Making Yearn Great Again - Governance & Incentives

Yes yes I know, Yearn was always great. Anyway thanks for opening, the clickbait headline worked. Scroll to the bottom if you’re a lazy ape, otherwise grab a coffee and strap in for fugue state ruminations.

Skip this part if you wish but I’ll remember that you did

Now, this is something I’ve thought and posted about over the past few months whether on these forums, discord, or in private, but never in a consolidated semi-cogent way. I know many others have also repeated similar thoughts so forgive me if I am unconsciously plagiarizing your ideas or better yet, entertain the possibility that like the Zerg hivemind that we are, similar ideas independently spring up within the Yearn noosphere.

As Yearn has continued to grow in TVL and in scope via recent “partnerships” (I use this and the word “merger” very loosely) there is a continued itch to referentially self-improve. “Out with it Arcturus! Why so many words to say so little”, you say. I say, I give this context for those unable to keep up with the deluge of information in the DeFi Cambrian Explosion.

Yearn has one of the best mindshares in the DeFi space and I think it’s a good time to fine tune and incentivize that engagement. I may be alone in saying this but I have noticed a more passive userbase, with many of our past contributors disappearing back into…the ether. I myself have been guilty of this as well. How do we solve this? Read on for more ramblings.

Our diligent core team and other amazing contributors have ensured that we have stayed at the forefront of DeFi and despite hacks all around, Yearn (knock on wood) has avoided the mortar fire devastating so many countless others making it more Lindy. Yearn has become a reasonably-sized household name and as such, it is our duty as stewards of the ecosystem to ensure its ever forward progress. With this preamble aside let’s get into it:

I don’t know where to begin here let me start with the number of YIPs that have been recently submitted. They have slowed to a crawl. I’m sure everyone has great ideas, where are they? Why have they stopped? What is the limiting factor? There are many answers to these questions which merits its own rambling post but what we can agree on is that there are less governance contributions. Could it be that YFI holders have less skin in the game(SitG) regarding governance actions and prefer inertia?

Let’s do a quick spot check, how many YFI do you think are currently locked up in Yearn governance? 15% 25% 40%? I’ll save you some time, it’s 10% (3000 YFI). At some points in Yearn’s past we were at ~10k or 30% (roughly). You may say “But Arcturus this is because we allow anyone to vote via snapshot voting regardless of where your YFI are.” True, so with this said could it mean there are too many competing interests pulling in their own directions (sometimes individualistic) which wouldn’t benefit Yearn as a whole (at odds with the collective)? In other words is there really any skin in the game?

What if we could incentivize governance participation while ensuring incentives are aligned? What if you could ensure Yearners (is this a thing? if not I’m making it a thing) could be made to care for a certain period of time, nudging them to participate more. What I have humbly proposed before simplistically here inspired by Curve and then proposed independently much more comprehensively by Andre is Vote Locking YFI (read more here.) which itself carries a small multiplier on governance rewards, a la Curve. I initially thought this could be for governance itself but maybe vote locked YFI also boosts future v2 vault APYs via Yearn Strategies incentivizing Yearn GPs to also be LPs to align incentives between the two. Something something downstream effects.

Vote Locking your YFI for a period of time forces you to be more engaged and support the long term viability of Yearn, whether this means following news, forums, or proposing YIPs.

Discretionary Spending:
Now what is a second order effect from this? Vote Locking is a prerequisite for safely putting our capital to work. As of right now the Market Cap of YFI is $700MM. At best we have $7 million (if you count the 10% locked via governance staking) to deploy a fraction of via a CDP on Maker. Currently it is quite difficult to safely maintain adequate collateralization ratios for farming activities due to not only of the volatility of coin prices but also ensuring enough capital is on hand to facilitate withdrawals & adjusting collateralization profiles. If a stable base amount of YFI is known to be “locked” then it follows that amount could safely be deployed knowing that it can’t/won’t be requested for withdrawal anytime soon. Essentially this creates an effective lower bound on how many YFI are available in the open market.

Quick napkin math at 2-4% DAI borrowing Stability Fee (which can be initially proposed to be 4% let’s say and decrease it once we prove we can adequately manage the CDP) and lending on yPool (~7.5%) we can capture a >3.5% yield on some unused capital. Even if this was a fraction of our total YFI this could still be something like $1 million+ per year in purchasing of YFI.

This allows for discretionary spending beyond what has been allocated via our budget. These additional funds can be used for including but not limited to, extra funds for contributors, funding yDAO ventures providing initial stakers with a major share of ownership (nudging YFI holders to stake not only for potential upside in successful projects but also participate in vetting and being activist investors in assisting nascent projects). This in the future can be tranched out as well, i.e. safer tranche just uses funds for additional budget providing x multiplier on governance rewards whereas a riskier tranche uses farmed funds to deploy to yDAO projects. Let’s keep it simple first. Just think of it as our expeditionary warchest.

Metagovernance (Protocol Governance Capture):
Other options include governance token capture. As a yield aggregator it is in Yearn’s best interest to us its financial moat for its best current and future positioning in the market. Acquisition of governance tokens in the other platforms it uses or intends to use should be on the forefront of Yearn’s hivemind in order to ensure mutually beneficial futures (spare me accusations of corporate doublespeak here - this is not implying hostile takeovers, we as participants who pay tolls for using platforms should also have representation with a side benefit being future cashflows of such platforms). Also more cynically it makes more sense to gain a share in these platforms while it is still cheap to do so vs the future, in other words, this is time sensitive.

The possibilities of what can be done are infinite but we need to lay the groundwork before we can add additional abstractions. As such in order to then be able to create a vault that can leverage better fees is to create a whitelisted Maker YFI vault that will be managed by Yearn. This had been mentioned in the past by Maker team members as a possibility. Why you may ask? A managed CDP could have a reduced stability fee improving capital efficiency creating a self reinforcing mutually beneficial relationship between Maker and Yearn. A proposed SF% for example could be 4%. If you would like to volunteer to begin the signaling process on Maker forums, reach out to our core team and do it.The ability to deploy currently unused capital in a coordinated way cannot be understated.

In order to encourage our contributors and grantees to get involved in Yearn, with SitG in mind, I also suggest that moving forward
Proposal: Any grants/Bounties get paid in YFI instead of yUSD.

In Summary:
We need to incentivize further community engagement and I (re)propose a series of proposals to get this moving

  • Proposal 1: Pay out grants to contributors/grantees in YFI instead of yUSD (which it currently is).

  • Proposal 2: “Vote Locking” YFI (similar to veCRV) which decays. In limbo here let’s push this forward.

  • Proposal 3(Relies on #2): Initiate Signaling for Whitelisted Yearn Vault on Maker & Propose Methods of Maintaining adequate collateralization ratios from Yearn’s end.

  • Proposal 4(relies on #3) : YFI vault to begin borrowing against YFI to tap into and deploy currently unused YFI capital for discretionary spending which in the future can be tranched out based on risk profiles (for clarity this is an additional optional vault, not default governance - depositor who deposit into this “higher risk” vault would get additional benefit whether in yield or share of projects invested in from yield)

I ask you not as a fellow degen or an ape, but as a fellow yearner, to share your thoughts. This list is not exhaustive and I welcome any other suggestions.

Ask not what yearn can do for you but what you can do for Yearn.

Si ventus non est, remiga(build)!

Other contributions:


Really like the proposals. I would start with the maker vault to fuel yDAO projects. Let’s put that capital to work (BUIDL) the ecosystem further.

yearn buidling, yearn’s capital also buidling!

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Thanks for taking the time to write out this post. You managed to cover most of my recent concerns and phrase them in a way I could never do. Bravo.

I am in full support of your proposals 1 and 2. To be honest, I thought that was something we all agreed on a few weeks ago.

I’m concerned that incentives which were previously aligned are now becoming misaligned. You can see evidence of this in the fact that governance proposals have been dwindling as you stated.

I remember when i first found Yearn, it was an awesome project with a fair launch that allowed any interested party to buy a stake in the project and contribute their efforts to the success of the project in exchange for a small trickle of fees and any future price appreciation of the YFI asset.

Fees were dolled out proportionally and permissionlessly. Devs and non-devs alike had a real incentive to contribute to the success of the ecosystem.

I’m worried that the current system reduces this incentive for non devs to contribute, even when they have valuable skills, knowledge, and experience, and makes it more likely that potenial contributors abstain from contributing.

Previously, if you contributed something that added true value to the yearn ecosystem, it would increase the amount of fees paid by users and directly increase your fee split. This process was fairly simple and fully automatable.

Now, your contribution must be finalized and approved by a gatekeeper (forgive my use of this word, I know it has bad connotations but it is word that best describes the function) in order for you to reap the rewards of your effort. Now, the value you added to the ecosystem is less important than the perceived value your deliverable has to whoever the gatekeeper is that month. This adds manual effort and decision making where it isnt necessary, increasing overhead without making much of a tangible difference in the protocol.

I am inclined to believe that your proposals 1 and 2 will help reverse this trend, and I’m all for it.

I heard that the YFI docs team distributed grants by getting each contributor to assess the amount of work that everyone, including themselves, had contributed. From what I hear from members of the docs team, it seems to have worked well.

I would like to see a model that more closely resembles this approach for the wider Yearn ecosystem, with vested YFI as the prize. We could easily implement this thru conviction voting, on- or off-chain, giving a degree of power back to YFI holders and giving YFI a new use case in the process.

Previously we had been discussing ways to give YFI holders something to govern without giving them full control over the protocol.

I believe this is the way. YFI holders will vote to provide value to the contrbutors who have provided, and continue to provide, the most value to the voter. Inventives are aligned. Everybody wins.

I am undecided on your proposals 3 and 4, because it would add some degree of risk to YFI holders. I would propose an alternate idea: We implement your idea but we allow potential yfi stakers to choose between leveraged and non leveraged returns. No need to force people into a leveraged vault just to stake their YFI, but giving options to users is always a value-add imo


Agreed. It would be quite beneficial for Yearn to have a constantly-appreciating treasury that doesnt rely on highly variable fees.

We will need something to fund development during down months, this appears to be a viable solution without too much risk


I thought gov V2 was dealing with the vote locking issue.

I’d agree there’s been a lot less activity here in the forums, but there’s still plenty of work being done backstage (dev).

Honestly, I kind of prefer this pace compared to filtering through all the 2-line proposals a few months ago.

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Fully agree with vote locking and in general implementing things that bring YFI holders to have more skin in the game. The incentives to lock YFI up in yearn governance just aren’t attractive enough right now for most holders to leave it there.

As yearn evolves community engagement is always going to be a moving target. It is good to assess and recalibrate from time to time. Think a discretionary fund that acquires interest in other early defi protocols would be a great way to bring the spotlight on them for the rest of the yearn ecosystem. I concur!!

I like this idea. I’m not sure I would want to have my yfi in a leveraged position. I would like to have the option one way or the other.

Proposal 1 is a go for me.

Proposal 2: YFI Vote locking needs to be a thing.

Proposal 3: I also like

Proposal 4: I am less convinced this is a great idea. I feel like it is dangerous to borrow against voting staked YFI. It seems like a recipe for some sort of socially engineered attack

Indeed the plan would be to provide optionality to individuals to stake in the higher risk vault or stake normally. Those in the “high risk” vault consequently also get better rewards for providing additional revenue to the Yearn Ecosystem.

It could be dangerous with respect to liquidations in the case of high market volatility but I believe a carefully managed collateralization ratio with a substantial buffer could be an alternative here as we already have vaults that operate via debt-based strategies. As for lending, if the fear is YFI could be rehypothecated/borrowed to “hack” the vote this is not a concern with Maker vaults as those remain locked inside vaults and not available to other individuals to borrow. Maker debt-based strategies are not the only options however and we should be open to exploring alternatives as well.

Growthhacking proposals makes great project to incentive for more apy.

Sadly, as much as I love the possibilities for YFI, it has not been worth my while. My fractional token is pretty much stuck in stake, earning only $4 over the last three months which will not cover the gas and transaction fees accrued through the whole process. My experience with this platform has not at all been what I had hoped. The community seems great, but the contract gas fees make this a fail for anyone like me with fractional tokens. It reminds me of of… well, how centralized banks fee the little guys to death. I hope you guys can get it all figured out and make it something amazing. I do believe token holders should have a bigger stake rewards from the platform fees earned, that idea is what incentivized me to buy, hold and stake in the first place. From my experience so far, I have far more success earning from trading than participating, and if a majority of others in the market feel or experience the same, then I fear this token will experience some harsh volatility and manipulation in the future. If only YFI could be interoperable across chains other than just gas greedy ETH… wouldn’t that be something amazing?

Yep. $14 in gas and my $4 in rewards are still stuck there. I think I’m done here.

Great proposals by OP. I think a lot of the interest to submit proposals have died down while most of us are waiting for V2 and see how the platform will look like.

Also I am not sure about the vote-lock, Curve for example have gauge voting every week, what would be the reason to implement a vote-locking function for YFI? Also it’s hard to implement these kind of ideas without knowing what is in the pipeline for YFI. I have seen discussions about YFI used as a backstop for Cover protocol or the mini YFI thing…

It’s good to gather some feedback but I am in favor of waiting for V2 rollout first.

I agree with #1 and #1.

For #2, for locking YFI. We can do more:

a 50-week-long YFI VC fund pool. one can stake YFI and withdraw YFI anytime

A strategy like below:
With locked YFI for voting, (or staked.)

  1. Borrow USDC with YFI as collateral at AAVE
  2. Invest USDC to brand new DEFI project’s Dao Token. The whole investment term is locked on smart contracts.
  3. Swap new Dao Token (invested projects) back to USDC after holding the investment for a certain time.
  4. Pay back USDC.

It’s a pool. one can invest and withdraw anytime. The pool will go on forever. The return will be calculated every 50 weeks. It works like multiple 50-weeek VC funds.

If you don’t withdraw when the first round of 50-week ends, your YFI will be entered into the next 50-week automatically.

Community can decide how long to hold a new project’s token. If the first 50-week ends and community still decide to hold one project’s tokens, the next 50-week fund can buy the investment from the former 50-week found with 30% premium (if the token has no market price yet.). This make sure every LP can enjoy the long-term investment return.

The community will vote for how much to invest, when to invest, when to swap the new Dao token to USDC…etc.

The community will work as the investment analysts in VC firms.

Later, we can create similar VC fund pools of SNX, COMPOUND, UNI, AAVE, CORN, PICKLE, CREAM, COVER…etc.

In this way, we will make YFI great again, and we make the whole DEFI great again.

Many partners of VC in San Hill, Silicon Valley lives in my neighborhood. We will eventually swing the VC world.

This post was flagged by the community and is temporarily hidden.

Have you checked that you actually staked in the right contract, or have you checked if your tx is actually mined? Yearn governance doesn’t claw YFI from your wallet even if you gave it unlimited approval.

On the prop vote maybe