A cohesive strategic framework for Yearn

Summary:
There is a lot of work going on to improve Yearn from different starting points. From high level governance, to capital allocation, fee structures, incentive systems to focus on vault development, communications, documentation and many other things. This is an attempt to formulate a framework based on work and comments from @banteg, @lehnberg, @milkyklim, @tracheopteryx, @DCinvestor, @RyanWatkins and others.

If there is interest, and a framework like this is viewed useful hope this starting point can lead to a discussion here in the forum with the goal of an improved version that can be of use in the community.

Abstract:
This is not a final proposal, but a starting point for a discussion. I have prepared one way to frame a cohesive strategy by framing it as a challenge with a number of different guiding policies and actions as examples for dealing with this challenge. I formulate the main challenge as:
Maintain and establish the first mover advantage of being the de facto hedge fund in DeFi. As a community, find an efficient governance structure that incentivise fast and decentralised development, while maintaining first mover advantage, great UX and full security.

The full text is also available as a Google Doc for easier commenting and co-editing. If there is support to develop this framework and the ideas further, I would suggest to submitting this document to GitHub instead.

The structure is based on Good Strategy, Bad strategy by Richard Rumelt. McKinsey Summary Summary and Notes

Challenge and diagnosis

A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. At a minimum, a diagnosis names or classifies the situation, linking facts into patterns and suggesting that more attention is paid to some issues and less to others.

Yearn Finance was released in the summer of 2020 and quickly became the de facto standard for enabling low risk, high yield in DeFi. In other words, Yearn is the first hedge fund alternative for DeFi. Yearn had an explosive growth in total value locked (TVL) indicating an early product market fit. What Yearn offers, many users want.

The first mover advantage has proven to be very strong in the blockchain space in general. The dominance of BTC, ETH and how other blockchains have to adapt to work with these leaders are good examples. The other main success factor in DeFi has proven to be User Experience (UX). Uniswap and Aave are good examples of how a good UX captures the market by attracting users and therefore quickly building a dominant position. The last success factor is security. Lose funds through a contract bug, hack or theft and another project will quickly take over.

Yearn is a collective of contributors. Yearn was launched into the community without any debt or obligations. It launched with a valueless governance token that could only be earned by providing value to the project. The token is now anything but valueless as it governs both the future of the project and the cashflow it is generating. Yearn is now community of individuals and organisations that are looking for two things:

  • Maximise value of the project itself (token value).
  • Develop and provide the best possible products for it’s internal (token holders) and external users.

The DeFi space develops incredibly quickly. The main challenge for Yearn is to stay true to the core beliefs of the community and at the same time continuously develop and reinvent Yearn to not only stay relevant but dominant. These challenges can be summarised as:

Maintain and establish the first mover advantage of being the de facto hedge fund in DeFi. As a community, find an efficient governance structure that incentivise fast and decentralised development, while maintaining first mover advantage, great UX and full security.

Guiding Policy

A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

The challenge can be broken down in a couple of different areas where a long term guiding policy can help identify problems and make it easier to focus to do the right things.

Efficient governance

Yearn is constantly evolving a more efficient governance process. A constant and on-going discussion on this topic is important. The governance process should never be finished.

There is a tradeoff between speed and agility on one side and transparency and consensus on the other. The cost of coordination is high. Therefore one goal should be maximum autonomy and ownership to the smallest possible unit. This means that we should allow for personal ownership and responsibility to the largest extent, and keep most coordination tasks to small teams. When possible, decisions should be taken by the person closest to the action.

All projects have a number of things that are not possible to govern in a trustless setting. There must be some caretakers that control things like the main Github, web domain, official social media accounts. Therefore, there is a need for a stable (i.e. with long term financing) core entity that can manage these things.

As there is not a clear product roadmap, it is important that all products are sustainable by themselves while also providing value to the overall ecosystem. There should be an incentivisation system that encourages design of new products, and variations of products. At the same time there need to be resources available to support longer term development of base components, frameworks, integrations, security, community platforms etc.

Governance goal is to provide valuable products to the Defi ecosystem and to maximise value for the entire project.

UX and security

The main problem in everything related to blockchain in general and DeFi in particular has been the user interface. Projects that solve UX together with an attractive product offering tend to dominate their market nisch. Some guiding policies for good UX in Defi include:

  • Simplicity - Extremely simple on- and offboarding for end users.
  • Composability - it should be simple for other projects to integrate.
  • Clarity - In product descriptions, fees, URLs, communications etc and a single source of truth.

Security must be a top priority. DeFi assets have real value. What is pocket change for one person can be a month’s salary for someone else. DeFi is the democratisation of a sophisticated financial system and all amounts of funds are equally important. At the same time, security is asymmetrical. There are endless potential attack vectors that need to be protected against, but an attacker only needs to find and exploit one weakness to cause harm. Some guiding policies:

  • Never compromise on security, follow best practices
  • Aim for redundancy in security testing, audits etc.
  • Gradually increase the stake of new solutions (i.e. live bounty)
  • Have a clear security mindset in overall project governance

Coherent Action

A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.

Not everyone finds it easy to have full insight in a constantly evolving project like Yearn. Actions are a help to contributors to identify and prioritise what to focus on. The actions are designed to help identify what contributions are most likely to create value (short and long term).

Also, actions can help to identify important decisions that are likely needed to raise as formal YIPs (Yearn Improvement Proposals).

Summarising the guiding policies above into a number of example actions:

Efficient governance

  • Core team: Initiate discussion and write a proposal to award a longer time grant to a core team that will manage key infrastructure (such as Github, domain keys, user management on social media accounts etc). Also focus on strategic development (vaults v2, v3 etc), long term roadmap, security audits and UX/UI of the main Yearn website.
  • Grants award process: Write a proposal for better grant award process. The current grant award process has been highlighted as not being clear, and it might also be counterproductive with a lot of focus on transparency on one hand (precise reporting of salaries and expenditure), while at the same time being opaque. The goal is to create value. One alternative is a formal grant system where proposals are sent in, reviewed and granted.
  • Fee restructure : For a sustainable fee structure, better alignment with intended behaviour YIP-46 (and more to follow)
  • Initiate a discussion of where formal YIPs are really needed and should be submitted vs delegated to core team, grantees or contributors.
  • Short vs long term value maximisation: YFI govern a considerable (and hopefully growing) cash flow from fees. There is a tradeoff of stability and runway, value maximisation short term vs investing in growth. This leads to several discussions (e.g. rethinking capital allocation) and potential proposals:
    • E.g. Proposal 1: Size of governance fund
    • Proposal 2: Retention of fees - e.g. pass through 0%, 25%, 50%, 75% of fees to token holders.
    • Proposal 3: How to use retained funds (grow governance operating fund, grants, YFI buybacks, incentive programs for contributors etc)

UX

  • End user UX: Prioritise UI/UX of the main Yearn website for end users to use the products as much as possible. Hire professionals if necessary.
  • Clarity: One source of truth and one official website. There should only be one official website, and that should always reflect the latest information about the project.
    • Limit the use of different domains as much as possible
    • No information backchannels, all relevant information should be logged in one place
  • Vaults: Vaults are the core of Yearn at the moment. Users come to Yearn for the vaults. Prioritise UX of the vaults page. Adopt and plan for a future of many vaults. Improve listing, sorting, grouping and filtering.
  • Vaults: 99% of potential users (already in crypto) do not know what yCRV is (or the other base assets). Base strategies on related assets on Ethereum and provide an integrated swapping route to the vaults. E.g. USDC (or USDT) for yCRV. Provide an advanced option to deposit the base asset directly.
    • Proposal: Create a new set of vaults based on ETH, WBTC, TETHER, USDC, DAI that integrate asset swapping to the top performing vaults (the new v2 vaults or the different current CRV-vaults)
  • Vaults: Simplify the deposit process and UI. Display only one growth number (e.g. monthly), provide a link to personal statistics, remove redundant options to deposit 100%.

Edit: Title and typos

38 Likes

Excellent work Daniel.

I can definitely echo the need for one single domain / website, I have spoken to multiple users who have been confused about the different domains. IE: For governance alone, I had someone think ygov.rocks was a fraudulent website due to a lack of clear information.

2 Likes

I think this is a fantastic way to integrate a lot of the issues/ideas that are (thankfully) actively being worked on across the protocol.

To me, one of the most amazing things about Yearn is that it was formed from the ground up around what was originally a bundle of smart contracts deployed by Andre. It feels like Yearn has been around for ages in crypto time, but in reality YFI was distributed less than four months ago.

This bottom-up formation in such a short timespan has lead to a lot of amazing things, but it has also led to many of the growing pains you point out in your post. For the past 4 months, we’ve all been trying to figure this out as we go along while making Yearn the best it can be.

I would also encourage anyone reading here to do the same as @danielzak, and if you have ideas about how Yearn can be better, please write up a forum post to lay them out or even jump in and start working to fix the problems you see. It’s not a canned response when @milkyklim or @banteg say something hasn’t happened because no one has jumped in to do it yet—it’s because everyone else is so busy that literally no one has been able to prioritize that thing.

But all together, I gotta say, I’m really excited for the next few months.

4 Likes

Thanks for highlighting this. My main goal of writing the above is to encourage discussion, but also to highlight and prioritise areas to make it is easier to jump in and contribute.

Many people have great ideas, skills and experience but do not know how to engage in a meaningful way. Yearn is already complex :slight_smile:

If there is interest I’d be happy to keep this as a live document, and e.g. update based on the proposals now being submitted by @banteg, @milkyklim and @lehnberg for revamping the fee structureYIP-51 and strategist rewardsYIP-52 (which are directly tied to efficient governance above)

4 Likes