I just came across this proposal by Wintermute for the Ethena protocol, and it’s got me thinking about a lot of things. Basically, he’s suggesting to activate a fee switch that would direct some of the protocol's revenue to sENA holders. On the surface, it sounds interesting but let’s dive deeper.
What’s in it for sENA Holders?
The core idea is to align the interests of those who have staked their tokens (sENA holders) with the success of the protocol. If you’re making money off Ethena, shouldn’t you also benefit from its success? That seems to be the gist of it. Wintermute even proposes some benchmarks - like circulating supply and average revenue levels - before any distribution happens.
But here’s where things get murky. He also wants to clarify existing revenue models to avoid conflicts between equity holders and token holders. Is there tension brewing?
Comparing with Other DeFi Models
Now, if we look at other DeFi protocols, this isn’t entirely new. Take Frax Finance for example; they have a model where some revenue goes back to token holders but it's more about internal adjustments than direct payouts.
Then there's dYdX which has community treasury proposals that don’t involve sharing protocol revenue with token holders directly. And GMX? Their proposals are all about expanding offerings without any thought of sharing profits.
Wintermute's proposal feels different though – it’s straightforward in its intention and raises questions about potential conflicts that aren’t as front-and-center in other protocols.
Pros and Cons: A Double-Edged Sword
Wintermute himself laid out some benefits and risks:
Benefits
For one, it could increase engagement among token holders who now have a direct stake in governance outcomes. More active participation might lead to better decisions overall.
Secondly, mechanisms like staking could enhance network security while giving back to those who help secure it.
Risks
But wait! There are risks too! Redirecting revenue could attract regulatory scrutiny – something crypto can do without right now.
And then there’s inflationary pressure; over-incentivizing through high rewards could dilute existing tokens’ value faster than you can say “print more money.”
Lastly, there’s the economic health aspect; tapping into what should be surplus might compromise long-term sustainability.
USDe vs UST: Learning from Failures
Another interesting point raised was about Ethena's USDe stablecoin compared to Terra's UST. Unlike UST which was an algorithmic failure waiting to happen, USDe is collateralized with a healthy ratio above 100%.
The proposal even outlines how easy it would be for Ethena to unwind USDe if needed – just close those positions!
The Gas Fee Elephant in the Room
And let’s not forget about Ethereum gas fees right now! They’re insane! Any transaction involving a fee switch would cost a fortune unless done during off-peak hours or on some Layer 2 solution that isn’t currently being considered.
So yeah… while Wintermute's proposal has its merits and demerits... I’m left wondering if now is even the right time for such a thing?
Would love to hear thoughts from others in this community!
