YIP-XX: Governance Overhaul: ⓶ stYFI

Proposals Protocol and Governance
1

Authors: 0xPickles and the governance team contributors

1. Summary

This proposal introduces stYFI, a new liquid governance and revenue-sharing token designed to replace veYFI, capture 90% of protocol revenue for stakers, and provide a clear migration path for current YFI stakeholders.

IMPORTANT NOTE: This proposal is the second of three interconnected parts of a single initiative designed to overhaul Yearn’s operations, tokenomics, and contributor incentives.

All three parts will be discussed in parallel on the forum but will be voted on as a single, all-or-nothing package in one Snapshot vote for YIP-XX. If the unified proposal passes, all three parts will be implemented. If it fails, none will be.

1.1 Status

Discussion
This proposal is in the discussion phase. As per YIP-55, it will remain here for at least 3 days with a non-binding forum poll. If sentiment is positive, it can move to Snapshot for a binding vote by veYFI holders on the combined three parts (see Summary above).

2. Abstract

If the complete YIP-XX initiative is adopted, this part of the proposal will:

  • Introduce stYFI as the new governance token with liquid staking/unstaking.
  • Route 90% of future protocol revenue to stYFI stakers.
  • Sunset the veYFI system and provide an opt-in migration path for holders.
  • Establish a redemption facility for existing Liquid Locker tokens.
  • Implement a yield backstop to de-risk the transition for early participants.

3. Background

The existing veYFI tokenomics model was the result of a series of ambitious proposals designed to secure Yearn’s long-term success. To understand the need for change, it’s essential to first understand the original vision and then contrast it with the practical reality of its performance and technical limitations.

3.1 The Vision for veYFI

The foundation for the current system was laid by YIP-65: Evolving YFI Tokenomics[1], with subsequent proposals like YIP-73[2] and YIP-81[3] building upon it. The vision was to create a powerful economic engine with three primary goals:

  1. Promote long-term alignment by requiring users to lock YFI for up to four years.
  2. Enable strategic capital incentives via gauges to direct dYFI emissions and attract TVL.
  3. Secure Governance and provide yield from protocol revenue buybacks.

3.2 The Reality & Technical Failure of veYFI

Despite its well-intentioned design, the veYFI system has failed to achieve its objectives and is built on a technically flawed foundation, making a migration a necessity.

  • Critically Low Participation: Only ~3.8% of the YFI supply is locked[4], a figure that is in decline. This demonstrates a fundamental lack of interest in the model.
  • Fragile Foundation: A low lock rate leaves governance overly exposed to manipulation. Moving to on-chain governance under these conditions would amplify the risk rather than reduce it.
  • Imminent End of Rewards: The gauge system is not only ineffective, but its rewards are nearly exhausted. Of the YFI bought back for the program, only ~230 YFI remains for future emissions after accounting for all outstanding dYFI redemptions[5]. The program is on a mathematically certain path to ending, with or without this proposal.
  • Ineffective, Self-Referential Incentives: Over the past 10 epochs, 69% of dYFI emissions were directed to YFI-related pools[5], creating a closed loop rather than attracting new capital to core products.
  • Excessive Complexity: The interplay between YFI, veYFI, dYFI, and gauges has been a significant barrier to entry for the broader community.

Crucially, “doing nothing” is not an option. While the most severe bugs in the immutable veYFI contract have been temporarily mitigated, they remain unfixable at the contract level and pose material risks going forward:

  1. Loss of Rewards for Relocking Users
    This bug, which blocks future rewards for users who let their lock expire and then re-lock, has been patched at the front-end level to prevent it from occurring. But it still lives in the contract and represents a hard failure for our most loyal users should the safeguard ever fail or be bypassed.

  2. Reward Misaccounting & Vote Weight Corruption
    This timestamp handling bug (block.timestamp % WEEK) could cause misaccounting of rewards, DoS in claims, and, most critically, corruption of veYFI balances, leading to incorrect voting weights. It has not yet been triggered because Ethereum block times remain constant. However, with renewed community discussions about reducing block times, the likelihood of activation is increasing.

In short: these bugs have been held at bay, not fixed. What was once dormant risk is becoming live risk. With potential protocol-level changes on Ethereum, we must act proactively now rather than wait for a forced crisis.

Because these contracts cannot be patched, any attempt to “top up” veYFI or extend its life would be reckless. The only responsible path forward is a migration to a new, secure system.

4. Motivation

The motivation for stYFI is to establish a new engine for Yearn’s growth, guided by a philosophy of simplicity, powerful incentives, and clear alignment between all stakeholders. This proposal aims to create a superior user experience and increased participation in Yearn Governance.

  • Simplicity and Accessibility: stYFI is simple: stake YFI, receive stYFI, earn revenue. A 14-day cooldown replaces the four-year lock, encouraging broad participation.
  • Powerful, Real-Yield Incentives: stYFI earns a direct share of protocol revenue, paid in a high-quality, yield-bearing stablecoin (e.g., yvUSDC). This creates positive economic reflexivity: as YFI’s price falls, the stablecoin APR rises, creating a natural demand floor.
  • Secure and Aligned Governance: Time-weighted voting power protects against flash loan attacks without sacrificing liquidity, while APR boosts for voting incentivize active participation.
  • A New Social Contract: This proposal creates a new deal. 90% of future revenue goes to stYFI holders, empowering them. Contributors are funded from the existing treasury (Part III), approved by DAO voters, and making them accountable to the same.
  • A Fair Transition for veYFI Holders: The migration plan is designed to recognize the commitment of early veYFI adopters, offering them an upgrade to a superior system with tangible benefits like a reward boost. Those that used liquid locker protocols will additionally have an optional exit path via the redemption facility.

5. Specification

The following numbered requirements will be implemented to introduce the stYFI token, define its mechanics, and manage the transition from the veYFI system.

5.1 Implementation Priority

  1. Top Priority for DAO-ops: The design, development, and deployment of the stYFI system as described in this Part II is the top priority for the DAO-ops team following the approval of this YIP.

5.2 stYFI: The New Governance & Yield Token

5.2.1 Staking & Unstaking Mechanics

  1. Staking: Users stake YFI on a 1:1 basis to receive the stYFI token.
  2. Unstaking Cooldown: Initiating an unstake begins a 14-day cooldown period. No rewards or voting power accrue to YFI in cooldown.
  3. Linear Streaming: During the cooldown, the underlying YFI is streamed linearly, becoming progressively available for the user to claim.
  4. Cooldown Reset: If a user initiates a new unstake while a previous is in progress, the 14-day timer resets for the entire remaining unstaking balance.

5.2.2 Governance Rights & Voting Power

  1. Sole Governance Token: stYFI is the sole token for participating in Yearn governance.
  2. Time-Weighted Voting Power: A staker’s voting power scales up over four phases of continuous staking. (Phase duration tbd.)
    Phase Voting Power Multiplier
    0 (initial stake) 0%
    1 25%
    2 50%
    3 75%
    4+ 100%
  3. Governance Epochs: Governance will operate in epochs of a duration to be determined by the DAO-ops team, but these epochs cannot be shorter than 14 days.
  4. Initial Platform: Snapshot may be used for binding votes initially, until an on-chain system is deployed.

5.2.3 Revenue Distribution & Yield Boost

  1. Revenue Share: stYFI holders are entitled to a share of Yearn’s protocol revenue.
  2. Reward Asset: Rewards will be paid out in a single, pre-determined Yearn vault token (e.g., yvUSDS). The specific vault may be changed at the discretion of the DAO-ops team’s multi-sig.
  3. Provisional APR Boost: To encourage governance participation, DAO-ops is authorized to design and implement a gas-efficient and robust mechanism that increases yield for stYFI holders who are active in governance voting. The specific mechanism is not fixed in this proposal and may vary based on feasibility and security considerations. A key constraint is that stYFI holders who do not participate in governance at all cannot have their yield reduced by more than 60% compared to those who do.

5.2.4 Protocol Revenue Routing

  1. Treasury/stYFI Split: Revenue will be split with a default of 90% to stYFI Stakers and 10% to the DAO Treasury. This split is a DAO-configurable parameter.
  2. Definition of Revenue for Splitting: The revenue split applies exclusively to protocol revenue (e.g., vault fees). It does not apply to assets already held within the DAO Treasury.
  3. Token Conversion: Revenue tokens will be converted to the reward asset via Yearn’s existing automated and permissionless treasury auction system.

5.3 veYFI Migration & Integration Plan

5.3.1 veYFI Holder Integration

  1. Snapshot: A snapshot of all veYFI balances will be taken from Ethereum block 23460759, falling around the time this proposal is published.
  2. Opt-In Migration: To be eligible for rewards in the new system, existing veYFI holders (both direct and via liquid lockers) must actively migrate via a dedicated contract. This ensures rewards are concentrated among engaged participants.
  3. veYFI Reward Boost: To reward their long-term commitment, migrating veYFI holders will receive a decaying reward multiplier on their stYFI yield.
    1. A 4-year lock (at the time of snapshot) will begin with a 2x multiplier.
    2. The multiplier will decay linearly to 1x as the lock approaches its expiry date.
    3. Governance voting power is not affected by the reward boost.
  4. No Lock Extensions: This program is only applicable to existing lock durations. Extending a lock will have no impact on rewards earned and will not result in any additional compensation, it only extends the period YFI is locked for the user in the old defunct system.
  5. Forfeiture on Early Exit: If a user breaks their veYFI lock early, they forfeit all rights under this program.
  6. Action Required at Lock Expiry: Once a veYFI lock reaches its natural expiry date, it will no longer be eligible for this program. The holder must then withdraw their YFI and stake it directly into the stYFI contract to continue participating in governance and earning revenue share.

5.3.2 dYFI and Gauges

  1. Gauge Shutdown: All active dYFI gauges will be shut down.
  2. dYFI Deprecation: This proposal deprecates the dYFI token.
  3. dYFI Redemptions: dYFI will remain redeemable for YFI under existing rules.

5.3.3 Liquid Locker Redemption Facility

  1. Precondition: A Liquid Locker protocol must permanently disable the minting of new locker tokens and permanently disable lock extensions to become eligible for the redemption facility.
  2. Redemption Mechanism: The Yearn Treasury will allocate up to a maximum of 600 YFI to facilitate a redemption mechanism, allowing users to swap their liquid locker tokens back to YFI, and vice versa, at will, with deep liquidity and no slippage.
  3. Fee Structure: The redemption fee starts at 10% and decreases linearly to 0.25% over a four-year period.
  4. Two-way conversion: The redemption facility will also allow swapping YFI back to a liquid locker token of a user’s choice, at no fee.
  5. Facility Duration: The redemption facility will remain open for each protocol until the final expiry date of its underlying veYFI lock (or 4 years, whatever is shorter).
  6. Final Wind-Down: Upon the final expiry of a liquid locker’s veYFI lock, the redemption facility will serve as the primary mechanism for the protocol to redeem any remaining underlying YFI and distribute it back to its token holders, facilitating an orderly wind-down.

5.4 Yield Backstop

  1. Establishment of a Yield Backstop: To de-risk the transition, the DAO will establish a yield backstop program specifically for migrated veYFI holders.
  2. Duration and Cap: The program will run for 3 years or until a total of $5 million equivalent in rewards have been distributed to stYFI in total, whichever comes first.
  3. Top-Up Mechanism: Top-ups are calculated annually. If the total protocol revenue distributed to stYFI in a given year is less than $1.67 million equivalent, the Treasury will cover the shortfall.
  4. Top-Up Asset and Recipient: The top-up will be paid in YFI and distributed exclusively to migrated veYFI holders, streamed linearly over the 3 months following the year-end calculation.

6. Vote

This poll is for non-binding sentiment gauging on this specific part of the initiative. The final, binding vote will occur on Snapshot for the entire YIP-XX package.

Non-binding signaling poll

Do you support Part II (stYFI Tokenomics & Migration) as a component of the full proposal?
  • Yes
  • No
0 voters

7. References

  1. YIP-65: Evolving YFI Tokenomics
  2. [YIP-73] Activate veYFI rewards with oYFI Gauges
  3. YIP-81: Prepare for Full On-Chain Governance
  4. Yearn Wars
  5. dYFI Gauge Voting - Google Sheets

8. Changelog

  • Aug 21, 2025: First draft circulated with Yearn contributors and the governance team for initial feedback.
  • Sep 03, 2025: Contributor feedback incorporated. Second draft circulated to key governance participants and liquid locker teams (StakeDAO, Cove, 1UP) for feedback.
  • Sep 25, 2025: Revisions made based on comprehensive feedback from key stakeholders. Major changes include:
    • Added in-depth details of veYFI contract flaws.
    • Generalized voting APR boost design, delegated implementation to DAO-ops
    • Added opt-in migration for veYFI holders.
    • Added a 2x decaying reward multiplier for veYFI holders.
    • Added a 3-year, $5M yield backstop for the stYFI program migration.
  • Sep 28, 2025:
    • Proposal published on the Yearn governance forum.
    • Added block cut off for snapshot.
1 Like
2

Hi Great Idea ! I support it

Am other point is what happens to people with lost YFI in multichain bridge to FTM ?
would they be able to recover their YFI

3

Thanks for the proposal.

Where do the redemption fees go from early exits?

What are the current revenues of the protocol, is defillama metrics correct? Do you have any projections of APRs for st-YFI at different participation rates compared to the current veYFI system?