Weekly Gauge #52 : Ecosystem tour
Weekly Gauge #52 : Ecosystem tour
The governance Wars Kingdom
The weekly gauge articles have provided insights into the rapidly evolving world of Decentralized Finance and the critical role of governance in shaping the ecosystem for over a year now. Governance wars have emerged as projects compete for power and resources, leading to the development of innovative mechanisms like voting escrow tokenomics and yield-bearing index products. Curve Finance and Balancer are notable examples of platforms that have successfully implemented these, allowing them to thrive in the DeFi space.
We’ve studied the key role of liquid lockers enhancing capital efficiency, allowing participants to maximize their returns by unionizing their governance token utility, thus contributing to the overall liquidity and governance processes.
Layer 2 networks ,such as Arbitrum and Optimism, have also played a crucial role in addressing scalability and cost-effectiveness issues. They were catalysts of the significant growth in DeFi's TVL as users and projects migrate to these networks to overcome the congestion and high fees on the Ethereum network. Additionally, structured products and indexes have been leveraged to provide efficient exposure to various assets and markets, contributing to the maturation of the Governance Wars as a reliable and diverse financial ecosystem.
Throughout the analysis, various mathematical and theoretical models have been utilized to quantify our research findings.These approaches have been instrumental in identifying trends, correlations, and potential triggers for positive shifts in the market. By leveraging these models, we have gained valuable insights into the intricacies of the DeFi space, emphasizing the importance of capital efficiency.
Amidst every metrics that were explored in the weekly gauge newsletter, the most bullish or interesting ones from the Governance Wars perspective are probably the followings :
Historical APR for vote incentives creators :
Historical APR for voters :
This article seeks to provide a comprehensive overview of the actors and their roles within the governance wars, summarizing the current catalysts and boundaries to define how sustainable it is and what are the next steps of growth.
Ecosystem overview
In this immersive visualization, we delve into the intricate web of actors shaping the decentralized governance landscape and their vital roles in this ever-evolving ecosystem.
Base Yield Layer - Fueling the flywheel with real yield components.
Liquid Locker - Enhancing yield and simplifying governance access.
Liquidity Aggregators - Facilitating efficient allocation of assets across protocols.
Voting Aggregators - Uniting voters and amplifying voting utility for impactful decisions.
Efficiency Leverages - Increasing capital efficiency of idle assets.
Incentive Creators - Fueling the flywheel with external revenue sources.
Vote Marketplace - Bridging voters and liquidity providers for seamless interaction.
Analytics - Providing insights to measure market efficiency.
Current catalysts
Deployment on layer 2 solutions has been instrumental in scaling the DeFi ecosystem, providing faster and more cost-effective transactions, which have attracted a broader user base to participate in governance activities.
The introduction of Liquid Staking Derivatives (LSTfi) has been another significant catalyst for the development of governance wars. LSTfi provides yield-bearing Ethereum token staking derivatives, which enhance capital efficiency on trading pairs and mitigate impermanent loss. This innovation has brought a new dimension to liquidity provision in DeFi, attracting traders and holders seeking to optimize their returns and maximize capital efficiency.
In addition to the named catalysts, new stablecoins like GHO and CRVusd have also played a role in bringing liquidity to leverage efficiency, further contributing to the growth of governance wars. The combination of these factors has fostered a dynamic and competitive environment within the governance markets, driving the evolution and maturation of decentralized governance mechanisms in the DeFi ecosystem.
Boundaries
Becoming Farming-Centric:
As liquidity mining rewards decrease over time, DEXs flywheels which rely heavily on it, such as Curve or Balancer, can be damaged. Since liquidity providers extract value mostly through emissions and as it decreases, they will need other streams of revenues to stay loyal to the protocol. Hopefully, newcomers in the governance wars like Maverick or Uniswap -through Bunni- offering fee sharing revenues will bring a fresh air to the current state of things.
Another inefficient outcome of the current system relies on the conflict of interest between DEXs and projects incentivizing POL leading to the creation of POL pools turning into farms, empirically displaying few to no volume but capturing a lot of emissions due to the increasing governance power acquired by the pool creator.
By focusing on sustainability and long-term viability, DeFi projects can transition from relying solely on short-term liquidity mining hype to building a robust ecosystem with a loyal user base. Emphasizing responsible and strategic liquidity provision, along with a diverse range of incentives, will contribute to the health and success of DeFi platforms in the evolving blockchain landscape.
Author’s Note :
Given the increasing difficulty to maintain the variety of topics explored in the newsletter, and as it is progressively happening, the weekly gauge publication schedule will become more flexible as of now, allowing writers to dive deeper into each posts’ research and improve one step further the quality of the articles.
This is far from the end of the journey and Paladin will continue to keep you informed of the latest news in the Governance area of DeFi, so do not hesitate to suggest in comments or on discord some new format you would like to read !
