Governance Overhaul and Future Rewards

I was in the same boat until I saw what @banteg said on discord.

I’m also going to copy over my response to that:

If we implement it this way, you have the option of choosing whether to vote lock your self or not, for how long, and don’t have to constantly lock/restake it. You can even say you don’t want to lock and receive the regular 1x voting power.

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Is this the best way to prevent someone fucking up the protocol? If someone did, many would be locked. The first to hit the end of their lock times would get out first. Somone who borrowed the YFI to fuck with the protocol would have an easier time paying back the loan if the value drops.

Edit: I will add that giving YFI holders choice may encourage more YFI to be staked in governance, which has its own benefits, including making it more difficult to mess with the protocol.

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This is honestly something that I missed. I’ll have to get back to you on that one. It does look like locking benefits the attacker if the attacker borrows YFI instead of buying. Which defeats the argument that the price of YFI will keep the protocol safe.

Question I’m asking myself right now is. How to ensure someone who borrows YFI can’t screw us up while at the same time preventing the scenario of build weight>screw up>dump.

@LapisLime I have made a separate thread discussing preventing YFI borrowers from attacking the protocol, since I think it’s a topic worth discussion in a separate thread.

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I like the proposal for the most part, but I don’t think there should be extra rewards for voting. Just staking in governance should get the same return, and the current method would remain to claim rewards. Having to vote for everything, not just the items someone cares about doesn't make sense. I want to make sure voting power and rewards are not intertwined. If they get intertwined, it could negatively affect the value of YFI affecting everyone.

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I agree that claiming rewards should not depend on whether you voted or not – just that you are staked in governance. I am however ok with increasing voting power and rewards for those staked longer (up to a limit, say a linear increase for 60 or 100 days).

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  1. No, CEX’s would be awesome to include but only if they meet full transparency requirements that the community can put together. Create strict rules and they can decide if they opt in or out. Eventually full transparency might be worth if for them to keep users.

  2. 100% only for governance stakers. I’m also for disincentivizing very risky behavior with YFI. Take risks with basically any other asset but when I saw a large portions of YFI in [most food name] pools it made second guess the whole YFI community.

  3. I don’t know enough about it and will likely follow the community thought leaders I align with. This almost makes me wish I could delegate my votes.

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Only YFI staked in governance should get rewards. Staking in governance is like hodling, it gives strength to the store of value property of the token.

For this reason, I don’t agree with that part of the proposal. But definitely… move governance off-chain. For me personally, the costs of voting are too high.

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All valid points…can you take this further and propose your solutions.

On a side note can we not have all these new video makers and twitter accounts get any money from us for now just because they saw on twitter our small grants and think we just give away money now.

I thought this through more, you know better than me honestly.

I’ll let all of you take the lead and I’ll vote appropriately.

I think the proposal is well intentioned and practicable, but I have a few concerns.

  1. As @jiecut flagged, this does not prevent voting with borrowed YFI. While @banteg says we can educate users to not lend more than 1/3 of their votes, once again, I think this creates the risk that those education efforts fail and users become upset when they don’t have the voting power they would intuitively expect.

  2. Are there other alternatives for reducing gas fees for small voters? I.e. could we subsidize them?

  3. If users are afraid of not being able to vote because their YFI is sitting in a vault or some protocol they shouldn’t invest that YFI. I think this model actually promotes good governance because it increases the signalling value of a vote; in order to vote the voter has to forego whatever gains they could have made by depositing their YFI in a vault or some pool.

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Only YFI staked in governance should get rewards. Staking in governance is like hodling, it gives strength to the store of value property of the token.

Great point.

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What if the YFI Vault strategy was rolled into the staked governance?

That would alleviate the incentive to put any in the vault and entice users to stake rather than vault.

So instead of getting Ycurve as a reward you’d get YFI that was market bought.

Anything that changes the voting power of a YFI based upon the identity of the holder, whether it is blacklisting certain holders from voting or diluting the voting power of a YFI by apportioning it between the YFI itself and derivative products (e.g., aYFI), may seriously harm its value as collateral.

If a creditor takes full possession of the collateral (such as the case with Aave), that creditor likely expects to have full control over the bundle of property rights associated with the collateral. Furthermore, any arrangement that introduces uncertainty into the equation so that a creditor cannot be certain precisely what it is receiving from YFI to YFI will introduce all sorts of issues.

Before moving forward with any proposal that would divest YFI from bestowing the holder with full voting rights, I would strongly encourage the team to have discussions with other stakeholders in the DeFi field to learn their views on what effect, if any, implementing such proposal would have on YFI as collateral.

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Perhaps this entire thread needs to be reiterated.

First off, CEX are not smart contracts, there is zero audit-ability, and users deposits WILL be used to divert governance rewards to the CEX themselves, period. There is no benefit to allowing CEX participation using funds intended for trading (no user intended delegation by depositing), this can only be remedied via international court imo.

Either you have a snapshot mechanism, which by definition lends itself to funds being shuffled in order to vote in the snapshot, or a vesting mechanism which requires locked funds and guarantees legitimacy.

If smart contracts are allowed to vote via a snapshot, then vesting comes with an opportunity cost. So the real discussion is around how to implement snapshot voting via contracts with the understanding that flash loans open an attack vector to divert gov rewards within one block.

No user has intentionally delegated governance via lending yfi under a vesting regime. If there is a technical implementation that prevents entities like AAVE from diverting gov rewards, then that is the solution. If there isnt one, then the snapshot idea is flawed.

There is no basis of reasoning behind delegation, because no user has ever delegated yfi before. CEX involvement is truly unacceptable regardless of implementation.

For the CEXes, there’s nothing stopping them from writing a smart contract that aggregates their users’ funds and uses that vote. We’d be able to see it on-chain if it emerged. If Coinbase, for example, does that, how should we respond?

I’m unclear about your flash loans point. I think most people are still in favor of giving rewards only to those who stake in the governance contract. Can you explain the attack vector a bit more?

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In the case of staking, there is a limit to how an exchange can utilize funds on chain because their actions are monitored, large enough to consistently require OTC, and users will have throttled withdrawals.

The issue with a snapshot being you just sign with the token, no lockup, a contract can borrow yfi to sign and repay the loan with gov rewards within the same transaction.

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I think you can set snapshot to use a block number from before the poll starts. So if this is chosen to be some random but small number of blocks before the start of the poll, actors can’t necessarily predict when to do a flash loan attack. Would this work to mitigate things?

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Agreed. Are we thinking of removing the 3 day vote lock? If not, how would a flash loan work in this instance? Even without a lock, would the flash loan borrower not need to know the exact block in which to borrow?

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Even a flash loan is just an example. In truth, the cost to borrow YFI in advance of the snapshot is potentially cheaper than holding YFI for the snapshot outright. The gov rewards at a certain size pay for the interest on the loan; in that case CEX have deeply ingrained edge to divert gov rewards given the bonding curve model of AMM.

This behavior has been commonplace in AAVE, govtoken deposited in advance of being borrowed for use in a snapshot - resulting in spiking lending rates, the entire process burns gas and CEX just have to transfer user funds.