Governance Beat — AAVE

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Governance Beat — AAVE

While nothing Earth-shattering has come to my attention regarding protocol governance this past week, there was one interesting event that speaks to a broader issue afoot Web3. In case you haven’t been keeping up on AAVE, they’ve had 9 on-chain governance proposals this month. This is a massive amount for a protocol, stress testing the safeguards in place for a platform with over $27B TVL 🤯.

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The topic of low participation in voting has been beaten to death, but that’s only one side of the sword. With low voting comes a vulnerability — large stakeholders being able to quickly push through and approve a proposal. To combat this AAVE V2 rolled out AAVE Guardian in December 2020, best described by AAVE stating,

If most governance tokens are stored on centralised exchanges, it would be possible for a governance attack to occur where a centralised entity uses its users’ AAVE tokens to take over the governance proposals and voting. To prevent this, V2 governance brings in “the guardian”, a 5/10 multisig with veto power in case malicious code is introduced in an AIP.

With 10 Guardians chosen, the mechanism is only as strong as its’ wielders are attentive.

Enter FEI and IndexCoop. FEI is an algorithmic stablecoin launched in late March 2021 that has since been under scrutiny for losing parity with the dollar and code vulnerabilities. IndexCoop is a DeFi protocol where investors can invest in fully collateralized digital asset indexes. On September 11th, proposal IIP-82 was swiftly passed, favoring the use of using IndexCoop’s AAVE holdings to list FEI on Aave V2 (viewable here). The long and short of it was described in the proposal, stating,

This IIP requests the IndexCoop’s Aave voting rights to be used for the sole purpose of submitting an AIP and then separately for voting FOR listing FEI as a collateral asset on Aave V2.

The authors of that proposal? Joey Santoro (Fei Protocol Founder), Brianna Montgomery (Fei Labs Team), Matthew Graham (@Matthew_Graham), and David (@oneski22). Just two days later IIP-82’s plan was carried out, and AIP-33: Add FEI to Aave V2 was proposed. The vote had only a 3-day window of voting to approve/deny, starting immediately upon proposal. The authors were again Joey Santoro (Fei Protocol Founder) and Brianna Montgomery (Fei Labs Team).

Ultimately, that proposal was fortunately canceled via delegation removal rather than needing AAVE Guardian. But what if it wasn’t? And what if the Guardians missed it? To address this issue, a proposal passed last week approving the implementation of a two-day voting delay period for new proposals to facilitate more robust pre-voting analyses. Details on the proposal can be read here.

The takeaway here is significant though. Think about how quickly a protocol could be altered — even AAVE, a DeFi blue-chip. It’s concerning how immediately risk could be taken on with the approach Fei Labs took. AAVE is mature, well-staffed, and capable to avert such efforts. You can only hope the protocols with less in their arsenal follow AAVE’s lead, especially considering those projects have over $100M TVL in some cases.

Brandon Goss

Note: Please comment with any findings of inaccuracies or additional details on the governance event. Governance Beat is for educational purposes and to broaden the coverage and discussion around protocol governance only.

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Governance Beat — AAVE was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.