Sky Governance Controversy

Sky (formerly MakerDAO) governance is grappling with the implications of an emergency proposal executed today that alters MKR’s role within the ecosystem. Pitched as a necessary move to protect protocol security, these changes’ swift approval has instead ignited debates over transparency, process integrity, and the risk implications for DAI/USDS.

Key Changes

The proposal:
– Eliminates the longstanding 5% exit fee on MKR withdrawals.
– Significantly expands borrowing against MKR collateral.
– Raises borrowing rates while simultaneously lowering liquidation thresholds.

Critics argue these measures increase the protocol’s risk of exposure, particularly given that MKR now has one of the highest loan-to-value (LTV) ratios in DeFi.

Community Reaction

Community members have questioned the rationale behind these decisions. Concerns were raised over the timing, suggesting the proposal was pushed through with minimal explanation just as governance critics were being silenced.

Defense by Rune Christensen

Rune Christensen, Sky’s founder, defended the move in a community call on Wednesday. He argued the changes were necessary to prevent a governance takeover. In Discord and X posts, he alleges cooperation between PaperImperium, an activist investor, and a group of investors hoping to wield influence in Maker.

Other prominent voices within Sky have linked Nexo to the effort, citing a leaked plan.

Responses

PaperImperium cited a long track record of positive contributions to DAO governance and clarified that GFX has not agreed to work with Nexo beyond sharing opinions. A Nexo spokesperson mentioned they are preparing an in-depth overview of the protocol’s dynamics.

Governance Tensions

PaperImperium, known for engaging in governance debates, criticized the concentration of power among insiders. Christensen maintains that adjustments align with efforts to simplify governance efficiency.

Borrowing Dynamics

Defenders like ‘chud’ on Discord pointed out that the proposal also increased the stability fee from 12% to 20%, making borrowing against MKR more expensive.

Christensen has significant MKR-backed loans on Aave and Morpho, and allowing aggressive borrowing terms within Sky could reduce his risk of liquidation on those platforms.

Conclusion

As the dust settles, pressing questions arise: Was the emergency proposal truly about securing Sky’s future, or a consolidation of control? How can governance processes be safeguarded against similar bypasses in the future?