almost no responses against the proposal. Snapshot vote (ends on 14 Nov'23) is currently 97% in favour but only has 24m worth of ARB votes.
Governance Action #2: Sushiswap Tokenomics Revamp
Governance Proposal: Jared Grey, Head Chef of Sushiswap, posted a tokenomics revamp proposal. The proposal has several components but broadly seeks to create sustainable tokenomics given Kanpai expires in Dec'23 and the current distribution model approaches full distribution. Key changes include:
LP locking: LPs with longer locked periods will receive higher rewards. Each LP position will accompanied by an NFT which will represent loyalty points adjust rewards and voting rights. NFTs can be traded on the secondary market.
Dynamic rewards adjustments: Rewards will be adjusted based on market conditions.
Boost distribution system: Allows users to direct incentives based on voting power (determined by accumulated points and Sushi allocated to voting stake).
Emissions: SUSHI incentives will be fixed at 1.5% annually.
Protocol Owned Liquidity: Sushi intends to generate protocol owned liquidity by using 50% of the fees to accumulate POL. The remaining 50% of fees is converted to SUSHI.
Governance changes: Introduction of quadratic voting and SUSHI holders will have to lock SUSHI to vote.
There is a separate proposal to 1) elect a governing council of 5 members to decide direction of the protocol (suggestions by the council will be decided by the DAO), 2) engage sushi chefs will become service providers funded by the treasury, 3) cease Kanpai 2.0 and 4) reimplement 100% of fee accrual to staked Sushi holders.
Implications: The move towards sustainable emissions is a good one and we are excited to see discussions towards that end. Particularly, we think POL is a step in the right direction, which will help the project's sustainability. However, we do believe the proposal needs more work to clearly explain the impact of the proposed changes and should include detail such as : 1) how rewards adjustments are made and 2) more clarity on locks. Nevertheless, we think the presence of tokenomics changes should bring about token interest.
Likelihood of passing: Medium. Discussions are currently not very developed.
Governance Action #3: Rocketpool Tokenomics Overhaul
Governance Proposal: RPIP-30, a proposal to rework staking, is currently in its snapshot vote phase. The proposal intends to align RPL reward spend with rETH capacity created.
Key changes (see here) include:
RPL rewards will scale differently, with a focus on aligning RPL rewards with supplying rETH
Adding a minipool will increase RPL rewards (even if you already had enough staked RPL) [new]
Converting an EB16 to two LEB8s will increase rewards (even if you already had enough staked RPL) [new]
You need staked RPL value of ≥10% borrowed ETH to get RPL rewards [unchanged]
Staking more RPL means more rewards [unchanged], now without a maximum [new]
The minimum to withdraw will be 15% borrowed ETH (threshold is currently 150% of bonded ETH)
Withdrawing will become a 2-step process where RPL is set to "withdrawing" for 28 days before it can be withdrawn
These will be phased in over 6 months.
Implications: Currently the Node Operators (NOs) have to lock up a minimum of 10% of the ETH staked value in RPL (they also have to contribute ETH). NOs are allowed to lock up up to 150% of the ETH staked, which allows NOs to garner a larger share of RPL inflationary rewards.
Previously, rewards were linear but now there will be greater incentives to create new minipools with a lower collateral ratio. We expect less RPL to be locked up at higher percentages of ETH staked, given that there are more restaking options out there that could give greater yields.
This means NOs with high % of RPL collateral will either 1) sell down their RPL or 2) spin up more nodes to spread out their owned RPL (but this will require more ETH). The former has a negative price impact on RPL while the latter will have no price impact. Longer term, rETH supply will likely increase as a result of this change.
Likelihood of passing: High. Snapshot vote (ends 17 Nov'23) at 89% for the proposal and has achieved quorum.
Other governance actions
Protocol / tokenomics changes
Arbitrum snapshot vote to activate ARB staking and giving out 100m ARB as staking rewards has passed. Tally vote to confirm the vote will be put up next.
CoW Protocol proposal to test fee models to generate revenue over the next 6 months.
Lyra proposal to upgrade the utility and economics of LYRA to prepare for V2. Key details include: 1) decentralization of ownership and control of v2, 2) 150m LYRA ($13m) in incentives over 24 months, 3) fee accrual to the DAO from both the v2 protocol and Lyra Chain.
Capital deployment
Optimism's RetroPGF 3 has started where 30m OP will be allocated to 643 contributors. Voting ends on 7 Dec'23
Venus Protocol proposal by Curve's Michael Egorov to deploy on Ethereum and listing crvUSD and CRV as collaterals while incentivizing liquidity mining with 500k CRV and the equivalent XVS.
Lido proposal to launch Community Staking Module, starting from 1% stake allocation up to 10% and targeting to attract at least 300 independent Node Operators within the first months after launch.
Arbitrum proposal to fund a coalition led by Blockworks Research, Gauntlet, and Trail of Bits with $2m to conduct governance proposal audits.
Other
dYdX proposal by Wintermute to upgrade markets to active on the dYdX Chain.
Compound proposal to onboard OUSG, the Ondo Short-Term U.S. Government Bond Fund, as collateral to Compound v3.
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