Why is TRUE DeFi important
Well, the bears are hitting the market hard! CeFi is collapsing, stablecoins are de-pegging, and mass layoffs in the industry leaders; what is there left to look up to? BUILD is what will get us out of this, but BUILT the right way, a better way.
HOT TAKE: The clear result of these market conditions is that some bad actors have eroded consumers’ trust. Decentralisation, transparency and clear explanations of risks are key elements that will help us regain this trust.
The illusion of DeFi with CeFi ways-of-working
Celsius Network is one of the biggest lenders in DeFi and has filed for bankruptcy due to the loss of funds in projects that the depositor's funds were invested in and the general price of BTC and ETH going down drastically.
The real issue here is not so much that Celsius has lost money; ultimately this is an investment; there would be no reward if there were no risk. The real issue is what was announced in this tweet:
Centralised finance companies (CeFi) marketing themselves as decentralised and using sentences like ‘unbank yourself’ or ‘banks are not your friends’ (source here) is misleading because, under the hood, they use the same infrastructure as every old bank, except they do not use any of the risk management practices that banks need to adhere to.
This often gives a false sense of security to the average user even though they are, in fact very similar to traditional investment accounts without clear disclosure of the potential risks.
We hope through the liquidation process, people with funds in Celsius recover most of their funds, although this is unclear at this stage how much they will be able to recover given that they have more liabilities (ie customer deposits) than assets (e.g. bitcoin, eth, etc), see this tweet https://twitter.com/kadhim/status/1547651970864779264 for more details.
Given these events, it could take years for users to trust similar platforms offering an easy yield on stablecoins and other crypto assets… If only someone was building a trustless and decentralised product similar to Celsius where it was clear where the user's funds were at all times…👀
Why actual trustless governance and execution are important
As BUILDers we are responsible for building better products for customers, but also simply because it's good business!
Users should ALWAYS be in control of their funds and their keys. Organisations should NEVER be able to block deposits/withdrawals unless it was via a democratic, decentralised and transparent process. Above all, users should be able to trust and verify the management and execution of a vote agreed on by the community. This is the only way a customer can fully trust an Organisation.
It is also the only way we will be able to argue with regulators and governing bodies that DeFi is an improvement over CeFi/TradFi.
In a traditional organisation, the governance can sometimes be somewhat democratic (shareholder resolutions, public market share price, etc.). Most big DeFi projects have improved on this by adopting on-chain or semi-on-chain voting tools like Snapshot (Aave, Curve, Alluo), but very few have gone the extra step and automated the Execution of these votes in a trustless and decentralised manner.
In a traditional organisation, once a decision is taken and the execution phase starts, a paper trail has to be created to document the execution and prove to a regulator or auditor with some degree of certainty that the execution took place.
In Defi today, once a decision is taken via a governance vote, it is most often manually actioned by a single signer or, at best, by a multisig (e.g. Gnosis where at least x out of n signers have to agree to a particular transaction).
Here is an example:
The proposal from Aave governance forum: https://governance.aave.com/t/arc-risk-parameter-updates-2021-11-04/6072
I was not able to find a transparent execution for it, it is therefore for the community to assume the execution is actually done, what if the Aave team is not able to implement it, what if there is a bad actor?
How is Alluo improving on this?
As always, we are committed to building trustless, which will allow us to reach a much wider market and truly make DeFi available for all.
We have decentralised our decision-making process by asking out community to vote with their $vlALLUO in our bi-weekly governance rounds (https://vote.alluo.com); however, executing these votes has so far been manually done by the Gnosis multisig owners (https://twitter.com/AlluoApp/status/1535042239608520709)
This, of course, puts a lot of dependencies on the Multisig owners; it is very time-consuming (up to 12hrs to execute all the votes) and very opaque. We want to do better.
We have designed and have released in production the following process executing the change of APY following a governance vote.
The above process allows anyone in the community to trigger a vote and run the execution in a very simple and transparent way, even if none of the core team is available.
There are, of course lots of challenges around this sort of process: How to do cross-chain work, How can the community have a red button mode where all funds are automatically uninvested from the different strategies and returned to all the Alluo protocol depositors etc.
First cross-chain governance execution
On Jul-15–2022 at 12:09:20, the Alluo core team created the first cross-chain vote execution using our system and calling the `executeSpecificData()` function of our new VoteExecutorMaster.sol contract on the Ethereum Mainnet in this transaction:
https://etherscan.io/tx/0xa9db44a3eabcaa39381e127cd19c5d0ebe3a5b5e2889d019a99cd2753eeaf134
which triggered via the AnyCall product of Multichain our VoteExecutorSlave.sol contract on Polygon:
Here is the full process in depth:
- We first created the bytecode based on the vote on our Snapshot. This test was done manually by the core team. We have now released scripts on our Github so that anyone in our community will be able to create the bytecode. This script will be running in Github Actions to make the process easy for our community, but if this fails, anyone can run this locally.
- This bytecode was then submitted to the Vote Executor Master for review here: https://etherscan.io/tx/0xfda0b27fa1cb975cf5607af26ac3f07b864706189fb7e2c0603f90f54a9c3257
- This bytecode is then approved and signed, with a time delay, by two of the multisig signer: https://etherscan.io/tx/0x176eb2b1d5342c1a35dcf413431ef2413ee19bf08acb1869148e7ed27032052f
In the next iteration of our Vote Executor Master, we will implement an optimistic time delay, whereby anyone in the community could `stop` an execution rather than a signer having to `approve` one. - Finally, the vote and bytecode are executed: https://etherscan.io/tx/0xa9db44a3eabcaa39381e127cd19c5d0ebe3a5b5e2889d019a99cd2753eeaf134
- This then triggers the AnyCall protocol, which triggers our Vote Executor Slave on Polygon: https://polygonscan.com/address/0x1D147031b6B4998bE7D446DecF7028678aeb732A#events
- Finally, Vote Executor Slave on Polygon triggers the APY change of the BTC Farm https://polygonscan.com/address/0xf272Ff86c86529504f0d074b210e95fc4cFCDce2#events (check the latest event)
This process is replicable for all possible votes in the Alluo ecosystem, but really any possible votes a DAO would do. True, cross-chain, transparent execution of DeFi governance proposals.
What is next?
This is a huge step for us, we are proud to stay true to our Vision and bring True DeFi to everyone, including our community, but we are only getting started.
Our next stop is to automate our Liquidity Direction vote. This is by far the most complicated vote to automate, it hits every difficulty box: Cross-chain, asset transfers, exposure to slippage and arbitrage, high incentive to steal funds “in transit” etc.
This is one of the most challenging projects our Core Blockchain team has taken on, but we are very excited to solve it, particularly in light of the recent disasters like Celsius, 3AC where it is the opacity of managing the funds that led to these companies’ demise.
We welcome any comments, opinions or rants on how we have tackled this so far and how we should tackle this in the future via our Discord, Github or Twitter.
