Governance Proposal: Allow ANC stakeholders to vote using ANC's Luna collaterol

Mechanism
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Typically Voting on LUNA proposals is performed by validators or wallets staking their Luna directly.

As you are aware the ANC protocol currently holds Luna which people have deposited as collateral against their loans. This is distributed to validators, who then can use it to vote.

I am proposing we (ANC Stakeholders) be allowed to vote on Luna proposals using this stake.

I propose we create a new kind of governance vote that will allow us (ANC Stakeholders) to vote on how we wish a proposal to succeed (yes/abstain/no/no-veto).
On conclusion of our vote, we will submit that vote to the Luna vote, with ‘abstain’ meaning we don’t participate (or potentially vote to abstain)

(Disclaimer I am an employee of Anchor Protocol/TFL)

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Agreed.

I think the long-term goal though is actually liquid staking. This is something the ecosystem desperately needs to increase voting turnout and not have to have such a high cost to vote i.e. what I’ve been calling the voting tax ratio which is the farming returns divided by the governance staking. Which is often over 10 meaning it cost 10 x the staking returns per day to vote which is the opportunity cost lost.

Ideally once prisms out we could possibly look at their code to see if we could fork it or actually use it as a native integration or whereby people can separate the yield on the prism platform and still be able to farm. If that was the case it would require having two different pools: 1. The standard pool ANC-UST 2. Prism liquid pANC-UST.

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I am against this proposal as a Terra user.

Assuming ANC stakers are the same people borrowing against their Luna:
Voting should be reserved for directly staked assets. Staked assets display your incentives are aligned with that of the network and you will vote accordingly. Allowing people to vote while also hedging against Luna should not be allowed.
For example: ANC stakers might vote and negatively affect Luna price with the purpose of increasing liquidations and gaining more money through fees.

Assuming ANC stakers and borrowers are different people: This will give ANC stakers 2,500M votes. This will give ANC 51% of ANC holders a lot of power. This is just another vector a rich individual could use to control Terra governance. This is the type of stuff we have to watch out for when using PoS instead of PoW.

On the other hand this will make ANC token go up if such rich individuals want to exert such power.

A Terra loyal might stop using Anchor because they do not want to give ANC holders their voting power in order to borrow against their Luna. Out of principle. This could also decrease the Anchor borrow demand.

EDIT: it is however just a matter of time before prism or another protocol allows this as well. This could be inevitable.

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At the moment ANC does not directly participate, and the validators where the tokens are staked get to vote with them, which I presume they do in a value-maximizing role (in economic terms) for themselves (as a rational person would do).

Is that in the best interest of the ANC protocol?

Or are the people who ‘own’ the ANC in a better position to decide what is best for ANC?

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I’m just not sure if allowing ANC stakers to vote on Luna gov solves the greater overarching system wide issue of having to sacrifice voting because of non-liquid staking and non-delegable voting on bonded assets. I think this this is the root of the problem we have to solve and warrants a broader overall discussion and how we’re going to achieve liquid staking for LP protocols but also how we allow bLUNA (probably bANC if that comes) holders to vote. This is really at the core of governance suffering when there are more highly incentivized returns and we need those people to also vote but currently cannot.

Toying around with liquid staking can solve the staking/farming trade off, however, so far all I’ve been able to come up with is some form of delegated voting for bLUNA and bANC. Ideally, we could come up with a way for the protocol to redelegate voting authority back to the original wallet holder. I’m going to research this more deeply as the token engineering common DAO is working on delegated voting. It’s going to be complicated but i think we can figure it out.

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Interesting discussion, please keep us posted.

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Using a platform vs ‘owning’ a platform is an interesting discussion.

My position here is that the person/wallet holding the base token owns all the rights associated with it.

If you exchange your LUNA (or XYZ) for a different asset (say bLuna, or bLuna/Luna LP) then you are now a holder of that asset, and can participate in whatever governance that asset has.

you also bring up an interesting question

  • Should governance be for ALL ANC holders, or just ones that are staked in the governance pool.

and secondly, in the future when ANC has other tokens that have voting rites on other chains, should ANC token holders participate in the governance of those chains, so it can affect what the token holders believe is in their best interests.

2 Likes
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@PFC : great thoughts here which have made me dive deeper:

Should LP and b-asset holders have voting power?

I want to break this down between:

  1. B-asset ANC gov voting
  2. B-asset specific underlying collateral gov voting
  3. LPs.

1. b-assets:

I don’t believe that simply having b-assets should allow platform users to vote in ANC gov. It undermines the reason for holding ANC. Moreover, the ANC rewards paid to these platform participants give them voting power if they stake and don’t sell those rewards. Therefore, I believe it would put further selling pressure on ANC tokens to offer this.

The counterargument is that these users have skin in the game and are affected by the governance of the protocol. Therefore, I still think they have to buy ANC if they want to have a vote.

2. Non-ANC voting for B-asset:

So now let’s dive into the border picture seen through this lens: b-assets such as b-LUNA, b-ETH, b-ATOM etc. have voting rights that would can be exercised. I see two (possible third hybrid) options from your ideas here:

  1. Allowing ANC protocol to vote on b-asset gov proposals
  2. Coming up with some form of delegated voting whereby ANC re-delegates voting power back to the b-asset holders

Point 1. Allowing ANC protocol to vote on b-asset gov proposals

Extrapolating on @PFC idea, sub-proposals for b-asset proposals could be added by ANC stakers. For example, ANC stakers could have created a sub-proposal for prop ID 132: Luna incentives on OSMO, whereby they direct the overall ANC protocol vote for all the staked LUNA assets in ANC towards as yes, no, abstain, or veto. Simply put, this allows ANC gov to vote for what is best for the platform. A great example would be if prop ID 132 had included a ANC-UST pool as in part of the LUNA liquidy rewards on OSMO, ANC gov could have helped direct that vote with a sub-proposal. Moreover, this could also allow ANC gov to create vote to create a proposal on b-asset gov.

This would need more in-depth thought as one issue that comes up is that minority votes for abstaining, veto, and no would be silenced on a yes vote and vice versa, whipping out minority positions that would have come through with some other form of delegated voting.

Despite this and other possible downfalls, the key reason why I would support this idea is that ANC protocol is taking the staking risk. Governance should be able to vote in a way that best protects and supports value-added proposals for positive feedback loops into ANC.

The flipside to this, is the actual core asset holders lose the vote that could affect the future value of that asset in which they will more than likely redeem, arguably a trade-off that might be worth the borrowing and fungibility value provided which can be deployed for additional yield.

Point 2. Delegated Voting:

This is a very new concept and as far as the research I’ve seen, there is no type of delegated voting on Cosmos yet. That said, I do believe delegated voting will surface in the future as some promising eth DAO projects are working on this (mainly, Common Stack, TEC, and Blockscience). The idea here would be to re-delegate voting shares back to b-asset holders so they can direct ANC gov on how to vote on their behalf. On top of building a delegated voting mechanism, it would require building sub-governance voting for each b-asset, whereby b-asset proposals are voted on by b-asset holders which thereby directs the ANC vote for this.

This would be hard to build and perhaps the cost-benefit wouldn’t be worth it, especially if the community thinks ANC gov should have the vote while it is holding these staked assets. I just lay this idea out as something to think about for those that think b-asset holders should have voting power. I do think that delegated voting for other reasons is a needed feature of any good decentralized governance model.

3. Lastly LPs

LPs take IL and bot arb slippage risk (FIFO meme pool front running, back running etc) to provide a very valuable service to the protocol. Allowing LPs to directly vote would be messy because of the x*y=K function. Therefore I think we should explore the possibility of having some form of liquid staking. This would allow the issuance of liquid-ANC with a corresponding LP L-ANC-UST LP pool. This would give fungibility to staked ANC token holders allowing them to use their ANC in other yield generating ways outside the ANC ecosystem. There are some technical details to work out on this as well, such as how the xyk rebalancing would be addressed, which I have thoughts on but won’t go into here. This is a huge opportunity to alleviate the voting tax and hopefully increase gov participation.