Participants in a DeFi protocol ecosystem

  • Protocol politicians
  • Keepers and arbitrageurs
  • Protocols, devs, and builders
  • Liquidity providers
  • Users on the demand side (e.g., borrowers, traders, premium payers)
  • Hackers

1. Protocol politicians

Source: Aavenomics

The main question is: how to nurture protocol missionaries, but not mercenaries?

Motivation

Source: https://jessewalden.com/progressive-decentralization-a-playbook-for-building-crypto-applications/
Participation rate (total votes/circulating supply) in recent proposals
  • Skin in the game. A governance participant should bear the financial risk of the consequences if a protocol is governed incorrectly. Great examples are long-term lock-ups (Curve), slashing/payout from insurance fund (Aave), dilution (MakerDAO, Aave). Note: fear of loss shouldn’t be the only motivational factor;
  • Systematic financial incentive. Revenue was always a good metric that indicates that something is run correctly. Thus, accurate governance should be rewarded in the form of protocol profit sharing. Note: it shouldn’t be the only motivational factor because decision-making may ultimately tend to short-term profit maximization;
  • Protocol politician incentive. The two methods above are great however they don’t recognize pro-active governance participation and do not separate actual contributors from free riders. Valuable activity on forums and discord should be rewarded to retain and engage active governance contributors.
  1. Meta-governance and DAO composability. There are already indexes and voting portal aggregators that allow participating in different votings from one place or having one token. Being included in an index or listed on a voting portal aggregator can increase on-chain involvement.
  2. Allow voting in proposals using farming pool tokens (e.g., Sushiswap).
  3. Implement gas refund to those who voted on-chain (e.g., Uma).
  4. Reward the “correct” voting (e.g. Uma)
  5. Launch grant programs for protocol politicians (e.g., Compound, Yearn)

2. Keepers and arbitrageurs

Source: DeFi Pulse
Source: https://keep3r.network/

3. Protocols, devs, and builders

Source: 24h Uniswap Trades %, by Origination, cDAI holders, DAI holders, aDAI holders

4. Hackers

Source: https://explore.duneanalytics.com/queries/1439#2469
Source: https://explore.duneanalytics.com/queries/1439#2469
Source: https://explore.duneanalytics.com/dashboard/lending

Final thoughts

About the author

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