Yes yes I know, Yearn was always great. Anyway thanks for opening, the clickbait headline worked. Scroll to the bottom if you’re a lazy ape, otherwise grab a coffee and strap in for fugue state ruminations.
Skip this part if you wish but I’ll remember that you did
Now, this is something I’ve thought and posted about over the past few months whether on these forums, discord, or in private, but never in a consolidated semi-cogent way. I know many others have also repeated similar thoughts so forgive me if I am unconsciously plagiarizing your ideas or better yet, entertain the possibility that like the Zerg hivemind that we are, similar ideas independently spring up within the Yearn noosphere.
As Yearn has continued to grow in TVL and in scope via recent “partnerships” (I use this and the word “merger” very loosely) there is a continued itch to referentially self-improve. “Out with it Arcturus! Why so many words to say so little”, you say. I say, I give this context for those unable to keep up with the deluge of information in the DeFi Cambrian Explosion.
Yearn has one of the best mindshares in the DeFi space and I think it’s a good time to fine tune and incentivize that engagement. I may be alone in saying this but I have noticed a more passive userbase, with many of our past contributors disappearing back into…the ether. I myself have been guilty of this as well. How do we solve this? Read on for more ramblings.
Our diligent core team and other amazing contributors have ensured that we have stayed at the forefront of DeFi and despite hacks all around, Yearn (knock on wood) has avoided the mortar fire devastating so many countless others making it more Lindy. Yearn has become a reasonably-sized household name and as such, it is our duty as stewards of the ecosystem to ensure its ever forward progress. With this preamble aside let’s get into it:
I don’t know where to begin here let me start with the number of YIPs that have been recently submitted. They have slowed to a crawl. I’m sure everyone has great ideas, where are they? Why have they stopped? What is the limiting factor? There are many answers to these questions which merits its own rambling post but what we can agree on is that there are less governance contributions. Could it be that YFI holders have less skin in the game(SitG) regarding governance actions and prefer inertia?
Let’s do a quick spot check, how many YFI do you think are currently locked up in Yearn governance? 15% 25% 40%? I’ll save you some time, it’s 10% (3000 YFI). At some points in Yearn’s past we were at ~10k or 30% (roughly). You may say “But Arcturus this is because we allow anyone to vote via snapshot voting regardless of where your YFI are.” True, so with this said could it mean there are too many competing interests pulling in their own directions (sometimes individualistic) which wouldn’t benefit Yearn as a whole (at odds with the collective)? In other words is there really any skin in the game?
What if we could incentivize governance participation while ensuring incentives are aligned? What if you could ensure Yearners (is this a thing? if not I’m making it a thing) could be made to care for a certain period of time, nudging them to participate more. What I have humbly proposed before simplistically here inspired by Curve and then proposed independently much more comprehensively by Andre is Vote Locking YFI (read more here.) which itself carries a small multiplier on governance rewards, a la Curve. I initially thought this could be for governance itself but maybe vote locked YFI also boosts future v2 vault APYs via Yearn Strategies incentivizing Yearn GPs to also be LPs to align incentives between the two. Something something downstream effects.
Vote Locking your YFI for a period of time forces you to be more engaged and support the long term viability of Yearn, whether this means following news, forums, or proposing YIPs.
Now what is a second order effect from this? Vote Locking is a prerequisite for safely putting our capital to work. As of right now the Market Cap of YFI is $700MM. At best we have $7 million (if you count the 10% locked via governance staking) to deploy a fraction of via a CDP on Maker. Currently it is quite difficult to safely maintain adequate collateralization ratios for farming activities due to not only of the volatility of coin prices but also ensuring enough capital is on hand to facilitate withdrawals & adjusting collateralization profiles. If a stable base amount of YFI is known to be “locked” then it follows that amount could safely be deployed knowing that it can’t/won’t be requested for withdrawal anytime soon. Essentially this creates an effective lower bound on how many YFI are available in the open market.
Quick napkin math at 2-4% DAI borrowing Stability Fee (which can be initially proposed to be 4% let’s say and decrease it once we prove we can adequately manage the CDP) and lending on yPool (~7.5%) we can capture a >3.5% yield on some unused capital. Even if this was a fraction of our total YFI this could still be something like $1 million+ per year in purchasing of YFI.
This allows for discretionary spending beyond what has been allocated via our budget. These additional funds can be used for including but not limited to, extra funds for contributors, funding yDAO ventures providing initial stakers with a major share of ownership (nudging YFI holders to stake not only for potential upside in successful projects but also participate in vetting and being activist investors in assisting nascent projects). This in the future can be tranched out as well, i.e. safer tranche just uses funds for additional budget providing x multiplier on governance rewards whereas a riskier tranche uses farmed funds to deploy to yDAO projects. Let’s keep it simple first. Just think of it as our expeditionary warchest.
Metagovernance (Protocol Governance Capture):
Other options include governance token capture. As a yield aggregator it is in Yearn’s best interest to us its financial moat for its best current and future positioning in the market. Acquisition of governance tokens in the other platforms it uses or intends to use should be on the forefront of Yearn’s hivemind in order to ensure mutually beneficial futures (spare me accusations of corporate doublespeak here - this is not implying hostile takeovers, we as participants who pay tolls for using platforms should also have representation with a side benefit being future cashflows of such platforms). Also more cynically it makes more sense to gain a share in these platforms while it is still cheap to do so vs the future, in other words, this is time sensitive.
The possibilities of what can be done are infinite but we need to lay the groundwork before we can add additional abstractions. As such in order to then be able to create a vault that can leverage better fees is to create a whitelisted Maker YFI vault that will be managed by Yearn. This had been mentioned in the past by Maker team members as a possibility. Why you may ask? A managed CDP could have a reduced stability fee improving capital efficiency creating a self reinforcing mutually beneficial relationship between Maker and Yearn. A proposed SF% for example could be 4%. If you would like to volunteer to begin the signaling process on Maker forums, reach out to our core team and do it.The ability to deploy currently unused capital in a coordinated way cannot be understated.
In order to encourage our contributors and grantees to get involved in Yearn, with SitG in mind, I also suggest that moving forward
Proposal: Any grants/Bounties get paid in YFI instead of yUSD.
We need to incentivize further community engagement and I (re)propose a series of proposals to get this moving
Proposal 1: Pay out grants to contributors/grantees in YFI instead of yUSD (which it currently is).
Proposal 2: “Vote Locking” YFI (similar to veCRV) which decays. In limbo here let’s push this forward.
Proposal 3(Relies on #2): Initiate Signaling for Whitelisted Yearn Vault on Maker & Propose Methods of Maintaining adequate collateralization ratios from Yearn’s end.
Proposal 4(relies on #3) : YFI vault to begin borrowing against YFI to tap into and deploy currently unused YFI capital for discretionary spending which in the future can be tranched out based on risk profiles (for clarity this is an additional optional vault, not default governance - depositor who deposit into this “higher risk” vault would get additional benefit whether in yield or share of projects invested in from yield)
I ask you not as a fellow degen or an ape, but as a fellow yearner, to share your thoughts. This list is not exhaustive and I welcome any other suggestions.
Ask not what yearn can do for you but what you can do for Yearn.
Si ventus non est, remiga(build)!