This is What Shareholder Voting in Crypto May Look Like

Also, Compound becoming more decentralized and Aave attempts uncollateralized DeFi lending on testnet


Hello defiers and happy Friday :) Here’s what’s happening in decentralized finance:

  • Anchorage launches platform for institutions to participate in on-chain governance
  • Compound Finance takes steps to reduce centralization
  • Aave launches on testnet with DeFi’s first attempt at uncollateralized loans

Institutions are Coming to the MakerDAO Voting Booth

Anchorage, a digital asset custody firm, yesterday unveiled a governance platform for its institutional clients and MakerDAO’s MKR is the first token it supports.

It promises to combine the accessibility of hot storage with the security of cold storage to incentivize institutions to participate in on-chain governance. Currently only about 5 percent of MKR holders join weekly votes on interest rate moves. The goal is to push that number up by making it safer for crypto funds to vote, as the'y’re probably the biggest token holders, or “whales.”

On-chain voting usually requires that investors hold tokens in hot storage (online), rather than in safer, cold storage (offline). Anchorage uses something in between those two options called “hardware security modules,” or HSMs, which hold private keys securely, but can use those keys to sign and approve transactions.

The firm’s innovation is to require a quorum from its clients before it can sign transactions for them. This is to avoid approving malicious transactions and also to make sure it’s voting according to what the client wants, not to what one single employee wants.

Institutional MKR token holders a16z and Polychain Capital are among Anchorage’s clients. The company’s statement said,

Given Anchorage clients’ significant Maker holdings, we expect this new feature to have a meaningful impact on future voter turnout.

Not having a say on key decisions such as interest rate moves (which impact token supply) because of security concerns should be a big drawback for any investor. It’s like being a major shareholder, but too scared to participate in the company’s decisions. If Anchorage eases those concerns then it’s a big deal for Maker and other platforms with on-chain governance.

[Also, read about the debate for token holders to delegate votes, here.]

The MakerDAO community was recently discussing the possibility of adding so-called “non-trustless assets” as collateral to increase liquidity and make Dai more stable by increasing diversification. Non-trustless assets, for example, fiat-backed stablecoins and stocks, are those where third parties are required to custody and verify holders.

Non-trustless assets would strengthen Maker’s ties with traditional finance, and a governance platform to facilitate participation from institutions has the potential to do this too.

Compound Upgrades to Reduce Admin Control

There’s more governance related news. Compound Finance, the second-biggest DeFi platform, announced upgrades aimed at reducing the administrator’s ability to make rapid changes to the protocol.

Smart contract security firm Zeppelin recently audited Compound and found that one of the biggest risks in the platform is that a group of centralized administrators decide how the protocol works, which assets can be loaned, the interest rate model for each asset, collateral requirements, etc. Compound is trying to reduce that risk.

The main upgrade is that it will replace contracts’ administrator address, which used to configure different aspects of the protocol, with a “timelock.” The timelock has a hard-coded delay of at least 2 days for an admin action to take effect. Major upgrades, such as changing the risk system, may have a 14 day delay.

Aave Lending Protocol Launches on Testnet

Aave lending protocol launched on a public Ethereum testnet with features such as short-term uncollateralized loans that differentiate it from other DeFi lending platforms.

These are the key features:

Flash Loans: Users will be able to borrow from the Aave protocol without providing collateral, with the condition that the same liquidity is returned to the protocol before the transaction ends. If the loan isn’t repaid, the transaction gets reverted.

Stable rate loans: These loans have fixed rates in the short term, but the rate might re-balance in the medium/long term in response to extreme changes in the market conditions.

Tokenization: Users will receive tokens representing their deposits called aTokens, which carry the value of the deposited amount and of the accrued interest. aTokens can be safely stored, traded or transferred.

Perpetual loans: Users are able to get liquidity from their deposits without any duration and repayment schedule.

Support for multiple stablecoins and tokens: The protocol supports five stablecoins (DAI, USDC, Synthetix USD, Tether USDT, and TrueUSD TUSD), and 11 ERC20 tokens.