MakerDAO

Uniswap funds DAO incentive improvement project

The project will provide at least three proposals for Uniswap incentive mechanisms by June.

Financial modeling platform Gauntlet has been awarded a grant from Uniswap Foundation to improve DAO incentive mechanisms, according to an announcement from Gauntlet.

Gauntlet describes itself as a “crypto-native financial risk management solutions provider.” It uses economic models to optimize fees and rewards for decentralized finance (DeFi) protocols, according to the announcement. The company is creating a new division, Gauntlet Applied Research, which will specifically focus on problems related to the growing decentralized autonomous organization (DAO) ecosystem.

In its announcement, Gauntlet said that it would provide three pieces of research to UniswapDAO. The first will be a quantitative framework that the DAO can use to evaluate the success or failure of the Uniswap protocol. The second will be an analysis of trader and liquidity provider behavior, and the third will be at least three proposals for incentive mechanisms to allow the DAO to achieve its goals.

Gauntlet said that it expects all three of these deliverables to be completed by June.

Devin Walsh, executive director of Uniswap Foundation, expressed hope that Gauntlet’s research will help to improve not only the Uniswap protocol but also the crypto ecosystem as a whole, stating:

“One of our goals at the Uniswap Foundation is to build long-term relationships with the most talented and values-aligned teams in the space, and work with them on the most complex and interesting questions facing the Uniswap Protocol.”

DAOs have become a basic feature of the crypto economy over the past few years, with DAO analytics provider DeepDAO currently listing over 2,300 existing DAOs. Most DAOs are governed by tokenholders, who are allowed to vote directly on the blockchain to support or reject proposals for changes to a protocol.

However, token-based DAO governance has also been criticized by some industry experts, including Ethereum Founder Vitalik Buterin, who stated that this system could lead to “vote-buying” and “outright attacks.”

Over the past few months, some DAOs have attempted to provide better incentive mechanisms in the hopes of preventing vote-buying attacks. For example, MakerDAO passed a constitution on March 27 to formalize governance processes and provide checks and balances to prevent concentration of power.

CFTC allegations and $1 billion lawsuit for Binance: Law Decoded, March 27–April 3

Five days after the CFTC move, a new $1 billion lawsuit was filed against the crypto exchange by the law firm representing three American investors.

Last week brought troubling news for the world’s largest crypto exchange, Binance. The United States Commodity Futures Trading Commission accused the company and its CEO, Changpeng “CZ” Zhao, of trading violations. According to the lawsuit filed by the CFTC, Binance has conducted transactions for U.S. customers without proper registration since at least 2019. 

According to the CFTC, Binance obscured the location of its executive offices, using 300 “house accounts.” The Commission has also accused the platform of keeping the information a “top secret,” and alleged that the exchange refused to respond to commission-issued investigative subpoenas seeking information on its trading activity.

A day later, CZ rejected all the allegations, arguing that Binance “does not trade for profit or ‘manipulate’ the market under any circumstances.” He argued that while Binance “trades” in some situations, this is mainly to convert crypto revenue to cover expenses in fiat or other cryptocurrencies. Zhao called the recent CFTC filing both “unexpected and disappointing.”

The complaint has already triggered several major reactions for Binance. A federal judge has temporarily halted its deal to purchase Voyager Digital for $1 billion after the U.S. government requested an emergency stay. And five days after the CFTC move, a new $1 billion lawsuit was filed against the crypto exchange by the law firm representing three American investors. The plaintiffs claim that Binance was involved in trading unregistered securities and paid influencers for the unlawful promotion of the services.

MakerDAO passes new ‘constitution’ to formalize governance process

MakerDAO, the decentralized autonomous organization that governs the protocol that issues the Dai (DAI) stablecoin, has passed a new proposed “constitution” to formalize governance processes and help prevent hostile actors from taking over the protocol, according to the official forum page for the proposal. 

The governing document creates several categories of participants with different powers and responsibilities. For example, constitutional conservers (CCs) have the job of “facilitating and protecting the Maker Governance process” by ensuring that other participants follow the constitution. CCs can become constitutional voter committee members or constitutional delegates.

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Beaxy exchange shutters after SEC presses multiple charges against founder

Beaxy suspended operations on March 28 “due to the uncertain regulatory environment surrounding our business,” according to the cryptocurrency exchange’s blog. The suspension came a day before the United States Securities and Exchange Commission (SEC) announced it was charging Beaxy and its executives with failing to register as a national securities exchange, broker and clearing agency. The SEC also said it was charging Beaxy founder Artak Hamazaspyan and Beaxy Digital — a company he controls — with raising $8 million through an unregistered offering of the Beaxy token (BXY), and the misappropriation by Hamazaspyan of $900,000 of investor funds for personal uses.

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Terra co-founder Daniel Shin’s arrest denied by the court

A local court in South Korea denied the prosecutor’s request to issue an arrest warrant for Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin. This was the second attempt by South Korean authorities to reign in Shin following the recent arrest of Do Kwon — Terra’s other co-founder. The Seoul Southern District Court denied the request, citing unconfirmed allegations and the unlikeliness of Shin being a flight risk or destroying evidence. Shin currently faces multiple fraud charges, specifically concerning allegedly hiding risks associated with investing in Terra’s in-house tokens.

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MakerDAO passes new ‘constitution’ to formalize governance process

The document creates multiple offices tasked with fulfilling various jobs for the protocol, each with their own powers and responsibilities.

MakerDAO, the decentralized autonomous organization that governs the Dai (DAI) stablecoin, has passed a new proposed “constitution” intended to formalize governance processes and help prevent hostile actors from taking over the protocol, according to the official forum page for the proposal.

According to the proposal’s text, a constitution is needed because the Maker Protocol “relies on governance decisions by humans and institutions holding MKR tokens,” which can “expose weaknesses and vulnerabilities that can result in the failure of the Maker Protocol or the loss of user funds.”

To avoid this failure, the Maker Constitution engages in “alignment engineering” to “lock in the core commitments” of Maker’s community, the document says.

The governing document creates several categories of participants with different powers and responsibilities. For example, constitutional conservers (CCs) have the job of “facilitating and protecting the Maker Governance process” by ensuring that the constitution is followed by other participants. CCs can become constitutional voter committee members (CVCMs) or constitutional delegates (CDs).

CVCMs craft position documents for voters to consider, and CDs operate smart contracts that allow MKR holders to delegate their MKR without losing custody of their tokens.

Related: MakerDAO votes to keep USDC as primary collateral

Each office has powers to remove listings of officers from the app’s front end if they are believed to be violating the constitution. For example, a CD can ban a CVC from the front end if the CVC is believed to be deceiving the voters who are delegating to it.

The Maker constitution proposal passed with 76.04% of the MKR vote. Less than a quarter (23.95%) of MKR votes went against the proposal, and 0.01% abstained.

Despite the vote in its favor, some Maker users have openly criticized the constitution as being authoritarian. For example, the pseudonymous Twitter user PaperImperium has claimed that it forces users to be “muzzled and forbidden from communicating with anyone at or around Maker about Maker” due to restrictions it imposes on communications from constitutional delegates.

Maker’s constitution is one step in the process of creating what Maker founder Rune Christensen called the “Endgame Plan” for the protocol, which he believes will convert MakerDAO into a decentralized organization that keeps DAI stable as it potentially becomes the reserve currency for the world. The endgame plan has been criticized by A16z for doing too much too fast, with the venture capital firm supporting changing the protocol in a more piecemeal fashion.

DAI is an algorithmic stablecoin pegged to the U.S. dollar. It temporarily lost its peg on March 11 due to fallout from a banking panic in the U.S. but then recovered it after MakerDAO passed emergency measures to limit the ability of users to mint DAI with USD Coin (USDC).

MakerDAO passes proposal for $750M increase in US Treasury investments

The emergency proposal increases MakerDAO’s holdings of United States bonds by 150%, aiming to diversify the Dai stablecoin’s collateral exposure.

Lending protocol and stablecoin issuer MakerDAO passed a proposal on March 16 to increase its portfolio holdings of United States Treasury bonds by 150%, from $500 million to $1.25 billion.

The proposal aims to increase the protocol’s exposure to real-world assets and “high-quality bonds,” following its Dai (DAI) stablecoin losing its $1 peg during market volatility on March 11. The $750 million debt ceiling hike was approved by 77% of Maker’s delegates. A representative of MakerDAO told Cointelegraph:

“Under this new deployment, MakerDAO would use $750 million of USDC in the PSM to purchase more US Treasury bonds, thus diversifying its liquid assets that back DAI.”

The bonds will be purchased with equal maturities, biweekly and over a six-month period, totaling 12 slots of $62.5 million each. Under the strategy, MakerDAO said it expects to deliver a net annualized yield of 4.6% to 4.5% after custody. Maker’s revenue stream could also be boosted by trading costs, the proposal noted.

Maker’s new strategy ladder for the next six months. Source: MakerDAO

The proposal would allow Maker “to take advantage of the current yield environment, and generate further revenue on Maker’s PSM Assets, in a flexible, liquid, manner,” it read. Federal Reserve data shows that Treasury’s yields for 10-year constant maturity were at 3.64% on March 14.

Market yield on U.S. Treasury securities at 10-year constant maturity: Source FRED

The move is an extension of a current $500 million U.S. Treasury allocation managed by decentralized finance (DeFi) asset adviser Monetalis Clydesdale since October 2022. “As of January 2023, this investment strategy has brought ~$2.1 million in lifetime fees,” MakerDAO claimed. 

Participants in the governance forum, however, said that “Maker has not yet received any payment from the first half billion DAI” from Monetalis. Delegates also complained that questions in Maker’s Discord and governance forum were not answered promptly, thus not offering enough time to analyze the proposal. 

On March 11, the collapse of Silicon Valley Bank spread panic across markets and led to the depeg of several stablecoins, including USD Coin (USDC) and Dai. In a March 13 Twitter thread about the volatility, MakerDAO noted that its community was working on proposals to switch its stablecoin exposure to money market investments, such as U.S. Treasurys, “with the purpose of diversifying DAI’s liquid collateral.”

Circle’s USDC instability causes domino effect on DAI, USDD stablecoins

Following USDC’s depegging, three stablecoins — DAI, USDD and FRAX — also depegged from the U.S. dollar.

The stablecoin ecosystem felt an immediate effect as USD Coin (USDC) depegged from the U.S. dollar due to a subsequent sell-off after Silicon Valley Bank (SVB) did not process $3.3 billion of Circle’s $40 million transfer request. Given USDC’s collateral influence, major stablecoin ecosystems followed suit in depegging from the U.S. dollar.

Dai (DAI), a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging. As of June 2022, $6.78 billion worth of DAI supply was collateralized by $8.52 billion worth of cryptocurrencies, confirms data from Statista.

DAI’s total crypto assets used for on-chain collateralization as of June 27, 2022. Source: Statista

Out of the lot, USDC represented 51.87% of DAI’s collateral, worth $4.42 billion. Other prominent cryptocurrencies include Ether (ETH) and Pax Dollar (USDP) at $0.66 billion and $0.61 billion, respectively.

As a result, DAI depegged from the dollar to momentarily touch $0.897. The stablecoin recovered to trade around the $0.92 mark at the time of writing, as shown below.

DAI to USD 1-day chart. Source: CoinMarketCap

USD Digital (USDD), a stablecoin issued by Tron, and fractional-algorithmic stablecoin Frax (FRAX) shared a similar fate due to adverse market sentiments. USDD responded to the USDC sell-off with a nearly 7.5% drop to trade at $0.925, while FRAX dipped even further to $0.885.

USDD to USD 1-day chart. Source: CoinMarketCap

Other popular cryptocurrencies, such as Tether (USDT) and Binance USD (BUSD), continue to maintain a 1:1 peg with the U.S. dollar.

Related: USDC investor shells out $2M to receive $0.05 USDT trying to evade crash

The entire depegging ordeal started after Circle announced that $3.3 billion of its funds were not processed for withdrawal by SVB.

SVB was shut down by the California Department of Financial Protection and Innovation for undisclosed reasons. However, the California regulator appointed the Federal Deposit Insurance Corporation as the receiver to protect insured deposits.

Frax’s shift to a fully backed stablecoin signals the end of DeFi’s algorithmic experiment

The sun sets on algorithmic stablecoins as Frax shifts to a fully-backed model.

The Frax community recently approved a proposal to make its FEI stablecoin fully backed by USD equivalents, rather than maintaining a partially backed and semi algorithmic stablecoin. With Frax’s decision, the days of experimentation with algorithmic stablecoins could finally be behind us.

The decentralized stablecoin space has only proved effective with ETH, USDC and BTC backed stablecoins. The failure of algorithmic stablecoins (like UST) and depegging of overleveraged stablecoins (like MIM) has become one of the primary reasons for loss of confidence in decentralized stablecoins.

The decentralized stablecoin space is still tiny

Decentralized stablecoins account for 5.5% of the total stablecoin supply. MarkerDAO’s DAI commands the lion’s share of this with 71% dominance. The transfer volumes of decentralized stablecoins are largely dominated in DAI and have declined since Q3 2022, suggesting that activity across the sector is still inhibited.

90-day moving average of decentralized stablecoin transfer volume. Source: Dune

During the bull run of 2021 and 2022, platforms like Abracadabra and Luna flourished due to higher yields, but when the market took a negative turn these stablecoins were some of the first to collapse. Luna’s UST stablecoin crashed in May 2022 after major withdrawals of the stablecoin disrupted its algorithmic mechanism. 

Before its collapse, UST had become the third largest stablecoin with a larger supply than BUSD and only behind the USDT and USDC. However, the ripple effects of Luna’s collapse caused Abracabra’s MIM stablecoin to lose its peg due to widespread drop in prices of assets backing MIM. Liquidations piled across the platform with no buyers, leading frequent dips below the $1 peg level.

Only a few incumbents remain standing

MakerDAO’s DAI stablecoin is the longest-standing decentralized alternative, with a significant market share. While DAI’s design promoted decentralization, the token became a victim of centralization, with more than 50% of assets backing DAI composed of Circle’s USDC.

The MakerDAO community has progressively taken steps to diversify the platform’s backing. In October 2022, the community voted to convert $500 million USDC to U.S. Treasury bonds.

Recently, MarkerDAO and the decentralized stablecoin space received another blow after court ruling in England forced the platform to include an option to seize assets from a user. It creates a considerable regulatory risk for platforms using and launching decentralized stablecoins.

Besides MakerDAO, Liquity has earned a decent reputation in DeFi as a purely ETH-backed stablecoin platform. Liquity is censorship resistance as it only provides smart contracts on Ethereum, which are not managed by administrators. The total supply of LUSD is 230 million, with LQTY as the utility token of the platform.

The project’s native token, LQTY, doubled in price after its Binance listing on Feb. 28, 2023. There was alleged insider trading activity behind the price surge reported by anonymous on-chain analytics portal An Ape’s Prologue. Still, the token’s low issuance rate and real yield in protocol fees could give it a lot of advantages over governance-only tokens like Uniswap’s UNI token.

Stablecoin platforms building liquidity and trust over time

Frax’s decision to migrate away from a partially algorithmic design to a fully backed stablecoin could see a rise in demand for FEI. Moreover, Frax is a significant holder of Curve’s CRV and Convex Finance’s CVX token, enabling the DAO to incentivize liquidity provision on Curve. This is notable because adequate liquidity is one of the first requirements for a stablecoin’s success.

Related: Stablecoin adoption could lead to DeFi growth, says Aave founder

Currently, crypto market volatility discourages many users from minting crypto-collateralized stablecoins. The lack of trust in decentralized stablecoins and the long-standing permeability of centralized stablecoins across numerous exchanges makes it harder for decentralized alternatives to gain market share.

Still, the long-term market opportunity for decentralized stablecoins is significant. Over time, decreased volatility and regulatory clarity around cryptocurrencies will likely increase the demand for crypto-backed stablecoins.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

MakerDAO voting on $100M loan participation with Florida commercial bank

Florida’s Cogent Bank is proposing a $100 million participation in loans to MakerDAO’s RWA Master Participation Trust.

Crypto lending platform MakerDAO is voting on a new proposal to bring another commercial bank into its ecosystem, strengthening the connection between decentralized finance (DeFi) and traditional finance. 

As per MakerDAO’s governance forum, Cogent Bank — a Florida-based commercial bank — is proposing to participate with $100 million in loans to MakerDAO’s RWA Master Participation Trust.

The proposal is part of MakerDAO’s monthly governance cycle and seeks the same terms and conditions applied to Pennsylvania-based bank Huntingdon Valley Bank (HVB), which entered into a collateral integration with the crypto firm in July 2022, allowing the bank to borrow against its assets using DeFi.

Under the same conditions, MakerDAO would use its trust arm to link the capital available at Cogent Bank with MakerDAO’s Dai (DAI) stablecoin. The trust entity would be responsible for ensuring DAI minting and destruction from the vault, as well as managing the partnership with the bank.

Cash flow diagram, Maker Vault/Cogent Bank. Source: MakerDAO’s forum

The DeFi protocol would gain exposure to the credit market in at least eight categories, including commercial real estate, industrial, life insurance, consumer and public finance, with loans issued mostly on a fixed-rate basis.

Among the revenue sources for MakerDAO are fees associated with maintaining the vault, minting DAI, and yields. The benchmark 30-day average secured overnight financing rate stood at 4.15% as of Jan. 5.

Before its acquisition in 2018, Cogent Bank was known as Pinnacle Bank. The Florida bank has $1.3 billion of assets under management and is insured by the Federal Deposit Insurance Corporation. According to the company, loans originated in the first three quarters of 2022 totaled $602 million and summed $873 million in 2021.

In a bid to endure the crypto winter in 2022, MakerDAO disclosed a governance process for its first collaboration with a traditional bank, Huntingdon Valley Bank. At that time, the DeFi protocol announced plans to onboard other banks depending on the results of its integration with HVB.

DeFi protocols unite to promote permissionless Web3 experiences

The collaboration of over 30 DeFi projects is an effort to counteract the negative sentiments built in 2022 due to numerous CeFi ecosystem crashes.

The damage caused by the fall of major crypto ecosystems last year is on a path of steady recovery as good actors take proactive measures to rebuild trust among investors. Major players from the decentralized finance (DeFi) ecosystem came together to showcase the incentive behind operating trustless, interoperable and permissionless platforms.

For 24 hours, from Feb. 6 to 7, over 30 DeFi protocols joined in an initiative to “permissionlessly” share tweets from other protocols — thus highlighting the permissionless and interoperable nature of Web3. Projects participating in this campaign include Yearn.finance, MakerDAO, SushiSwap and Aave, among others.

DeFi has amassed mainstream acceptance with significant institutions making their entrance into the space, but it still has a shaky reputation due to its many exploits.

Mamun Rashid, the chief marketing officer at MakerDAO, said that to realize the “full potential” of DeFi, there needs to be a collaboration between the ideas and expertise in the space.

“Together, we can push the boundaries of traditional finance and build a more inclusive and accessible financial system through DeFi.”

The projects collaborating in the campaign defined the “spirit” of DeFi as a more collaborative ecosystem, rather than a competitive one.

Jared Grey, the CEO of SushiSwap, said DeFi is being built to challenge the current status quo of known financial frameworks, which historically create barriers and reduce economic freedom.

“Leveraging the composability of this new technology, we can democratize and provide more equitable, safer, and transparent financial tools and products to reach a global audience.”

Grey said the responsibility to portray the true message of DeFi comes first from within the space. Therefore, the initiative and solidarity of more than 30 builders within the space come at a critical time.

Related: DeFi should complement TradFi, not attack it: Ava Labs CEO | Davos 2023

Over the last year, the DeFi space was a major target for exploits. According to a report from Beosin, DeFi-based projects experienced the highest number of attacks in 2022.

This vulnerability led to a 47.4% rise in security losses in 2022 compared with the previous year, which totaled $3.64 billion in losses.

Additional industry insights revealed that the trend of DeFi exploits should be expected to continue into this year due to new projects entering the market and more sophisticated hackers.

Nonetheless, the space started the year with significant growth, according to a DappRadar report. In January, a new $150 million ecosystem fund was created by Injective to boost DeFi and Cosmos adoption. 

Crypto billionaires’ subsequent deaths spark wild theories among the community

Many blamed the deaths on billionaires’ past, while others suspected some form of foul play and even execution.

The death of four crypto billionaires within a month has caught the crypto community’s attention. These deaths occurred under suspicious circumstances, and more importantly, some of these billionaires have raised alarms about being in danger. 

The death spiral started towards the end of October when Nikolai Mushegian, the co-founder of MakerDAO, was found dead on a Puerto Rican beach just hours after tweeting that intelligence agencies were after him. The next billionaire to perish was broker Javier Biosca, who was found dead on Nov. 22, 2022, in Estepona. At the time, Biosca was being investigated for the biggest cryptocurrency fraud in Spain.

On Nov. 23, 2022, Amber Group’s co-founder Tiantian Kullander, was found dead mysteriously in his sleep. Just two days later, Russian crypto billionaire Vyacheslav Taran died in a helicopter crash.

Apart from these four suspicious deaths, another death made headlines on Dec. 30 when Mr. Park Mo, the vice president of Vidente, the largest shareholder of South Korean cryptocurrency exchange Bithumb, was found dead mysteriously in front of his house in the early morning.

Related: Logan Paul backflips on defamation lawsuit against Coffeezilla, apologizes

The four deaths of crypto billionaires within a month’s time gave fuel to several conspiracy theories among the crypto community. One user associated the string of deaths with a mafia-style hit job and said that the “crypto world is taking a page from the mafia handbook.”

Another user associated the death spiral with the “central banking hierarchy,” sarcastically saying, “I would definitely not put money on it being connected to the central banking hierarchy. There is no way. They are very trustworthy. 100% no chance.”

Others questioned the source of the information but did acknowledge the fact that four deaths in less than a month call for some suspicion. While a few Redditors also pointed towards the possibility of faking deaths, where one user wrote, “I wonder how many of these are people faking their own deaths.”

Many Redditors also speculated that these billionaires might be living under fake names and they are using death to start a new inning in their life.

The deaths of four crypto billionaires are for sure a cause of concern, but the crypto ecosystem is known for its fascination with conspiracy theories. A similar saga erupted in May 2020 when the CEO of defunct crypto exchange QuadrigaCX mysteriously died during a visit to India.

Crypto billionaires’ back-to-back deaths spark wild theories among the community

Many blamed the deaths on the billionaires’ past, while others suspected some form of foul play and even execution.

The death of four crypto billionaires within a month has caught the crypto community’s attention. The deaths occurred under suspicious circumstances, and some of these billionaires had even raised alarms about being in danger. 

The spiral started toward the end of October 2022 when Nikolai Mushegian, co-founder of MakerDAO, was found dead on a Puerto Rican beach just hours after tweeting that intelligence agencies were after him. The next billionaire to perish was broker Javier Biosca, who was found dead on Nov. 22 in Estepona, Spain. At the time, Biosca was being investigated for the biggest cryptocurrency fraud in Spain.

On Nov. 23, Amber Group co-founder Tiantian Kullander died mysteriously in his sleep. Just two days later, Russian crypto billionaire Vyacheslav Taran died in a helicopter crash.

Apart from these four suspicious deaths, another death made headlines on Dec. 30 when Park Mo, vice president of Vidente — the largest shareholder of South Korean cryptocurrency exchange Bithumb — was found dead in front of his house in the early morning.

Related: Logan Paul backflips on defamation lawsuit against Coffeezilla, apologizes

The four crypto billionaire deaths within a month gave fuel to several conspiracy theories among the crypto community. One user associated the string of deaths with a mafia-style hit job and said that the “crypto world is taking a page from the mafia handbook.”

Another user associated the death spiral with the “central banking hierarchy,” sarcastically saying, “I would definitely not put money on it being connected to the central banking hierarchy. There is no way. They are very trustworthy. 100% no chance.”

One user questioned the information sources but acknowledged that seeing four deaths in less than a month is suspicious. On the other hand, several Redditors speculated that they may not have actually died at all, with one writing, “I wonder how many of these are people faking their own deaths.” Another speculated that the billionaires might be living under fake names and are using their “deaths” to start a new chapter of their life.

The deaths may be a cause of concern, but the crypto ecosystem is also known for its fascination with conspiracy theories. A similar saga erupted in May 2020 when the CEO of defunct crypto exchange QuadrigaCX mysteriously died during a visit to India.