Gaining Insights into the Paladin Voting Market
#20 Governance Series
With decentralization as one of the core aspects of Decentralized Autonomous Organizations (DAOs), collectively making decisions through governance has primarily been adopted as the way to reach consensus.
With this challenge, governance experts have often favoured using governance rights attached to native tokens as the key to collective decision-making.
As a result of tokenizing governance rights, the rights gradually gained more value and utility as the ecosystem evolved.
In this article, I will explore the Paladin voting market as a general case study for voting markets, why Paladin is unique, and how StableLab plans to contribute to what Paladin is building. But before we get into any hard facts, let’s define the basics.
What is a voting market?
A voting market is fundamentally an exchange layer for investors who wish to dedicate less time and energy to being an informed governance participant to enable other contributors who care about actively participating in governance but would like to bootstrap more governance power.
A voting market turns unutilized governance tokens into yield-bearing productive assets while making them available to those needing them, thereby ensuring representation in governance.
How does the Paladin voting market work?
Paladin is a decentralized, non-custodial governance lending protocol that establishes a liquid market where users can either lend or borrow the voting power contained in the governance token.
Borrowers can temporarily increase their influence by borrowing voting power, whereas depositors and lenders stake governance tokens or derivatives and offer their voting power in exchange for yield.
Governance token holders deposit their tokens into token a specific PalPool and receive an amount of Pal tokens representing the depositor’s share in the PalPool. PalPools exist for Aave, stAAVE, Idle, Index, Uni and hPAL (Staked Pal).
PalPool token depositors then earn rewards from borrowers of governance power who leverage the governance power in these PalPools.
Borrowing voting and proposal power is the primary function of the PalPool. By copying the Delegator contract already set up in the PalPool, the PalPool will create a Loan when starting a Borrow.
It will then transfer the tokens borrowed and the fees paid by the borrower, assign the borrower voting rights for the loan, and issue a PalLoanToken to signify ownership of the loan.
The borrowing can ultimately be terminated once all fees have been paid, extended, closed (and the unused money will be repaid to the borrower), or cancelled. The Borrow’s owner can also switch the beneficiary of his PalLoan voting power.
Because Paladin has been live for the past 13 months, which has relatively been a bear market, governance tokens which form part of Paladin’s core treasury balance have experienced adverse price action. In addition to adverse price action, there has been a lot of innovation in the voting market space; Paladin intends to release an update in Q2–23 to improve the protocol.
The protocol currently has a total value locked of $1,332,650 comprised of Aave, stAave, COMP, UNI and IDLE deposits.
A clear inference from the data below is that Paladin users have an early preference for earning additional yield on their staked stAave.
This creates a clear opportunity for Governance token stakers to earn a double yield on their Paladin-supported assets.
However, it is important to note that a double yield could be a double-edged sword which could mean additional smart contract risk. As a liquidity provider, it is essential to be aware of the additional smark contract risk and plan accordingly.
In addition to PalPools, the Paladin Protocol also runs Warden; Warden is a brand-new non-custodial market based on the veBoost system that enables holders of veCRV and veBAL to give veBoost on their balance while maintaining access to their veCRV and veBAL for standard Gauges, Gauge Weights votes, and DAO votes.
How does Warden work?
A veCRV holder approves the Warden contract when creating a BoostOffer on Warden. They then enter a price (in CRV) for one vecRV per week, a percentage for the minimum boost size a buyer must accept, and a second percentage for the maximum rate of their veCRV balance that Warden can use to create veBoosts if the maximum is set at 50%, only half of the veCRV balance is available to create veBoost.
Additionally, even though no veBoost was purchased based on your BoostOffer, the bearer of the veCRV keeps the entire balance as a personal boost.
To optimize their Gauge multipliers and boost the yield on their given liquidity, Warden then enables Curve LPs to purchase a veBoost (paying the fees in CRV) whether or not they have any veCRV themselves.
Warden has a total of $1,029,545 worth of rewards awarded to various pools on Curve and Balancer; at the time of writing, this $80,000 worth of rewards has been allocated to multiple pools on Curve and Balancer within the past 30 days.
In addition to the rewards distributed according to pools, Warden has been able to deliver value to Quest creators by incentivizing Quest Participants who hold relevant governance power to vote for emissions to go to specific pools. So far, the Warden Quest incentive mechanism has proved effective.
With 64% of total quests completed across Curve and Balancer, 77% of Quest completed on Curve, 35% of Quests completed on Balancer, and $632,065 of total distributed rewards, it is clear that the Warden product has been gaining significant traction.
If an individual needs governance power for a standard proposal, they can borrow power from a PalPool; if that same individual needs to sway gauge votes to a particular pool on Balancer, they can use Warden to start a Quest on Warden.
Most voting protocols only offer gauge voting market-related products. With Paladin’s Product Stack, the protocol is on its way to being the best Voting Market Protocol.
With an innovative product like PalPools and the combined utility of Warden, Paladin will be ahead of the voting market curve as the protocol develops and figures out various ways to build more utility for users through designing an interoperable layer between PalPools, Warden and any future Governance products the protocol may build.
What does the future of voting markets look like?
Leveraging Governance LP Positions to access more liquidity
One of crypto’s most unique features is the ability to build on existing markets. For example, with Paladin, Liquidity Providers earn an LP token when they deposit into a PalPool.
A future integration would leverage these LP tokens, which are at base level illiquid, to access more liquidity. This is already being implemented with Balancer BPT tokens being used to leverage liquidity on Aave.
For Paladin, this would involve adding a form of Pal Tokens as collateral on Aave so that LP token holders can lend against their tokens.
What role will Professional Delegates play?
As delegates in various protocols, we see the immense value that delegates can add to a protocol.
Streamlining strategy and vision: With a well-designed delegate program that aligns their interests with the protocol, delegates can work together to streamline the strategy and vision for the protocol. In that way, development is intentionally geared towards specific goals and milestones.
The constant iteration of operational processes: An essential aspect of building a solid dApp is a constant iteration from the community. Delegates help direct the community where to look for iteration. This is effective when delegates are specialized and focus on iterating various aspects of the protocol.
Ensuring decentralization: As the protocol grows, there is an ever-increasing centralization risk. However, the risks are reduced with proper governance mechanisms built into it early on. This enables the community to effectively retain the power to hold any organ, partner or contractor of the protocol accountable at various levels.
How can you contribute?
As a professional delegate for Paladin, StableLab intends to support accomplishing all of the above. You can delegate governance power (hPAL tokens) to StableLab at stablelab.eth so we can, together, turn Paladin’s vision into reality.
At StableLab, we believe voting markets will play a vital role in DeFi’s evolution in the coming years. For incentive mechanisms to adapt and meet the needs of DeFi users, protocols like Paladin must exist and remain decentralized.
This will ensure that the next generation of crypto users will gain more utility and value exchange than is currently available. This must happen while preserving the ideal of creating net-positive results for the DeFi ecosystem.
Get in touch,
If you would like to support us in our governance efforts,
If you and your team need guidance on governance related matters, or
If you are a founder who is building something interesting in web3