Hey all! Over the past few weeks I’ve been thinking more about the rise of meta-governance playing out in DeFi and thought I’d write a piece on it here.
So what is Meta Governance?
The TLDR on it is governance which is done through a protocol that collects governance tokens of another protocol in order to do something useful with it. The three which we’ll look at today are INDEX, CVP and YFI. All of these tokens eat other governance tokens in their protocol and in turn allow the governors of these protocols to govern others. Fascinating huh?
INDEX
For those of you that don’t know, Set Protocol collaborated with DeFi Pulse in order to create an ETF of DeFi tokens that can be traded as a single token called DPI. They launched the token a couple of months ago with the ability to farm INDEX by providing liquidity for DPI. The token has progressed quite well and formed a strong community around it as well.
The idea is that INDEX holders can govern the DPI product’s token composition and fine tune parameters. However an unexpected use case emerged from it where it’s also started to allow users to vote in other protocols with the tokens locked inside DPI. The most recent proposal of the INDEX was to adjust the reserve factors on Compound. Here’s a link to the Snapshot signalling vote:
https://snapshot.page/#/index/proposal/QmTdYHoyT5eLWSZduHkivVxs3Vree1EUQUYCk8uoW4Q1EA
Here’s a screenshot of the result of the signalling vote on INDEX’s side:
Here’s the results of the votes on the Compound page itself.
What I found insightful about this was the fact that there were a total of 52 addresses that voted on Compound, however there were 41 addresses that voted via INDEX. Essentially meta-governance participation is closer, if no better, than direct governance. It almost feels like that a hack around governance is you incentivise other communities to hold your token then use their engagement to submit and engage in proposals of your system through meta-governance. Another way of saying this is that some token communities may only exist due to their ability to influence other protocols in the ecosystem… Who would have imagined? One thing is that all of INDEX’s proposals have been fairly tame and “good” natured. As we look through some of the other meta-governance proposals we might see more self-interests creep in…
CVP
Powerpool, a project that literally describes itself as a meta-governance protocol sure is one to take a look at as well. Their home-page describes them more of a way for minority token holders to band together and accumulate power in larger networks.
The PowerPool is a protocol for pooling governance tokens (GTs), such as COMP, BAL, LEND, YFI, BZRX, AKRO, and many others. Now the minority token holders can extract minimal utility from such tokens for two reasons (1) they cannot influence the votes (2) the significant share of such tokens don't provide any income As a result, the fundamental value of such tokens for the minority holder is close to zero, and protocols face voters' apathy problem.
As I dug around more to learn about Powerpool I realised they’re actually an anonymous team who launched this without any investors (from what I could tell from the outside). The protocol is still young and working as a community to get things through the door as shown through the proposals above. However where I see them deviating from INDEX is that they’re more aggressive in launching indexes and using that voting power more aggressively rather than being an ETF. Maybe a better way to put it is that INDEX is an ETF with some voting power and Powerpool is tokenized aggregated voting power.
Proposal #12 definitely show the quick time-to-market of the team with the fact that
I hate paywalls as much as you do, however I want to make sure I can continue to write amazing content for you all. Subscribing is a gesture that I’d personally really appreciate since it allows me to keep making DeFi Weekly even better.