In that post, iTo presented a detailed proposal for adding a new pool that would take in YFI, stake on Maker (assuming YFI is accepted as collateral), mint DAI, and farm DAI for yield. iTo suggested that the yield from this might be as high as 40%. The idea for this proposal was that YFI in this high yielding pool would also be given voting power and potentially a share of the Yearn system rewards. As mentioned, the proposal is detailed and addresses several issues, including the double voting problem. I think iTo would admit that the proposal would need some additional work to be fully ready (such as ensuring that YFI would not be liquidated since used as collateral), but assuming it worked, the proposal is a significant change and demands additional discussion of whether it should be implemented and if so, with what, if any, changes. There was some discussion on these issues in the original thread, but @Dankmonty suggested that there should be a discussion separate from the “how” that addressed the “should.” I will attempt to succinctly lay out some of the main points and options here.
The current voting/governance system works today. There is a governance pool, and YFI holders may choose to stake in that pool. In return for staking, they can vote on proposals and they share system rewards (fees) with other YFI staked in that pool. Because they share system rewards, YFI holders staked in the current governance pool have an interest in the long-term success of the protocol so that those rewards continue and grow. The yield in this pool has generally been around 7%-11%. Not very high by DeFi standards. And there are other options for YFI holders that choose not to stake in governance that offer higher yields. Over time, the only people that will continue to stake in the current governance pool at a lower yield will be those especially interested in governance.
iTo’s proposal seems to emanate from a desire to both increase participation in governance and to provide YFI holders with an option to earn higher yield and vote power without having to choose between the yield and voting. If I have this wrong, hopefully iTo will explain. In general, there is nothing wrong with increasing yield for YFI holders and also increasing voter participation – as long as doing so does not have adverse affects.
There are some potential adverse affects that should be considered.
For example, increasing YFI with voting power could make it harder to reach quorum, particularly if some are more interested in the yield than in governance. We could vote to change quorum, but that could be difficult if there is a large influx of YFI with voting power but no interest in voting. We should also consider if lowering the quorum threshold has other consequences.
If there are two YFI pools (the classic pool and the new Maker pool), the interests of the YFI holders in the two pools can diverge. For example, those with YFI in the classic governance pool may be willing to see the value of YFI decrease in the short term for longer term reasons. Those in the Maker pool, however, may be against any decrease in the short-term value of YFI because of the risk of liquidation of the YFI the pool has as collateral. In addition, those in the classic pool will be receiving 100% of their yield from the Yearn system whereas those in the Maker pool would be receiving most of their yield from the Maker/DAI strategy. The pools themselves can encourage YFI stakers in each pool to have different incentives. This would be true even if all system rewards were reserved for the classic pool and the Maker pool only shared voting power (and yield from the Maker/DAI strategy).
We could also consider merging the two pools into a single combined pool that followed the Maker/DAI strategy, obtained system rewards, and was required for voting. That would at least ensure that the pools were not encouraging divergent incentives for different YFI stakers, but it could still leave YFI stakers with incentives that were less aligned with the protocol. This would be especially true if most of the yield was attributable to the Maker/DAI strategy and a smaller amount attributable to system rewards. In the extreme, YFI holders could become more interested in the DAI farming strategies and uninterested in the Yearn system. Granted, if YFI holders ignore the Yearn system the value of those YFI holdings will eventually decrease; however, that does not necessarily ensure that YFI holders will put in the effort for long-term improvement when they are making significant short term yield outside the protocol.
I do not mean to take anything away from iTo’s proposal or from discussion about how best to implement the proposal in the safest way that ensures YFI can only vote once. But we should discuss whether a new voting pool is in the best long-term interests of the protocol.
Here is a poll with the main options for consideration (wish there were ranked voting polls):
- Keep voting and rewards as they are with the current classic YFI governance pool.
- Add an additional pool with a yield generating strategy that shares voting power and system rewards with the classic pool.
- Add an additional pool with a yield generating strategy that shares voting power (but not rewards) with the classic pool.
- Create a new pool with a yield generating strategy and merge the classic pool into it so that there is a single yield generating pool with voting power and system rewards.
- There is a better option not reflected here.
- I want more discussion before selecting an option.