Governance Black Hole DAO Vault

The inspiration behind this vault came from 2 recent pieces:

  • The first one by @andre.cronje on Delegated Funding DAO Vaults, an idea I found fascinating.

  • The second one by the Delphi Digital team, in which they propose an interesting value accrual mechanism for PowerPool, a new governance protocol that will be launching in a few weeks.


So, basically, up until now most of the vaults have been generating yield by farming governance tokens and selling them on the market.

What if, instead of directly generating yield, we created a DAO vault whose objective was to retain governance power over the most interesting farmable projects out there? Instead of immediately selling the governance tokens of such projects, the DAO would hold them long-term and also actively participate in the governance of such projects to increase their long-term value.


Why not just farm those tokens yourself, you may be asking?

Well, because as is already evident, DAOs can generate more value than individuals; the sum of the parts is better than the individual parts put together. Some advantages of the DAO over individual farming I see are:

  1. The obvious one: Save on gas fees.
  2. Code assessment: One of the headaches when farming is being able to check the code of the farm is safe. How many of the current farmers are good coders? With the DAO we could have a team of devs checking farm code before beginning to farm.
  3. General assessment: Probably the DAO would have a greater network and ability to evaluate all general aspects of the projects (team, idea, etc) than any given individual.
  4. Governance: As part of the DAO, we could have a group of protocol politicians that actively strategize and craft proposals for the long-term value accrual of the farmed protocols.
  5. Synergies: This overlaps with point number 4, but is basically the fact that the DAO would be able to craft proposals that generate synergies with the yearn ecosystem, thus making both protocols more valuable.
  6. Curation: In the future, I could see the fact that the DAO is farming any given protocol as a sign of approval for that protocol. I could see the market reacting positively to any protocol being farmed by the DAO, as it would imply good long-term prospects. In this sense, new protocols setting up farms would be incentivized to being farmed by the DAO, potentially creating interesting information advantages for the DAO - not in the sense of a pre-mine, but in the sense of having the knowledge of all upcoming interesting farms. Currently there’s just too much information and little curation. The DAO could serve as a farm curation mechanism.

How would this work?

Well, I can see the mechanism working similarly to the Delegated Funding DAO Vault. YFI holders who wanted to participate in the Governance Black Hole DAO would lock their YFI for a piece of the pie. I think the credit delegation part wouldn’t be needed here, though.

Other details, such as the ability for participants to rage quit, would be needed to be thought out in more depth before structuring the DAO.


Very excited about the potential of this kind of project! Let me know what you think…

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This doesn’t make much sense. You’d have the vault locking up governance tokens for the benefit of the yearn ecosystem. So who would lock up their tokens if someone else is going to do it.

Nope. It’s like any other vault. The owners of the DAO would be the people who lock their YFI, not every single YFI holder. As with any other vault, the ones who benefit from the yield are those who lock their tokens. It would benefit the yearn ecosystem indirectly by making it more robust though…

First of all, I really like the core of this idea. I actually was playing around with something similar a few weeks back when thinking about other protocols and strengthening Yearn’s role within the DeFi landscape. If we use various other protocols, and depend on them for certain pieces, then it makes sense for Yearn to try and play a role in their governance as well to optimize our yield.

To that measure, I think holding governance tokens in certain protocols could be very valuable. Curve, Maker, and Aave all come to mind, as these protocols are all crucial to many of Yearn’s vault strategies. At the same time, I’m not sure how a coordinated effort to seize power in other protocols would be viewed by the larger DeFi community– it could end up backfiring. Currently, I would say DeFi has a strong positive sentiment for Yearn– but that could always change if people start to look at us as trying to grab power elsewhere.

However, this proposal seems to be focusing primarily on new protocols. We could currently farm CRV (and are) or CREAM, but realistically I’m not sure how many more high-quality DeFi protocols are going to emerge that we would want to put significant effort into governing (at least in the near future). I think Yearn playing a role in the governance of other protocols is very important, but I’m just not sure if farming new protocols is going to be the best way to do it, mainly because I don’t know how many huge new players we will see with farmable tokens. Perhaps I’m just a bit jaded because it’s seemed like recently everyone has just been forking or cloning existing projects with minor tweaks.

Realistically, I think what we would maybe want to see is two separate efforts/goals from an internal organization like this. The first would be very similar to PowerPool’s– acquire governance tokens. Perhaps this could be through a pass-through mechanism to one of the other vaults. For instance, use the yCRV vault strategy, and instead of buying back more yCRV, buy back governance tokens.

The other goal would align more with what you suggested in your proposal– target new promising projects, farm their tokens, and help develop their DAO to be mutually beneficial to Yearn. I think this one would potentially require much more work, but if we make good choices it could have huge benefits to the Yearn ecosystem.

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Agreed. I think the current proposal as-is is stated in a way that feels adversarial to other platofmrs. Having a big power bloc that farms governance tokens makes the yearn ecosystem feel like a sort of super-whale.

I think we’ll need to think more carefully about how we can participate in ways that are mutually beneficial. Sure, we can obviously bring the liquidity, but is there more of an exchange we can offer? EX: spitballing, but maybe this can dovetail this with the ongoing discussion about building in-house audit expertise?

Let’s identify the adversarial parts and then address them. For example if there is a fear that the DAO will control too much governance power on these other platforms, we could agree upfront not to exceed a certain threshold of control (whether indefinately, for a period of time, or until “invited” to do so by the rest of the governing vote). We need to know the perceived problems to try to solve them.

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Hey Lapis,
Thanks for the prompt. Did some brainstorming below, and some of it is more abstract/overlaps, but hopefully it gives an outline of potential worries I have.

  1. yearn ends up holding a rather large stake in the DAO (e.g. > 15% of shares).
  2. yearn champions proposals that benefit yearn, but at the cost of other protocols. I’m not sure if dumping governance tokens falls under this, but perhaps another example is if we champion to only accept yTokens as assets.
  3. yearn takes talent away from the protocol and into the folds of the yearn ecosystem. I can imagine this as either taking talent away, or pushing hard to integrate the protocol into our own ecosystem. While both of these aren’t necessarily bad, it feels somewhat coercive if we push for it while being a large stakeholder.

Those are the main three things that come to mind after a ~10 minute brainstorm.

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I agree, there could definitely be cases where communities prefer not to have yearn as a stakeholder.

And I think in those cases we could restrain from participating.

However, I see clear benefits for new projects/communities of having yearn as a big stakeholder:

  1. Yearn is not a classic whale but rather a fairly distributed DAO. DAOs are seen in a completely different light than single whales.
  2. Having a highly engaged community from the get-go is an amazing benefit. In my opinion one of the most important moats in crypto is the community and yearn is one of the strongest ones out there. Having our community is something any team would want.
  3. The idea wouldn’t be to craft proposal for the benefit of the yearn ecosystem but rather to craft proposals that help the project in the long-run. There would probably be opportunities along the road to craft synergetic proposals, but I think the main goal should always be enhancing the long-term value of the governed project.

In any case, I agree that this should be thought through in a deeper way. The purpose of the post was to start the conversation around it. As I see it, we’re just scratching the surface of what yearn can/will achieve.

Thanks for the feedback!

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I agree, the DAO shouldn’t just focus on new farmable projects. It should focus on projects we consider worthwhile in the long-run.

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Love this idea. I think yearn participating in promising projects would be a win win for both parties. A DAO like this seems inevitable given the current trajectory of the space. It is better for us to be proactive about this and have the discussions starting now. Yearn has a reputation for making fair choices (the project itself was founded on ethos of fairness)…(news just out today) yearn is the biggest contributor to the git public good funding. With a reputation like this…im confident that new projects would love to have yearn as one of the voices in their governance. Also remember yearn is not one individual. It is a collection of well intentioned early defi proponents. This will carry a lot of weight as time goes on.

I would almost argue that it would be irresponsible to not to implement something like this.

I’m more than happy to actively contribute to this initiative to get this going if there is enough interest. Thank you for this proposal.

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Yup, I don’t doubt that it can be beneficial for both parties. I agree that galvanizing the community to get excited about new protocols can bring a lot of value (in addition to liquidity).

Maybe a simple first step is to commit to getting some sort of confirmation from protocol stakeholders that they’re fine w/ yearn taking a large stake before moving forward?

Just wanted to highlight some of the obvious pitfalls that came to mind so we could open discussion about how to be mindful about them. If we do champion a proposal, I would like to see a “safety checklist” of relevant questions we get answered/confirmed before making a move.

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Thanks @boatonagoat for addressing my reply. We ought to be accepted (or even welcomed), but as you recognized, we do not want to be perceived as adversarial to these platforms. Does it make sense to create a list of commitments we would agree to follow? Such as we will seek to keep our governance vote below 15% (or 10% if the founders do not have that much) unless invited by the project to do more? To put those votes to a vote of YFI governance if feasible?

What would we be concerned about if Balancer or Maker or Compound started acquiring governance rights in YFI?

What fears do the folks over at Curve have about our participation?

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Yeah, I think adding list of agreements would make me feel more comfortable with this as a YIP.

My personal worries with any of the protocols you mentioned started acquiring YFI would be if they wanted to either:

  • slowly move more services onto their platform in order to raise their own value, at cost to yearn’s mission (i.e. that of getting the best yield, no matter where)
  • slowly move more services onto their platform in order to make yearn less relevant, which would be bad for our independence.

Tail risks would probably look like:

  • intentional takeover that pushes proposals which hurt the value of YFI
  • acquiring a large amount of YFI and threatening to dump / give it to other malicious actors, unless some demand is met.

I’m not a part of CRV, so I’m less clear what their worries are about us. Hopefully someone can chime in.

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Hello, I’m a member of the APWine.fi protocol’s team.
Our protocol will redirect funds to Yearn Finance to farm.
In another post, I was introducing a possibility of a funding from the DAO granted to our protocol. It is exactly what you define by Synergy.
APWine fair funding through yVCDAO
Tell me what do you think about it, would you have other questions about it?

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Hey! Your protocol seems very interesting. Definitely something new. Very interested in seeing how it evolves.

However, I think you’re asking for a delegated funding DAO vault loan and unfortunately I think the funding DAO vault is not yet live. I think you should definitely submit a proposal for funding when it goes live though.

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I support this proposal in general.

A way to mitigate adversarial behavior is to limit the percentage of circulating supply, say 10%, that the yDAO Vault can own of any single third party project.

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Agree. 10% max of circulating tokens at any given time sounds reasonable.

Hey, thank you for your thought. We will be very happy to submit this proposal when it launches😀
Have a great day!

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