Governance, vaults, and yYFI

Now that we have a YFI vault, I think there are a decent number of people who would like to be able to use their yYFI tokens for governance. I have gone back and forth on this in my head, and ultimately I don’t see many good reasons for it.

The best argument is that YFI token holders should be able to optimize yield on their YFI, and allowing those to vote while doing this will help encourage voting and won’t split farmers vs voters. However, instead what I think may be best is to rethink how we use the funds earned from yearn, paid out to YFI voters. Personally, I really don’t like that a large chunk of YFI is being designated currently to a single protocol (CREAM). I don’t think the CREAM protocol would actually use them to vote, since they then wouldn’t be able to return them to their users (and honestly I doubt they can use them to vote based on the staking contract they use), but so many tokens being in one external location is still a bit worrying.

I think perhaps the clearest solution (and the one that is most likely to work) is to incentivize locking up YFI and voting with it to an extent that it is the most profitable option for farmers (or at least risk-adjusted). This would likely end to the YFI vault being deprecated, as it would no longer be the most profitable option for staking YFI.

Currently, yearn only takes 0.5% on withdrawal. Should we think about increasing this? With ROI of 25% or greater for the vaults (except YFI), this would be still inconsequential for users if we increased it to 1 or even 2%. Alternatively, we could think about adjusting this to be a percentage of profits– so that way we would be taking more from the higher-yielding vaults, but since these vaults are yield so much the users likely wouldn’t care.

I think it also may be worth adding an option to use yCRV vault earnings to buy YFI and pay this out if you are also staking YFI for governance (so instead of receiving yCRV interest for your yCRV vault, you would get YFI). That way we are earning YFI, increasing our holdings, and more importantly it is going to those most likely to hold and use YFI for the original intention– governance of the protocol. I’m guessing this would require a separate vault/strategy, but it could be interesting to work out and I think would really benefit the protocol and YFI holders alike.

Let me know your thoughts!


Mainly agree, I’ve detailed some possibilities here Guiding Principles - #3 by dudesahn including weighting votes based on time-locks (similar to Curve’s model) wherein the weight can also serve as a way to increase weekly rewards (this way you are incentivized for long term planning of the Yearn platform).

The YFI token itself does/will represent a substantial sum of capital that could be put to work, however, that this is done safely is paramount.

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Easier solution, just enable yYFI to be able to be used along with YFI for governance and rewards.


@southseacompany on Discord outlined how this could lead to a levered governance attack with sufficient funds, as one could deposit into YFI vault → get yYFI → borrow more YFI from CREAM-> deposit into vault → get yYFI which essentially leads to an arms race of borrowing as enough control could lead to an attack on the system itself, since others would be inclined to do the same to “keep up”. Whereas maintaining YFI governance as is means that once YFI is locked up in governance there is no more “available” external YFI to be voted with even “virtually” if that makes sense. How it would play out regarding rates remains to be seen but I think it’s an attack vector that would need to be taken into heavy consideration. In addition to allowing yYFI and YFI to vote, you have also increased the “voting supply” unless I’m looking at this incorrectly.

Other possible ideas to allow YFI to be used as working capital while remaining locked in the voting contract include

"I believe (haven’t made my mind up) I am opposed to making YFI too easily available on lending markets where it can be borrowed (and therefore adversarial attacked), however I do think it could be working capital in some way or form. Whether this is in the governance contract itself generating stablecoins via MKR (if/when available though I don’t like secondary platform risk especially if it means liquidation - Update 9/17 looks like this might be happening see: ,MIP10c3-SP10 Proposal: YFIUSD Oracle (Collateral Onboarding Oracle Assessment) - Collateral Onboarding Domain Work - The Maker Forum which also mitigates liquidation risk ) or something more native to the yearn ecosystem itself. Monetizing yCRV cashflow via centrifuge tinlake style systems at some point in the future? The ideal goal would be once the YFI are inside governance there is limited exposure to the “outside” for exploitation.

Not married to this but I think the YFI vault itself should be discouraged (for safety reasons - governance hijacking) and the way to do so would be to make it so that the rewards elsewhere (in this case, governance) are more appealing which keeps things simple"


I agree with sentiments on discouraging the use of the YFI vault. It feels weird that yield farming distributions will allow users to stake governance tokens, which seem like something you don’t want to be super liquid, or super concentrated.

dudesahn’s suggestion of increasing the amount taken as a percentage of profit seems reasonable.

Spitballing here: if the goal is to disincentivize the YFI vaults, what about increasing the % taken on withdrawal for the YFI vault specifically?

Alternatively, as Arcturus says, having a multiplier for votes and rewards based on time locked up also sounds like a way to make voting more attractive without bringing vaults down. I like this idea.


I’m not following this logic. If you deposit YFI into the YFI vault and receive yYFI, then you deposit the yYFI into the governance contract and it is locked there for voting. To go and borrow more YFI from CREAM, the adversary would have to put up more collateral to borrow. They couldn’t put up yYFI as collateral b/c it is locked in the governance contract to vote on proposal.

If they don’t have a continuous outside flow of capital to put up as collateral to borrow more YFI, then they are stuck.

Yes but in essence you have rehypothecated the yfi since the yfi can still be borrowed again to be deposited in the vault (increasing virtual supply and with enough collateral can be vote attacked -> race for everyone to do the same)