Weekly Gauge #31: Governance Wars : Layers & Participants
Weekly Gauge #31: Governance Wars : Layers & Participants
Exploring synergies among DeFi markets
Note: Since it would take too long to detail each of the protocols mentioned a reference list was included at the end of the article for those who want to delve further.
Military metaphors are often used to describe start-ups, which is even more relevant in bear market conditions. War economies, who manage the rapid increase of production for new goods while facing tight material and financing constraints, are a great analogy to DeFi, especially in the space of governance where power is the main topic.
In this article, we will describe the relationships between the Warriors, the alliances and the rivalries that define the map of governance wars.
Let's start with a quick summary of the resources for which warriors are willing to battle :
TVL total (2.1B$),
Total inflation governed per year (800M$)
Voting incentive per year (250M$),
Total networks/chains (5),
Total ve/vl project (around 100),
The wars are taking place at the same time on many networks but for the sake of clarity, we will not be too exhaustive and will only work on Ethereum (perhaps mentioning Arbitrum or Polygon).
The different layers of the Governance wars:
Curve / Balancer: they are the epicentre of the flywheel and the projects of the upper layers are fighting for their resources. Originally they are decentralized exchanges whose business model is based on fees and evolved to increase their revenues by taking advantage of their depth of liquidity, via the creation of stablecoins and lending (e.g. crvUSD). These projects are an ideal field for governance wars because their tokenomics design supports their emissions, attracting only long-term holders.
Convex / Aura / Tetu / Stake: These projects belong to the first layer of meta-governance. They understood that to harness the resources of the base layer to their fullest capacity they needed to mutualize them, e.g. Convex holds 50% of the veCRVs, which allows them to offer boost multipliers unreachable for individual holders. In addition, they spread wars to the surrounding countryside by creating new markets (voting incentives, boosts...) to attract users from neighboring cities. Frax, for example, quickly joined the wars by creating numerous Curve meta-pools and distributing up to 10M$ of incentives per round to vlCVX voters.
Conic / Clever : Those projects correspond to a class of warriors that we’ll call Yield Proxy because they are focusing on the liquidity and underlying yield sides of the wars. vlCNC holders will not vote to direct incentives like $CRV and $CVX holders, but to direct actual liquidity. This opens new ways for projects and traders to arbitrage the value of incentives compared to the value generated by the TVL in the form of fees. Having the choice between incentivizing ve-holders or liquidity providers is another big step toward aligning users, holders and projects interests. Similarly to collateral debt obligations (CDO), Clever allows users to borrow their future yield and leverage their deposits.
Votium / HiddenHand / Paladin / Votemarket : We introduced in Weekly Gauge 14 the concept of gauge market marker. Although liquid lockers have brought the necessary innovations to allow farmers to enter governance wars, they do not integrate coordination tools between vlToken holders and the users represented here by LPs. This is how the Governance Proxy markets appeared, whose purpose is to allow holders to increase their revenue while offering the opportunity to projects whose tokens are pooled on the DEX of the base layer to capture a maximum of resources.
What’s next ?
It is interesting to note that a consistent catalyst among all layers of the governance wars are the additional levels of incentive, through liquidity mining. Indeed, emitting a token has demonstrated to be very effective to bootstrap a project. However, there have been a lot of great innovations in terms of stakeholder alignment and control over token distribution.
For those still arguing that inflation is a bad thing, we advise to refer to the thread below, courtesy of @Defi_Cheetah
On the other hand, we’ve highlighted in the Weekly Gauges 28 ; 27 ; 26 ; the up and coming trend to implement NFT innovations within the liquid lockers tokenomics and firmly believe that NFTfi is a very good primitive to bring more composability and efficiency on the governance markets, allowing, for example, to split the utilities of ve tokens to provide tailored offers to every participant.
Links to projects’ threads :
Paladin :
Curve :
Convex :
Aura :
Conic :
Clever :
