[Poll] [Discussion] Voting and Rewards Outside Classic Governance Pool

Continuing the discussion started by @iTo from Proposal: Bridging Governance & Strategy:

In that post, iTo presented a detailed proposal for adding a new pool that would take in YFI, stake on Maker (assuming YFI is accepted as collateral), mint DAI, and farm DAI for yield. iTo suggested that the yield from this might be as high as 40%. The idea for this proposal was that YFI in this high yielding pool would also be given voting power and potentially a share of the Yearn system rewards. As mentioned, the proposal is detailed and addresses several issues, including the double voting problem. I think iTo would admit that the proposal would need some additional work to be fully ready (such as ensuring that YFI would not be liquidated since used as collateral), but assuming it worked, the proposal is a significant change and demands additional discussion of whether it should be implemented and if so, with what, if any, changes. There was some discussion on these issues in the original thread, but @Dankmonty suggested that there should be a discussion separate from the “how” that addressed the “should.” I will attempt to succinctly lay out some of the main points and options here.

The current voting/governance system works today. There is a governance pool, and YFI holders may choose to stake in that pool. In return for staking, they can vote on proposals and they share system rewards (fees) with other YFI staked in that pool. Because they share system rewards, YFI holders staked in the current governance pool have an interest in the long-term success of the protocol so that those rewards continue and grow. The yield in this pool has generally been around 7%-11%. Not very high by DeFi standards. And there are other options for YFI holders that choose not to stake in governance that offer higher yields. Over time, the only people that will continue to stake in the current governance pool at a lower yield will be those especially interested in governance.

iTo’s proposal seems to emanate from a desire to both increase participation in governance and to provide YFI holders with an option to earn higher yield and vote power without having to choose between the yield and voting. If I have this wrong, hopefully iTo will explain. In general, there is nothing wrong with increasing yield for YFI holders and also increasing voter participation – as long as doing so does not have adverse affects.

There are some potential adverse affects that should be considered.

For example, increasing YFI with voting power could make it harder to reach quorum, particularly if some are more interested in the yield than in governance. We could vote to change quorum, but that could be difficult if there is a large influx of YFI with voting power but no interest in voting. We should also consider if lowering the quorum threshold has other consequences.

If there are two YFI pools (the classic pool and the new Maker pool), the interests of the YFI holders in the two pools can diverge. For example, those with YFI in the classic governance pool may be willing to see the value of YFI decrease in the short term for longer term reasons. Those in the Maker pool, however, may be against any decrease in the short-term value of YFI because of the risk of liquidation of the YFI the pool has as collateral. In addition, those in the classic pool will be receiving 100% of their yield from the Yearn system whereas those in the Maker pool would be receiving most of their yield from the Maker/DAI strategy. The pools themselves can encourage YFI stakers in each pool to have different incentives. This would be true even if all system rewards were reserved for the classic pool and the Maker pool only shared voting power (and yield from the Maker/DAI strategy).

We could also consider merging the two pools into a single combined pool that followed the Maker/DAI strategy, obtained system rewards, and was required for voting. That would at least ensure that the pools were not encouraging divergent incentives for different YFI stakers, but it could still leave YFI stakers with incentives that were less aligned with the protocol. This would be especially true if most of the yield was attributable to the Maker/DAI strategy and a smaller amount attributable to system rewards. In the extreme, YFI holders could become more interested in the DAI farming strategies and uninterested in the Yearn system. Granted, if YFI holders ignore the Yearn system the value of those YFI holdings will eventually decrease; however, that does not necessarily ensure that YFI holders will put in the effort for long-term improvement when they are making significant short term yield outside the protocol.

I do not mean to take anything away from iTo’s proposal or from discussion about how best to implement the proposal in the safest way that ensures YFI can only vote once. But we should discuss whether a new voting pool is in the best long-term interests of the protocol.

Here is a poll with the main options for consideration (wish there were ranked voting polls):

  • Keep voting and rewards as they are with the current classic YFI governance pool.
  • Add an additional pool with a yield generating strategy that shares voting power and system rewards with the classic pool.
  • Add an additional pool with a yield generating strategy that shares voting power (but not rewards) with the classic pool.
  • Create a new pool with a yield generating strategy and merge the classic pool into it so that there is a single yield generating pool with voting power and system rewards.
  • There is a better option not reflected here.
  • I want more discussion before selecting an option.

0 voters


Appreciate you putting this together for the community! I knew you could do it better than me lol :slight_smile:

With all things considered, option 1 seems best for the long term health and sovereignty of the DAO (may require reworking fees to make more attractive in short term), but option 4 is extremely tempting.

I wish we had an idea of how quickly we could expect the overall system fees to eclipse the yYFI DAI strategy ROI, because that conflict of interest might only matter for a very short time before it’s much less of an issue. With that said, combining into one vault also presents the risk of all the YFI technically being under the control of MakerDAO governance and smart contracts. Do we have a way of ensuring they wouldn’t use it to vote or lend it out?


Its good that people are thinking about this and planning for how governance/rewards might work outside the staking pool. Implementation wise it might be better to keep things simple for now. This might be an arrow we keep in the quiver if we ever need it. Great job with thinking through this.


I agree with @Dankmonty - the sovereignty of the governance must be guaranteed at all times so keeping things as they are is the way to go.

What if there is a breach in MKR or the vault? What if there is an oracle problem and the vault gets liquidated? You cannot roll back the blockchain…
If we had a significant share, let alone all of YFI as collateral, we import existencial risks from outside of our control so I´m strongly opposing this.

Those who want to catch the highest short term yield shall do so at their own risk, exclusively.


Bump to get community sentiment

I would say that choice 4 is probably the worst of both worlds– I don’t know why anyone would want to stake in governance in this situation.

Perhaps what could be a similar, better option for choice 4 is where the governance stakers receive some kind of subsidy from those in the governance “vault”.

So– those staking YFI in governance essentially are granted a percentage of the yield from the YFI/DAI Maker strategy. I would think of this as a tax for helping to secure the protocol. Part of the YFI moves out to Maker to farm yield (those who don’t care about voting), while those who care about governance and protecting YFI from exploits keep staking in the protocol. I think in this situation it makes sense to allow the Maker staked YFI to vote, although I’m less certain about this. I’m also not sure what percentage of the vault earnings would flow to governance, either. In my mind, I would imagine the yield from the vault to be slightly higher than staking in governance.

This is a relatively raw idea though, so I’m very open to suggestions and improvements on it.

I think you may have misunderstood option 4 a bit. The idea with option 4 was to consolidate the existing YFI vault and YFI governance staking into one pool, so we would actually no longer have a separate vault that could pay a “tax” to the governance, if that makes sense. There would only be the governance pool. All the governance YFI would be submitted to Maker as collateral and utilized to receive strategy farming gains, plus the yUSD rewards generated from protocol fees. Downside is having to trust MakerDAO governance and potential misalignment of incentives (explained better in OP).

With that said, we could potentially apply that “tax” concept to option 1 once we think through how that can align the incentives to achieve long term growth and sovereignty. @LapisLime any thoughts on this tax idea for option 1?

Perhaps for clarity option 4 should be rewritten to say consolidate vault and governance instead of create new vault, as there is some confusion whether it now means changing to gov pool+existing YFIvault+new YFIvault

One of the options could be a single merged pool that generates yield in Maker, gets rewards, and votes. No 'tax" would be helpful in that case.

If there were two pools with voting power (the classic governance pool and another YFI pool) then you could decide to share rewards per YFI, and then there would be little incentive to stake in the classic pool. Another modification, rather than a “tax,” could be to split the rewards between the pools (even 50/50) and let staked YFI in a pool share in rhe rewards allocated only to that pool. The option in the poll for two governance pools but with the Maker pool getting no system rewards (so a 100/0 split) is the extreme version. In either case there would be incentive for some to stake in the classic pool because they would split a large amount with a smaller group of people. There could be a sort of equilibrium that develops, but ultimately, having two pools and giving rewards and voting power to both pools is not optimal.

All that considered, I personally favor keeping things as they are with a single governance pool that does not try to earn yield on Maker. With only 15 votes on the poll, that is also the leading choice. My second choice would be a single merged governance pool, which is the second most popular choice in the poll.

I encourage the community to weigh in with other opinions and thoughts.

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I think what you’re referring to is actually what option 2 is doing? Consolidating the yYFI vault and governance staking into one thing that farms YFI and gets governance rewards.

Either way, here’s my thought process for the different options:

  1. Keep things the way they are. Stakers are voters and earn rewards. The yYFI vault earns yield but has no voting rights. Mainly I think this option is the easiest, although maybe not best long-term decision.

  2. Merge into a yield-generating staking/voting/farming vault. All YFI for governance is placed in the vault, used to mint DAI at Maker, and also earns governance rewards. This one is also simple and straightforward– the main concern is trusting Maker with all of our YFI (as I imagine most YFI would flow in and stake here if this happened, much more than we currently have). If these YFI holders are only here for yield, and are not voting, then we may again have issues with quorum.

  3. Implement my “taxed” idea. To map this out a bit more– we would still have our YFI staking for voting in governance and protocol rewards, and the separate yYFI vault. However, in this scenario, the yYFI vault pays a “YFI stability fee” or whatever you want to call it to those who are staking YFI and governing the protocol. In this situation, yYFI is not able to vote. Additionally, I would want for the tax to be small enough that staking in the yYFI vault is not made less profitable due to the fee than governance staking– if people want to earn the highest yield on YFI, then I still think they should be able to, and honestly I prefer it occurs in a yVault. However, I also think it is a cool idea to bump up YFI staker/voter rewards from this vault since YFI stakers are helping to secure the safety of YFI token supply and steer governance– both things which also benefit those YFI holders in the yYFI vault. Perhaps somewhere between 5-20% of yield could flow directly to governance stakers. This would also be an interesting option because YFI stakers could now perhaps earn their normal protocol rewards in yUSD, but also be earning the “tax” in YFI.


It looks like the vote options in the poll are rearranged after voting to show the top voted options, so we were probably talking about the same thing. It also looks like your top 2 preferred options are the same as mine and those of everyone else who voted in the poll so far.

Given that, there may be no reason to develop the tax idea further. If there were a desire to have two voting pools and we wanted to give those in the classic pool more than just 100% of the system rewards, then a kicker from the other YFI pool to the classic governance pool is an interesting idea. Because the pool paying this fee gets to vote and could be inclined to not pay the kicker/tax, you would also need to figure out how to get them to agree. This is just another example of incentive divergence with two voting pools, and why either keeping things as they are or merging into a single governance pool may be preferable.


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