The current yEarn governance mechanism puts the protocol at risk of a hostile takeover. The best immediate course of action would be to temporarily transition the protocol to a new voting contract recently deployed by Andre
Update the ygov.finance voting page to link to the new voting contract where only YFI can be staked.
The current yEarn voting contract accepts BPT (Balancer Pool Tokens) from a pool consisting of 98% yCRV / 2% YFI. This creates a dynamic where large stablecoin holders hold a disproportionate amount of voting shares and thereby governance power, while those whom have a high proportion of YFI vs. stablecoin are underrepresented in governance. Governance should be dictated by those with the most vested long term interest of the protocol - YFI holders - irrespective of their portfolio composition. More importantly, the protocol is currently vulnerable to a hostile takeover of governance by stablecoin whales who could potentially pass a proposal to mint a large supply of YFI and disproportionately reward themselves (via favoring large stablecoin holders).
There are multiple different long term governance/voting approaches being debated, and it will take time to align on community consensus. While these are being analyzed/discussed, we should immediately transition to a temporary governance structure where only YFI can be used to vote in order to mitigate hostile takeover attacks.
The community can replace this temporary YFI only voting structure after passing a new YIP.
FOR: Governance moves to newly deployed YFI only voting contract
AGAINST: No governance changes
This YIP (yEarn Improvement Proposal) can also be found here:
+1. This is a GREAT proposal, and ties YFI to governance (prior to now, bootstrapping governance was necessary, so understand and love pool-3).
In addition, it will be FAR EASIER to hit quorum.
Strongly agreed. Governance should be in the hands of YFI holders. Many YFI holders are currently unable to vote their entire stack due to lack of massive stablecoin reserves.
@YFInfinity your point on quorum is a key one
This seems like a no brainer to me and something I’ve been worried about.
Time to move control from stablecoin whales to YFI holders.
+1 shifting control from whales to YFI holders is absolutely necessary
Agreed. There’s a clear-and-present danger of not being able to meet Quorum on ANY vote after YFI rewards stop on Saturday, due to unwillingness of BPT gov pool holders to keep funds staked on Balancer without any YFI rewards as compensation for the risk they are taking. This avoids the potential danger of getting stuck in that ditch. Brilliant!
FOR: Absolute no brainer and I wonder why Andre didn’t see this problem beforehand
Yes agreed, this should have been done earlier IMO
Great proposal, going to vote FOR.
Governance of YFI must be handled by YFI holders.
Don’t you think hostile takeover is far easier with only YFI tokens? The amount of capital required will be far far less.
We consider this issue as a choice between users governing the protocol or owners governing the protocol. BPT (98% yCRV / 2% YFI) voting would be giving most say to those who take the biggest balance sheet risk on the protocol contracts and who use the protocol. YFI voting would be giving the most say to those with the most economic alignment to the protocol. In our opinion, both cases should be fine in the short-term but eventually YFI should have all of the voting power in the long run. We are suggesting this even though it would reduce our voting power from by almost a half.
Here are our reasons For and Against, some of which has already been posted.
For: YFI holders have the most economic alignment with the protocol. Stablecoin whales could do a hostile takeover and pass proposals which favor them at the expense of others. Users care less about owners than owners care about users. In other words, stablecoin whales don’t care too much if YFI goes to 0. YFI holders do care if TVL in the project drops to 0 because usage is necessary for future cashflows.
Against: BPT (98% yCRV / 2% YFI) holders governing would be the “talk to your users and ask them what they want” approach to product development which is generally considered good because owners may be one step removed from the reality of what users actually want. (Counterargument: users have no idea what they want (e.g. Apple).) BPT holders take balance sheet risk with the protocol smart contracts while YFI holders only take YFI price risk thus BPT holders deserve a greater say on the direction of the project. YFI holders could be short-term aligned with the project rather than long-term aligned. They could push for short term price appreciation through pump mechanisms at the sacrifice of long term viability of the project. Also, a hostile takeover with YFI might take less balance sheet. Lastly, YFI staked to pools can not vote, thus this causes a negative incentive where people would prefer not to vote as they would rather get yield.
Decision: For wins but we strongly suggest implementation of voting delegation or reducing the quorum threshold before passing this Prop 10. If Prop 10 passes right now, we do not think quorum will ever be reachable.
In that case, I think that YFI price (market capitalization) ≒ security.
I think it is necessary to aim for a sufficiently high YFI price in order to avoid an oligopoly of acquisitions by capital.
I think it will be the same security theory as PoS networks.
I think prices will be balanced by natural competition principles.
But the issue is that the signs of oligopoly are already visible as was in the case of proposal 0.
The present system binds the entire liquidity of the voters and hence provide greater safety to the system.
This analogy of users vs. owners makes some assumptions not reflective of the real world. While this proposal doesn’t require yCRV to vote, it doesn’t mean that voters that skew YFI heavy in their portfolio are not yearn users. In fact, I’ve found that it’s actually the “retail” users who know the protocol much better than “institutional players”. I’d strongly disagree that there’s correlation between size of balance sheet and knowing what’s best for the project. Looking on chain, most of the players coming in with large stablecoin balances are also not the same players that have had long usage history with the protocol - rather they have only recently put on “balance sheet risk” in order to farm high yields and to be able to have a higher influence in governance (I don’t blame them Id do the same).
In terms of the new voting contract not creating a negative incentive to vote (Due to there being a yield generating fee contract, the current yield on the YFI fee contract is almost a rounding error compared to other yields in crypto right now). It will be largely irrelevant especially since votes only cause 3 day locks.
Lastly, this is a Temporary governance mechanism, not meant to be a final one.
We agree with some of what you said and disagree with other parts. It doesn’t matter. We will vote for Prop 10 but still strongly suggest implementation of voting delegation or reducing the quorum threshold beforehand.
I think this proposal is directionally right and have voted yes, but I want to propose a mechanism that may mediate between the different interests involved, namely yCRV holders and YFI holders.
In this case, the proportions of the Balancer pool can be used as a long term and flexible mechanism. It allows a mediation between both parties that can be adjusted and negotiated about. This would serve to keep their differing interests in check in the short term. Using governance to adjust the ratio (or the threat of adjusting it) creates a pull between the different interconnected tokens and keeps both parties at the table The ratio should eventually tend higher. As the protocol becomes more robust and time tested, the risk for the liquidity providers will drop and negotiations can happen to raise the YFI proportion in the pool. Reduce impermanent loss should also be a priority for YFI holders and keeping it as is at 2/98 doubly hurts YFI holders and it racks up a ton of impermanent loss on price appreciation. Starting the ratio at 50:50 would be a way to keep both sides aligned and things can adjust more gradually from there.
I voted yes for yip-10 but I think it would be better with a 50:50 pool to split the difference.