Hey all,
I know things have been moving at a frenetic pace and I don’t mean to add more noise to dilute the signal but I had some thoughts and figured this would be the best place to share them. This is not meant to be a proposal but instead to think deeply and consider tactical & strategic goals to ensure the success of YFI and by extension, the Yearn ecosystem. Without further ado let’s get into it.
At the risk of seeming trite I think it is critical to define what we agree on as the guiding principles and ultimate success of Yearn derived from first principles now before we go further. Having some experience from the startup world I’ve found that having these guiding principles clearly outlined from the outset ensures we all agree the why before we discuss the how. Knowing the direction from the get-go and having it formalized will provide us with the ability to remain agile without falling into pits of meaningless discussion.
I haven’t given the following much thought and would welcome any discussion on the matter but I believe fundamentally these are the two most paramount principles from which other corollaries derive:
- The Yearn Ecosystem must strive to not only retain, but maximize AUM (Assets Under Management).
- Why? Since LP is zero-sum, retaining and increasing AUM is of the highest importance as any reduction in AUM could mean a reflexive death spiral leading to assets being pulled from Yearn. I.e Assets Pulled from Yearn -> Less Capital to Deploy -> Fewer Rewards -> Assets Pulled from yearn
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How would this happen?
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Smart Contract Risk
- Mitigation: Formalize Strategy Deployments funnel including community review and Treasury funded audits
- Mitigation: Insurance provided via yInsure/Nexus Mutual
- Strategists create vault strategies for Competitors
- Mitigation: Strategy Creators must be adequately incentivized versus competitors to ensure they continue to contribute to the YFI ecosystem. Maximizing our AUM ensures that the fees accrued by the strategy creator would be highest on Yearn.
- Competitor offers higher overall rates
- Mitigation: Find out what strategies are being used, farm these strategies if deemed safe, become part owners of protocol if possible (via governance token ownership)
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Smart Contract Risk
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How would this happen?
- Corollary: Risk should be minimized within the bounds of what is known.
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Corollary: Yearn should strive to increase its share in other base layer DeFI governance platforms via governance or otherwise.
- We are currently doing this with CRV and we should maximize our governance moat here, see below on Possible Action Items.
- YFI Holders must be able to make the right decisions for the long term sustainability of the Yearn Ecosystem to support the first guiding principle.
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Corollary: YFI holders must be incentivized for the long term sustainability of the Yearn Ecosystem.
- This means finding the appropriate equilibrium between maximizing AUM (guiding principle 1, as LPs will leave if rewards are not sufficient) and rewards for YFI holders to remain sufficiently incentivized to vote for long term sustainability of Yearn.
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Corollary: Discourage irresponsible use of YFI funds (via incentives on YFI platform natively) which could put governance at risk of being adversarially attacked.
- Seizure Risk: YAM/HAM/SPAM/PASTA fork offering short term high rates leading to the seizure of YFI and possible collapse of the Yearn ecosystem via YFI governance hijacking.
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Voting Risk: Adversarial actors can borrow YFI on lending platforms to vote against long term YFI interests
- Mitigation: Discourage YFI deposits on external lending platforms by encouraging maintaining YFI liquidity staked on Yearn platform via adequate rewards creating a virtuous cycle of Staked YFI on Ygov -> more rewards -> better decisions made to increase sustainable rewards -> keeps YFI staked on Ygov.
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Mitigation: Incentivize Longer Lockups for a maximized share of rewards
- Example: Curve model of weighting voting based on how long YFI is locked up for. In other words, YFI that is locked for 4 years should be weighted higher than YFI that was just bought.
- Another option is to receive maximum distributions YFI must be locked up for 90 days or some other variable.
It should be as easy as possible for YFI Holders to make decisions with the least cognitive overhead possible.
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Mental bandwidth is limited so transparency is paramount. Suggestion of Dashboards with all stats and knowledge so that GPs can make the most informed decisions based on everything presented to them.
Beyond this we should also keep in mind who our target audience is which I believe should also be reflected in our mission/articles of operation. It would be ridiculous to think we should match the unsustainable short-term yields of platforms with no value, which could temporarily impact our AUM, however this should not mean we should put capital at risk without a formalized process. I am under the impression our main target audience is that of one who wants to take advantage of the highest sustainable yields the DeFi ecosystem has to offer without the need to do it on their own. It can be assumed our primary users’ desire is to “set it and forget it”. This is not to say we cannot offer other “definancial” products or tranche based offerings based on risk appetite in the future (high risk pools which do not go through formal verification(?), defi VC investments, tokensets/directional trading bots etc). For this reason in our YIPs I believe we should also include who the target demographic/audience is for any proposals where it is useful.
Possible Action Items:
- YIP: wBTC (or renBTC) Vault
- Rationale: Keeping in mind that we want to maximize AUM which has second order effects such as giving us governance control of other platforms we may begin to arrive to conclusions such as the importance of creating a wBTC pool for Curve.fi similar to the yCRV pool. This would give YFI holders a greater share of CRV (Curve.fi) rewards and bring wBTC revenue into the fold while also maintaining control over CRV gauge distributions. As we have seen, the Compound Curve pool essentially adversarial hijacked the CRV gauge weighting (bought cheap CRV to inflate its own CRV rewards) due to a lack of coordination amongst other pools despite having far greater total funds. Pooling a greater share of these rewards within Yearn would prevent similar situations from arising. This is another version of increasing our moat. There is currently roughly ~200 million on Curve’s sBTC pool which could be delegated similarly to the yCRV vault. This serves the first guiding principle (increasing our AUM) without being too onerous as the codebase should be essentially similar to the yCRV vault. Lastly, SNX/Ren bonus rewards have ended for those staking on sBTC pools also meaning that each individual BTC staker needs to currently spend gas to reap CRV rewards while also not being able to coordinate voting blocks in their own interest. —> Update: uhmpeps created the RFC/pre-YIP here PROPOSAL: Add Curve sBTC Pool LP-Tokens yVault
- Document Defining Mission, Guiding Principles, and Objectives of the Yearn System and its Stakeholders
- Formalizing strategy proposal process from discussion-> development -> review -> audit -> deployment pipeline.
- YIP: Vote weighting a la Curve for “low time preference” decision-making. --> Update: The man himself andre.cronje just posted this gYFI time weighted voting power distribution
- Add Target Audience Section to YIPs where applicable to be able to quickly at a glance understand who the proposal is for (e.g. YFI Holders, LPs)
- Forming informal or formal strategic councils or “attack groups” which have the time to navigate the various platforms which exist to propose ideas -> YIPs/defend from adversaries. In the spirit of cooperation we also must also remember the adversarial and cutthroat nature of the market landscape as in many cases, it is winner take all.
- Aggregated information/summary of treasury holdings (without needing to visit zapper or zerion and trying to understand why there are discrepancies), returns, growth, quorum needed, expenses, tallied history of votes, etc all in one place for transparency
Thank you for reading this wall of text and I hope, if anything at all, I led you down a path to think so that in the future not few…but most understand.
Update: I’ll be updating above proposed action items with links if I come across any on the forum.