Vesta Finance debates co-founders' rage-quit, Frax Finance plans to launch sFRAX, MakerDAO community proposes $100m investment in tokenized T-Bills, LlamaRisk sheds light into DAI's RWA risks,...
Issue #51 of The State of DeFi Lending newsletter
Welcome to issue #51 of The State of DeFi Lending, a newsletter covering the highlights of lending markets in DeFi.
In this issue we cover:
Two of Vesta Finance’s co-founders want to exit the project and suggest a rage-quit with a $1.7m payout. The proposal comes after cultural issues within the founding team. Vesta’s third co-founder and CEO wants to continue with the project and proposes alternative outcomes.
Frax Finance proposes to launch staked FRAX (sFRAX) which distributes yield generated from RWAs. This moves comes after MakerDAO successfully grew DAI supply by launching the DAI Savings Rate whose design inspired the sFRAX.
MakerDAO community debates a $100m allocation to tokenized US treasury bonds. The plan is to bring more RWA investments onchain which ties into Rune’s Endgame vision of launching a RWA-centric SubDAO called “Quant”.
LlamaRisk published an indepth report on DAI’s RWA exposure and risks. Anybody with a serious interest in MakerDAO & RWAs should bookmark this report as it provides a solid foundation of structuring and legal considerations.
Read below for more…
News
Vesta Finance’s co-founders propose a "rage-quit" with a $1.7m settlement. It sends the token up 3x but Vesta’s CEO Mikey Milken opposes the move.
Two of Vesta’s three co-founders (0xAtum and Midnight) have expressed their intention to exit the project, citing dissatisfaction with its progress. They have demanded a $1.7m compensation, suggesting the settlement be funded either by dissolving the project or executing a "rage-quit." Proceeds of the rage-quit would come from the Vesta treasury.
Mikey Milken, the CEO of Vesta Finance, has voiced strong opposition to the proposed rage-quit. He believes that such a move could jeopardize the protocol's future upgrades. Milken has presented a counterproposal aiming to buy out Atum and Midnight without significantly impacting the project's trajectory.
The internal conflict has led to a surge in VSTA's value, with a 3x increase since the onset of the dispute.
The debate continues within the Vesta DAO community. While some members advocate for the exclusion of new investors, particularly the “RFV Raiders”, from potential settlements, others believe in the principle of "one token, one vote" (which suggests the rage-quit proceeds should be shared equally).
This is a developing story and will likely keep the Vesta community busy for some time. There are also numerous legal elements referenced by Mikey Milken as VSTA is designed as a utility token with no contractual claim on Vesta’s equity or assets.
There is an ongoing vote on Snapshot (expires on Thursday) about the “Future of Vesta” allowing the community to vote on a preferred outcome for Vesta:
Proposal VSP-5: Sunset the token, and allow runway for Vesta Finance remaining team funded by Vesta Finance's treasury
Proposal VSP-6: Unwind the project
Try Again: Ensure that there is a way to revert to the drawing board for a new proposal if a particular issue has been overlooked by the two prior proposals presented.
Do Nothing
Frax Finance proposes sFRAX in an attempt to compete with MakerDAO's DSR. FRAX staker will receive a yield generated by RWAs.
Frax Finance has unveiled a proposal for the introduction of sFRAX, a system designed to mirror MakerDAO's Dai Saving Rate (DSR). This new system would enable FRAX token holders to stake their assets in exchange for sFRAX, thereby earning a fixed interest rate. The interest for sFRAX would be derived from "AMOs and RWA strategies" and would be aligned with the Federal Reserve Interest on Reserve Deposit Rate (IORB), ensuring its competitiveness with other RWA assets.
The primary aim of sFRAX is to offer FRAX holders an avenue for passive income generation while simultaneously promoting the growth of FRAX supply. Additionally, sFRAX tokens will be fully transferable, paving the way for innovative applications in the DeFi space that can utilize this interest-bearing token.
Frax Finance aims to emulate DAI’s solid growth rate after the DSR was (re)introduced, increasing DAI supply from $4.5bn to $5.3bn.
MakerDAO explores $100m allocation to tokenized US treasury bonds in an attempt to further streamline the RWA investment strategy.
On September 8th, the MakerDAO community proposed a $100 million allocation to develop tokenized U.S. Treasury Bonds products. This comes a day after the addition of $50 million in RWA assets, primarily in short-term U.S. Treasury Bonds, bringing MakerDAO's total RWA assets to approximately $2.514 billion.
In February 2022, MakerDAO signaled its intent to invest in T-Bills and has since invested $2 billion in short-term bonds through off-chain structures. Partnerships with Monetalis Clydesdale and BlockTower Andromeda have given MakerDAO a significant first-mover advantage. These initial off-chain investments were the beginning of MakerDAO's journey.
The community suggests allocating up to $100 million to experiment with tokenized T-Bill products. There are no immediate plans to reduce or shut down existing structures like Andromeda or Clydesdale, however.
The community is now suggesting a shift from off-chain to on-chain tokenized T-Bills. This market, which was non-existent a year ago, has now grown to a $300 million industry with a variety of participants.
There are various benefits of tokenized T-bills to MakerDAO, such as higher transparency, simpler accounting, less complexity, automation, faster redeemability.
Rune Christensen published a thread about MakerDAO’s endgame putting the DAO’s RWA strategy in context: A SubDAO called “Quant” will focus on scaling RWA investments by leveraging technology.
As RWA exposure becomes of ever-growing importance to DAI, LlamaRisk has published an indepth report looking at the various risk factors.
MakerDAO's DAI was initially solely backed by ETH but this share has now dropped to 25% with the remainder being accounted for by RWAs.
MakerDAO's RWA collateral composition is diverse, ranging from U.S. Treasuries to bank loans. Notable partnerships include Monetalis Clydesdale, BlockTower Andromeda, and Coinbase Custody. These collaborations aim to provide MakerDAO with stable revenue streams while balancing decentralization.
Recent defaults and covenant breaches in vaults like ConsolFreight and New Silver have raised concerns about transparency and risk associated with RWAs. While RWAs expand DeFi's reach, they introduce challenges related to transparency, regulatory risks, collateral risks, and counterparty risks.
The Maker Foundation initially supported MakerDAO's development. With its dissolution, the community now directly supports the protocol. However, the centralization of voting power among a few MKR holders raises concerns. MakerDAO's "Endgame" plan aims to transition DAI into a free-floating digital currency, emphasizing the need for a balance between centralization and decentralized governance.