DAOs form the lifeblood of DeFi’s ever evolving landscape. When managed correctly, these organizations embody crypto’s core ethos of decentralized, community-controlled, governance.
Recent controversies have brought the importance of effective treasury management into fresh relief. The Uniswap team implemented their own 0.15% protocol fee on the Uniswap frontend, raising questions around the DAO’s autonomy and power. This centralized move is particularly concerning given that the Uniswap DAO, which manages a $1.7B treasury, has been unsuccessful in similar attempts to route fees to token holders.
Other DAOs have taken a community-first approach, helping bolster token prices through novel value accrual mechanisms. The Origin DeFi DAO and MakerDAO offer prime examples of effective treasury management, balancing rewards and revenue with deft governance of these DeFi ecosystems.
Foundations For Successful Governance: Origin DeFi DAO
Walking the tightrope of growing a treasury while still rewarding users is a challenge for any community. Origin DeFi’s governance structure has been designed with this balance in mind, empowering stakers to take charge of the protocol’s future.
The ecosystem is governed by Origin DeFi Governance (OGV), which also acts as a value-accrual token. Holders can stake OGV on a timeline of up to four years. Stakers receive voting and economic power in the form of non-transferrable veOGV. In a bid to reward Origin’s most loyal supporters, veOGV is issued according to the amount of tokens staked and the chosen time horizon.
The Origin DeFi DAO, composed of veOGV holders, submits and votes on protocol decisions for both flagship products – Origin Ether (OETH) and Origin Dollar (OUSD). An important proposal recently passed through governance, enabling 10% of yield generated by OETH to be used to buy back OGV and distribute this revenue to stakers.
They say you can’t predict the future, but sometimes it just comes down to some basic math.$OGV 👀 https://t.co/xDmv9odBYn pic.twitter.com/8UZq3Z9hik
— Josh Fraser (@joshfraser) October 25, 2023
How MakerDAO Approaches Value Accrual
MKR is the governance token of the MakerDAO ecosystem, which is responsible for maintaining the stability of the DAI stablecoin. As a governance token, MKR holders have the power to vote on crucial aspects of the system such as collateral types, stability fees, and system upgrades. This ability to shape the direction of the protocol places significant value on MKR tokens.
Value accrual for MKR holders primarily comes from two sources. First, the “burning” mechanism. When users interact with the MakerDAO system, they pay fees—often in the form of stability fees when opening or maintaining a Collateralized Debt Position (CDP). These fees are used to buy MKR tokens from the open market and then “burn” them, effectively reducing the overall supply.
This scarcity effect can contribute to upward price pressure on the MKR token. Second, MKR holders also benefit from a more stable and robust system. Better governance decisions mean a more reliable DAI, which in turn attracts more users and capital into the ecosystem, further enhancing the value of MKR. Overall, the value of MKR is deeply rooted in its governance capabilities and the economic models that drive demand for DAI.
Maximizing Value via Treasury Management
Both OGV and MKR launched with a planned emission schedule, designed to stream emitted tokens to the ecosystem’s most valuable participants. For OGV, these emissions are lowered incrementally, ending in 2026 to mitigate token dilution. As a result, the Origin DeFi DAO has passed proposals that pave the way to more sustainable yield derived from protocol fees on OETH and OUSD. In regards to MKR, 60,000 new tokens are emitted each year, used to fund Maker’s subDAOs. Conversely, MKR is dynamically burned to reduce supply dilution based on the protocol’s performance.
MakerDAO’s DAI stablecoin holds over $5 billion in aggregate value. The MakerDAO treasury consists of various assets, and governance participants can shape what the treasury looks like. As more value is locked in DAI, more funds are accrued to the DAO.
In the case of Origin, both OTokens act as incisive yield generation engines to maximize returns from ETH and USD staking. Curve strategies form a core component of this yield generation, allowing reserves to be deployed as LP to OETH and OUSD’s pools. Origin’s warchest of CVX goes toward incentivizing these pools and further boosting yield.
The Origin DeFi DAO has implemented allocations across both protocols to reward members while still supporting Origin DeFi’s long-term growth.
Specifically, 50% of OETH and OUSD’s performance fees are being used to buyback OGV on the open market, distributed to stakers as additional rewards. The remaining 50% funds purchases of additional CVX to bolster yield on both platforms. Given that each OToken accrues a 20% performance fee, this means that 10% of all yield generated across Origin DeFi goes towards OGV buybacks for stakers.
These measured approaches exemplify the power of DAOs to drive effective protocol growth. With these allocations, stakers enjoy a more robust rewards stream while also cementing these tokens’ unique ability to deliver sustainable yield at scale.
Building For The Future, Together
MakerDAO and the Origin DeFi DAO highlight the vast potential of effective decentralized governance. When a project and its community are strongly aligned on a long-term vision, DAOs are empowered to flourish.
In light of Uniswap’s controversy, it’s vital that we remember why DeFi was born in the first place. Projects like the ones highlighted above are holding steadfast to the space’s ultimate vision – inclusive financial access placed firmly in the hands of users. Allowing self-serving agendas to pollute this vision creates misaligned incentives that may hinder the goals that these protocols set out to achieve.
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