MakerDAO proposes ve token "gbMKR", community and Hasu refute: "Equal reward won't make you rich"
The veToken model proposed by CURVE effectively reduces the sell pressure behind the large liquidity mining rewards, increasing user willingness to lock tokens for the long term. Many DeFi protocols have followed suit in veToken implementation. MakerDAO governance platform proposed a similar transformation proposal, but the community refuted it with five main arguments. Paradigm researcher Hasu also shared his views.
Table of Contents
Sagittarius Engine SE
The Sagittarius Engine is a new token model proposed by MakerDAO founder Rune Christensen in the "clean money" article last October. This model provides MKR long-term lockers with more benefits, allowing users to collateralize locked MKR to borrow DAI at discounted rates and liquidation conditions.
He suggested learning from current DeFi models, changing the existing core unit locking reward model, issuing a large amount of MKR to incentivize MKR holders, and adopting diverse token issuance methods like Dutch auctions, yield farms to attract funds into the market for more MKR locking and low-rate lending.
However, the community raised concerns about the proposal, citing the complexity of the SE model, which ultimately did not come to fruition, leading to a similar proposal being reintroduced by the community in January this year.
gbMKR Model
The proposal was put forth by ParaFi Capital, as indicated in the forum, suggesting that any current MKR token holder can participate in governance voting. They aim to transition to long-term locking of up to four years with "gbMKR governance-boosted MKR" for governance participation while providing higher returns to gbMKR holders.
Similar to veToken, 1 MKR does not equal 1 gbMKR; instead, voting weight is determined based on the one to four-year lockup period, with the weight linearly decreasing over time. Reasons include:
- Under the old model, interested parties may borrow MKR from Aave, Compound to launch governance attacks on MakerDAO.
- gbMKR benefits users planning to hold MKR long-term, removing MKR from circulation and reducing selling pressure.
- Transitioning to gbMKR aligns holders with the protocol's long-term goals.
Empowerment for gbMKR holders in the future includes:
- Compensating other gbMKR holders with part of the MKR in case of default unlocking.
- Allowing gbMKR holders to lend DAI at zero or negative interest rates.
- Providing some protocol income in stability fees, liquidation income to gbMKR holders.
- Repurchasing MKR with stability fees and giving them to gbMKR holders.
- Adding gbMKR as collateral to MakerDAO with 0% stability fees and lower collateral ratios.
The proposal also pointed out the drawbacks of the Sagittarius Engine SE model:
- Issuing an additional 2 million MKR may devalue the token.
- The SE model is overly complex and difficult to understand.
- MakerDAO previously emphasized not providing MKR incentives to both lenders and borrowers.
Counterarguments
Presented by the MakerDAO, Aave Risk Core Team monetsupply.eth in the forum, the summary is as follows:
1. Decrease in Investor Base: Long-term locking may make it difficult for retail and physical investors to hold MKR, such as Grayscale, index funds, small to medium retail holders. Potential stakeholders and investors may not accept such extended holding periods, potentially leading to further centralization of governance power.
2. Collateral Derivatives: Substantial profits may detach economic benefits from voting rights, centralizing governance power, such as Convex holding nearly 50% voting power in Curve, and users may not be able to withdraw voting rights from poor governance agents who are only there for profits, not governance.
3. Short-term Speculation Incentives: A four-year lockup period may create improper incentives, where lockers can vote to increase short-term rewards, sacrificing token long-term value. For users who continuously re-lock to maintain maximum voting weight and profits, their earnings are similar to perpetual bonds.
4. Bribery: Unlike Curve, MakerDAO has substantial treasury reserves, user fund risks, and protocol-level insurance, making bribery not applicable to lending platforms or stablecoin protocols like MakerDAO.
Note: veCRV holders can vote on how CRV rewards should be distributed among liquidity pools, leading to competition among liquidity providers and potential bribery situations.
5. Prisoner's Dilemma: Locking tokens raises the cost of governance attacks but also increases the cost of defending attacks. Resisting attacks requires increasing locked tokens to gain voting weight, bringing significant costs to defenders. Large lockers may find it challenging to exit entirely, as they must endure a long period of declining governance power and protocol security before selling, potentially resulting in selling at a discount.
Given the potential improper incentives and governance mechanism breakdown possibilities, it is believed that veTokens are not feasible.
Hasu: Airdrops Won't Make You Rich
Hasu believes that the token economy of veTokens is akin to running on a treadmill:
Fully agree with monetsupply.eth's view. To incentivize locking, you need more tokens like MKR, DAI as interest. But if everyone locks and receives rewards, it means no one becomes wealthier. In reality, everyone becomes poorer due to being taxed on these earnings.