yTrust - Legal Trust Structures for yVaults

[gcosteloe]

Hi all,
Long time lurker, first time poster.
I’m (twitter - @gcosteloe) a lawyer in Vancouver, Canada with a practice focused on trust, estate, and tax planning. I’m also a LEETH Certified contributor to LexDAO, minor contributor to KaliDAO, (quiet) LexPunK member, and (small) user of yVaults. I’ve also proud to have become a crappy solidity dev so that I can work directly with dev teams with my DAO clients.

IMO one of the major missing features of the entire DeFi ecosytem is a form of decentralized, trustless, succession planning - allowing holders to ensure their accumulated wealth is passed on to family or charities. It’s been my side project to figure out how to get this done in a way that protects and empowers the ethics of the crypto/DeFi community.

I have put a lot of thought into how to build fully on-chain wills. For a variety of reasons, this is a very hard problem. Just getting the provable but anonymous confirmation of death on chain is a nightmare at present (but potentially solvable in the future).

However, there is an intermediary option that accomplishes many of the same objectives as a will but has far fewer hurdles - the common law trust.

At their core, trusts would allow users to plan and direct the capital and yield of a yVault position.

There are 4 obvious uses for this sort of feature:

1. Distribute earned yield between chosen beneficiary addresses;

2. Distribute underlying vault capital between chosen beneficiary addresses;

3. Earn yield in the hands of a beneficiary who can claim that income at a lower marginal tax rate; and

4. Give to charitable causes without losing capital by contributing yield only, automatically.

Why is this a perfect fit for Yearn? No one wants their assets sitting and not earning yield. If I want to pass my ETH onto my kids when I die, but I don’t know when that will happen, it feels uneconomical to sit on a naked ETH position because I don’t want to die if assets are in a crazy degen position. Doing ‘inheritance’ through the transfer of private keys in meat space poses both security and legal concerns.

Building a yTrusts feature out would make Yearn the go to place in DeFi for those looking to complete succession planning or tax minimization strategies.

I am interested in putting forward a proposal to obtain some funding to build this feature out. Before I do, I want to see if such a feature/product would be of interest to the community. I have already started to build out a team who I believe can accomplish this and we are trying to determine the best path to fund and scale it. Building alongside the community is certainly preferred to going to a VC.

Please let me know questions or feedback. Ideally, I can find a champion or two in the Yearn community who can point me in the right direction when it comes to writing the proposal.

[jordans]

This is a great idea, Geoff. I think you’re the right guy (with the right team) for job.

[Island]

I have gotten an account at CASA. It has been a pain to setup. They also only take Bitcoin.
It does give me a way to organize my estate that,I think, avoids the problem of losing the Cryptos.

[parseb]

I’ve seen other attempts to tackle the inescapable event.
What I am not sure of is what exactly such a project would need from yearn. Such projects should be able to be done premissionlessly. Also, I don’t think (as far as I know), yearn wants to get tied up in any jurisdiction.

I think this would work if it integrates multiple DeFi options.
The closes thing I can think that does something like this (don’t loose cryptoes if ded) are contract wallets like argent… and as such private key management is likely the best point to approach this from.

DeFi aggregator with dead man switch would be the way I would go about it.

[gcosteloe]

These are all totally fair points, but is possible because of poor explanation on my part.

Wills are complex beasts that vary by jurisdiction in their requirements and usually have to integrate into the legal system, which is clearly not scalable or ideal from a building perspective (not to mention the problem of getting an oracle that can trustlessly and anonymously report a specific individual’s death). There have been a bunch of projects aimed specifically at Wills and imo this is why most/all have failed.

Instead, this approach leans are common law trusts, which are much simpler and less formal. In their pure form, they are recognized in pretty much every common law jurisdiction. This simpler approach allows the project to be immediately scalable. Because trusts don’t require the same level of integration with the legal system (often none at all), a permissionless system can be built.

Why integrate with Yearn? Users who are planning to share wealth face a dilemma - Lock their positions into a cold wallet that will allow a handoff to succession key holders, or continue to actively manage their positions to maximize yield, but risk loss of those assets at the time of handoff. A trust allows them to do both. A useful trust integrates a yield earning holding to spin off income to the beneficiaries (even though the initial principle is often retained by the initial depositor).

Argent and similar multisig setups allow the passing on of assets through private key handoff, but don’t allow a slow trickling of funds over time, which is often preferable to leaving a large lump sum to a younger child. This project would allow the user to adjust those dials however they wanted.

Hope that helped clear it up.