Governance Issues & Risk Management

Control by multi-sig has issues:

These clear points of centralization and the lack of disclosures both dramatically increase the odds of the SEC using Wonderland as a “test case” to explore when a protocol’s claims to decentralization are not backed up in terms of the actual power distribution, said Campbell.

“The SEC or other, similar regulators in other jurisdictions might say, ‘This looks a lot like a centralized enterprise because effectively the checks and balances are not enforced by code.’ You have soft power via signal Snapshot voting, but the hard power is held by the multi-sig,” he said.

Indeed, over the past year the SEC has been threatening to establish a more active stance in the regulation of DeFi protocols, but so far has yet to take meaningful action – possibly due in part to the legal tangle created by decentralized decision making.

Treasury Risk Management Considerations

Traditional hedge funds keep the majority of their gains on bearish, short positions inside vehicles internal to their private partnerships, which is why the leading hedge fund partners are all so rich (see leading hedge fund listing in References). Initially, we want to market the CVP token as a defensive-minded ‘hedged’ token, with not only real fee income, but also with downside ‘insurance’ to reduce volatility of xCVP NAV. This adds value to CVP as collateral, for example, where DAO-managed lower CVP price volatility enables CVP holders to borrow against pledged CVP (and staked xCVP?) with much reduced risk of liquidations. The DAO Treasury would initially hold all these defensive positions centrally and track the NAV accruing to xCVP, which we all hope will rise, driving up the exchange rate CVP/xCVP for investors who wish to un-stake and sell their CVP. Subject to DAO governance, however, PowerPool reserves the option to also package defensive pools for trading on the open market, with only fees for the DAO Treasury.

Obviously, this approach to investing the DAO Treasury makes risk management one of the key skills of the DAO, and the (multi-token) PowerPool protocol needs to be governed not only by dynamic listings management and continuous (re)weightings, but also by clear position limits or boundaries.

On behalf of the DAO, the SparkFin Team will be responsible for financial management of the DAO Treasury, CVP monetary policy, calculating the periodic NAV of the central accounts/wallets, controlling expenses and collecting rewards to maximise the value for xCVP stakers.