Bessie Liu

Macauley Peterson

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        <ul>
                <li>Recent MakerDAO governance battle was seen as a clashing of interests: venture capital vs. small fry</li>
                <li>Roughly 30% of MKR token holders took part in the vote, with 60.17% voting against the proposal and 38.28% voting in favor</li>
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<p>MakerDAO community members voted against adding an advisory committee that would manage internal checks and balances within the DAO and educate governance token holders on complexities surrounding future proposals.</p>



<p>The <a href="https://mips.makerdao.com/mips/details/MIP39c2SP33#sentence-summary" target="_blank" rel="noreferrer noopener">proposal</a>, introduced by MakerDAO figure Luca Prosperi, intended to create a Lending Oversight Core Unit (nicknamed “LOVE”), an addition to the current <a href="https://forum.makerdao.com/c/core-units/31" target="_blank" rel="noreferrer noopener">22 other core units</a> (CUs). The idea was to implement a more streamlined leadership structure within the DAO (decentralized autonomous organization).</p>



<p>But the broader community didn’t love the concept. The decision to turn down a potential advisory committee was finalized on Monday, after more than <a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown" target="_blank" rel="noreferrer noopener">60%</a> of votes were cast against the proposal and <a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown">3</a><a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown" target="_blank" rel="noreferrer noopener">8%</a> voted in favor. By Maker governance standards, these were close votes with a high turnout — holders of 293,911 governance tokens holders took part in the LOVE vote, amounting to nearly 30% of the circulating supply.</p>



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">Over the last several days, we&#39;ve seen the number of votes cast reach an all-time high, MKR borrow rates on Aave spike and a massive shift in MKR delegation in the last minutes of voting.</p>&mdash; GFX Labs (@labsGFX) <a href="https://twitter.com/labsGFX/status/1541488161968340992?ref_src=twsrc%5Etfw">June 27, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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<p>“I do not believe that the DAO should be engaging in activities that require large amounts of trust in isolated groups of individuals, have little to no real-time transparency, or that are not driving us toward a decentralized future,” Chris Blec, recognized delegate of MakerDAO, <a href="https://vote.makerdao.com/polling/QmWYajMq#comments" target="_blank" rel="noreferrer noopener">wrote</a> in the forum discussion. </p>



<p>Blec continued: “Every CU is incentivized to find ways to justify its own existence, and I feel that the proposed scope of LOVE would allow far too much subjectivity in that regard.”</p>



<p>According to GFX Labs, a group focused on DAO governance matters, clear battle lines were drawn between opposing philosophical camps.</p>



<p>“Those who want to see more organization and control voted YES (TradFi and VCs). The NOs (most of the community) generally opposed the price tag and few deliverables and favored&nbsp;[Rune Christensen’s] Endgame plan.”</p>



<h3 class="wp-block-heading"><strong>Heading for the endgame</strong></h3>



<p>MakerDAO is a cornerstone of the Ethereum decentralized finance ecosystem, allowing users to lend and borrow cryptocurrency, peer to peer. The protocol has its own native token, MKR, which allows holders to vote on various governance proposals. </p>



<p>Since December 2017, the DAO has regulated over-collateralized stablecoin DAI, which aims to maintain a one-to-one peg with the US dollar and has grown to become the fourth largest stablecoin, with a market capitalization in excess of $6.2 billion, <a href="https://www.coingecko.com/en/categories/stablecoins" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>.</p>



<p>Christensen, who founded MakerDAO in 2014, <a href="https://forum.makerdao.com/t/the-endgame-plan-parts-1-2/15456" target="_blank" rel="noreferrer noopener">outlined</a> an “ambitious initiative” two months ago to move the DAO toward a “predetermined, immutable end state” sometime in the future, which he called The Endgame Plan.</p>



<p>“A key objective for me is to deal with the major contradictions and challenges that I see, and to also ensure that the project gets on a path towards a truly decentralized equilibrium,” Christensen wrote.</p>



<p>The plan calls on Maker DAO to restructure itself around a series of “MetaDAOs” or subDAOs that would replace the CUs with their own distinct incentive-aligning token.</p>



<h3 class="wp-block-heading"><strong>A slow road to effective governance for DAOs</strong></h3>



<p>Voter apathy has been a problem in Maker governance, despite the recent uptick in participation.</p>



<p>Delegates such as the pseudonymous Hasu, host of the Uncommon Core podcast, have been advocating for a more streamlined approach “to move away from micromanagement and towards a board-of-directors style DAO that sets the strategic direction for the protocol,” as he <a href="https://twitter.com/hasufl/status/1540683663385407488" target="_blank" rel="noreferrer noopener">wrote on Twitter</a>, in the final days of the vote. </p>



<p>Although DAOs are primarily member-driven organizations, as it currently stands, DAOs have two main membership models: token-based membership and share-based membership. Over the past few months, a number of challenges have arisen around token- and share-based DAO governance, and MakerDAO is not alone in its examination of new governance structures. </p>



<p>Last week, Solana-powered lending protocol Solend DAO passed a governance proposal limiting users&#8217; borrowing to $50 million per account, with rollouts starting at $120 million and gradually decreasing. This proposal came after a single whale wallet gained over 90% of the protocol’s available lending assets, throwing into question how DAOs can practically deal with contract law in the physical space. </p>



<p>Staking community Lido DAO had also <a href="https://cms.blockworks.co/lido-dao-proposes-governance-switch-up/" target="_blank" rel="noreferrer noopener">proposed a dual governance solution</a> to reduce the decision-making scope of its LDO token holders. Although Lido DAO is currently deployed on the Ethereum network, LDO token holders have governance over liquid staking protocols on Polygon and Solana, which means their motivations may vary from those of stakers who are primarily on the Ethereum network. </p>



<p>“Token-based governance is great for product-based protocols, but it is not the best for media DAOs or ecosystem DAOs because a community should not be owned by the richest or the one that arrived before others,” Marco Moshi, DAO lead at Polygon, told Blockworks. </p>



<p>Moshi says an organization&#8217;s stakeholders will likely change over time, and DAOs should take into account that their organization is evolving and the individuals involved will also be regularly changing. </p>



<p>“The DAO space is very interesting and is a main evolution of Web3, it is one of the places where we can witness a real big level of engagement on the community side and on the builder side, so we must support new developments that will come after existing DAOs, and evolve and adopt a new generation of DAO tooling systems,” Moshi said.</p>



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MakerDAO Votes Against More Streamlined Leadership

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        <ul>
                <li>The majority of stakers on Lido are on Ethereum, but LDO holders possess governance power over other chains</li>
                <li>Lido hosted a conversation about the proposal on Twitter Spaces</li>
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<p>The DAO overseeing Lido, the largest provider of staking services for Ethereum, has proposed a switch up of its governing system to “reduce the existing scope of governance” for its token holders.</p>



<p>Lido DAO, a decentralized autonomous organization, is governed by the holders of the DAO’s governance token, LDO — holders participate in transparent on-chain voting to decide on platform parameters and proposals.&nbsp;</p>



<p>Although the Lido DAO is currently deployed on Ethereum, LDO holders possess governance power over liquid staking protocols on other chains, including Polygon and Solana.</p>



<p>Under the DAO&#8217;s current multichain governance system, LDO holders have incentives related to other chains, which are “not necessarily aligned with those of Ethereum network participants,” Sam Kozin, lead smart contract developer at Lido, wrote in a <a href="https://research.lido.fi/t/ldo-steth-dual-governance/2382" target="_blank" rel="noreferrer noopener">blog post</a>.&nbsp;</p>



<p>To solve this problem, the Lido team has proposed a dual governance solution that sits between LDO holders and stakers. The proposal will introduce “a dispute and resolution mechanism for misaligned incentives between stakers and LDO holders.”&nbsp;</p>



<p>“This [resolution] mechanism is designed to be triggered when LDO governance becomes captured as a result of attacks or misaligned with stakers and the network, because this mechanism allows two stakers to block governance decisions, it has the effect of disincentivizing LDO governance from executing decisions that go against the stakers interests,” Kozin said during a Twitter spaces event on Thursday, held to discuss the dual governance proposal.</p>



<p>During the general decline in the crypto market, Lido’s staked ethereum (stETH) tokens have <a href="https://cms.blockworks.co/will-lido-staked-ether-trigger-the-next-big-crypto-crash/" target="_blank" rel="noreferrer noopener">been losing value</a>, relative to ether, and this split has contributed to a liquidity squeeze in the crypto market. Although each stETH token is fully backed by ether locked in Ethereum’s Beacon Chain, stETH will not be redeemable for ether on a 1:1 basis until after the blockchain’s <a href="https://cms.blockworks.co/shadow-forks-and-testnets-the-ethereum-merge-approaches/" target="_blank" rel="noreferrer noopener">Merge</a> and a subsequent network upgrade to enable withdrawals projected to occur sometime in 2023. As a result, stETH is trading below 0.94 ETH per token as of Friday at 8:00 am ET, exacerbated by heavy selling from <a href="https://cms.blockworks.co/blockfi-says-it-liquidated-a-large-client-amid-3acs-margin-calls/" target="_blank" rel="noreferrer noopener">struggling</a> crypto hedge fund firm Three Arrows Capital.</p>



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">people think Celsius is the biggest stETH dumper but its 3AC and it isnt relatively close, they are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have <a href="https://t.co/9bZnmTXQzj">pic.twitter.com/9bZnmTXQzj</a></p>&mdash; moon (@MoonOverlord) <a href="https://twitter.com/MoonOverlord/status/1536697618797142016?ref_src=twsrc%5Etfw">June 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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<p>Hasu, a prominent though pseudonymous blockchain researcher and strategic adviser to Lido, believes that for the protocol to grow and capture more revenue, “the community, the team developers need to trust that Lido isn’t something that will harm Ethereum.”</p>



<p>“The more governance power you have in your protocol, the more the governance and participants are incentivized to exploit and extract money from it by doing something that&#8217;s against the protocol,” Hasu said. “Less governance will make it easier for people to trust us and will save us a lot of money.”</p>



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