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Parameter Proposal Committees

Parameter Proposal Committees

Protocols form PPCs by designating a committee mandate, determining membership, and granting on-chain or off-chain authority.

The scope of committee responsibilities can be set wide or narrow depending on protocols’ needs. Synthetix grants the Spartan Council broad discretion to drive parameter changes and other protocol priorities, while the Compound community multisig has a more narrowly defined mandate of managing borrowing caps for cToken markets and a select few other controls.

Here we can make a distinction between advisory and executive committees. For example, MakerDAO’s rates working group makes recommendations on interest rate changes which must still be ratified by voters, while Compound and Synthetix committees have direct control over key protocol parameters (with varying levels of oversight or fallback controls).

Advisory committees have relatively less power, but they can be given special authority within protocols’ off-chain social consensus mechanisms, such as being allowed to expedite discussion and voting timelines. Advisory committees can also benefit from being non-exclusive: in MakerDAO’s case, governance will set general standards for creating and recognizing PPCs while allowing for multiple overlapping or even competing committees handling similar issues. This can reduce risk of governance capture, poor performance, and unnecessary gatekeeping.

Executive committees on the other hand have key on chain authority, necessitating a more thorough approach to vetting members and some form of exclusivity (there can only be a single PPC for each mandated control). For Compound’s community multisig, signers are longstanding community contributors with established reputations, and while they were not individually selected by voters, Compound governance granted admin powers through an on chain vote so the committee members were effectively elected as a group. Synthetix holds periodic elections for individual members of their Spartan Council, allowing for greater turnover among committee members. But this reduced stability is counterbalanced by Synthetix pDAO, a safeguard mechanism made up of core team members who can veto Spartan Council actions if necessary.

MakerDAO’s history of interest rate management offers an example of the benefits of PPCs. For the first several months after the launch of multi collateral DAI, Maker continued to manage interest rates through direct democratic voting; each week MKR holders would participate in polls to increase or reduce borrowing rates on each asset, with the leading poll options then ratified in an final vote before being implemented. But as additional assets were added, this polling mechanism became unwieldy and imprecise. And a lack of leadership made it difficult to optimize for Maker’s competing goals of limited risk, protocol revenue, and price stability.

Enter the rates working group. This PPC was formed in the Fall of 2020 to address the lack of data and overarching vision for managing protocol risk parameters. The committee has a mandate to recommend interest rates for all vault types on a monthly basis, with authority to bypass the typical multi-week off chain governance process. Committee membership is open to anyone committed to consistent participation in monthly group meetings.

While it’s still early days for this structure within the MakerDAO community, there’s general consensus that the quality of rate setting decisions has improved — interest rates are now set according to an overarching strategy that considers portfolio risk, competitive positioning, and other DAO priorities. Governance has also benefited from much lower work and engagement required from token holders, which helps prevent voter fatigue.

Future changes may consider granting Maker PPC’s bounded executive powers similar to the Compound and Synthetix committees, as well as recognizing new committees in different focus areas. The committee governance framework is currently being formalized via MakerDAO’s MIP process, the full document can be found here.

Depending on structure and mandate, PPCs can present risk to both the underlying protocol and individual members.

Mandates should be well thought out to avoid unintended consequences. Compound’s community multisig presents a poignant example. While the community multisig technically has unbounded control over borrow limits, committee members feel that governance has not given them permission to raise the cCOMP borrowing limit above 100,000 COMP tokens (the minimum amount required to make a proposal and a key security threshold). This has resulted in market anomalies where rates are unable to reach equilibrium and certain users can extract significant excess profit from the protocol. A more flexible mandate and closer communication between governance and committees could help avoid similar issues in other protocols.

The scope of authority granted can also present risk to protocols and committee members. Governance is generally unable to revoke authority from executive committees at short notice, so any malicious actions or security lapses from members could have grave consequences. And having too much discretionary power could put members at legal risk, as they could become a target of judgements against the protocol. The security and legal risks of expansive authority may explain Compound committee members’ resistance to serving as admin of an upgraded Compound oracle.

The flip side of this is that advisory committees provide limited scalability benefits to protocols if all decisions must still be ratified by a full governance vote. Maker’s rates group structure presents low risk to participants but has a relatively long turnaround time to have it’s recommendations enacted; in some cases changing market conditions have already invalidated committee proposals by the time they’re enacted.

Tally is excited to work on solutions giving protocols and token holders greater oversight over parameter proposal committees and other multisig bodies. Building in the right safeguards will allow for more open membership, flexible mandates, and expansive delegation of authority as all participants can be sure that operational and legal risks are covered.

If you’re interested in learning more about parameter proposal committees or would like to implement this structure in your organization, we’d love to speak with you! Get in touch via our Discord or Twitter.

Note: Author is a member of MakerDAO’s rates working group PPC. Views are my own and may not be representative of other committee members or the wider organization.

Protocols form PPCs by designating a committee mandate, determining membership, and granting on-chain or off-chain authority.

The scope of committee responsibilities can be set wide or narrow depending on protocols’ needs. Synthetix grants the Spartan Council broad discretion to drive parameter changes and other protocol priorities, while the Compound community multisig has a more narrowly defined mandate of managing borrowing caps for cToken markets and a select few other controls.

Here we can make a distinction between advisory and executive committees. For example, MakerDAO’s rates working group makes recommendations on interest rate changes which must still be ratified by voters, while Compound and Synthetix committees have direct control over key protocol parameters (with varying levels of oversight or fallback controls).

Advisory committees have relatively less power, but they can be given special authority within protocols’ off-chain social consensus mechanisms, such as being allowed to expedite discussion and voting timelines. Advisory committees can also benefit from being non-exclusive: in MakerDAO’s case, governance will set general standards for creating and recognizing PPCs while allowing for multiple overlapping or even competing committees handling similar issues. This can reduce risk of governance capture, poor performance, and unnecessary gatekeeping.

Executive committees on the other hand have key on chain authority, necessitating a more thorough approach to vetting members and some form of exclusivity (there can only be a single PPC for each mandated control). For Compound’s community multisig, signers are longstanding community contributors with established reputations, and while they were not individually selected by voters, Compound governance granted admin powers through an on chain vote so the committee members were effectively elected as a group. Synthetix holds periodic elections for individual members of their Spartan Council, allowing for greater turnover among committee members. But this reduced stability is counterbalanced by Synthetix pDAO, a safeguard mechanism made up of core team members who can veto Spartan Council actions if necessary.

MakerDAO’s history of interest rate management offers an example of the benefits of PPCs. For the first several months after the launch of multi collateral DAI, Maker continued to manage interest rates through direct democratic voting; each week MKR holders would participate in polls to increase or reduce borrowing rates on each asset, with the leading poll options then ratified in an final vote before being implemented. But as additional assets were added, this polling mechanism became unwieldy and imprecise. And a lack of leadership made it difficult to optimize for Maker’s competing goals of limited risk, protocol revenue, and price stability.

Enter the rates working group. This PPC was formed in the Fall of 2020 to address the lack of data and overarching vision for managing protocol risk parameters. The committee has a mandate to recommend interest rates for all vault types on a monthly basis, with authority to bypass the typical multi-week off chain governance process. Committee membership is open to anyone committed to consistent participation in monthly group meetings.

While it’s still early days for this structure within the MakerDAO community, there’s general consensus that the quality of rate setting decisions has improved — interest rates are now set according to an overarching strategy that considers portfolio risk, competitive positioning, and other DAO priorities. Governance has also benefited from much lower work and engagement required from token holders, which helps prevent voter fatigue.

Future changes may consider granting Maker PPC’s bounded executive powers similar to the Compound and Synthetix committees, as well as recognizing new committees in different focus areas. The committee governance framework is currently being formalized via MakerDAO’s MIP process, the full document can be found here.

Depending on structure and mandate, PPCs can present risk to both the underlying protocol and individual members.

Mandates should be well thought out to avoid unintended consequences. Compound’s community multisig presents a poignant example. While the community multisig technically has unbounded control over borrow limits, committee members feel that governance has not given them permission to raise the cCOMP borrowing limit above 100,000 COMP tokens (the minimum amount required to make a proposal and a key security threshold). This has resulted in market anomalies where rates are unable to reach equilibrium and certain users can extract significant excess profit from the protocol. A more flexible mandate and closer communication between governance and committees could help avoid similar issues in other protocols.

The scope of authority granted can also present risk to protocols and committee members. Governance is generally unable to revoke authority from executive committees at short notice, so any malicious actions or security lapses from members could have grave consequences. And having too much discretionary power could put members at legal risk, as they could become a target of judgements against the protocol. The security and legal risks of expansive authority may explain Compound committee members’ resistance to serving as admin of an upgraded Compound oracle.

The flip side of this is that advisory committees provide limited scalability benefits to protocols if all decisions must still be ratified by a full governance vote. Maker’s rates group structure presents low risk to participants but has a relatively long turnaround time to have it’s recommendations enacted; in some cases changing market conditions have already invalidated committee proposals by the time they’re enacted.

Tally is excited to work on solutions giving protocols and token holders greater oversight over parameter proposal committees and other multisig bodies. Building in the right safeguards will allow for more open membership, flexible mandates, and expansive delegation of authority as all participants can be sure that operational and legal risks are covered.

If you’re interested in learning more about parameter proposal committees or would like to implement this structure in your organization, we’d love to speak with you! Get in touch via our Discord or Twitter.

Note: Author is a member of MakerDAO’s rates working group PPC. Views are my own and may not be representative of other committee members or the wider organization.