Reward authors of innovative strategies

Summary

Reward authors of original strategies by determining a split between strategist and governance roles.

Abstract

This proposal is to poll for a reward split between strategy makers and governance stakers. It will be promoted to YIP unless a noop (0% strategist, 100% governance) option wins.

Motivation

A kid can write a “stake in unipool, sell on uniswap” strategy these days. But can we come up with something better? Can your strategy hold up when there is $100 million in it?

Our very first community-developed strategy for ETH will come out real soon, it’s the most complex so far and I think it’s an important point to have this discussion.

We need to reward people who develop original and ingenious strategies.

Specification

Implement a per-strategy harvest % split between strategist and governance.

Signaling vote

Vote here

16 Likes

What does a strategy look like? Can i see an example?

1 Like

Here is current strategy for yCRV vault. https://etherscan.io/address/0xa069e33994dcc24928d99f4bbeda83aaef00b5f3#code

1 Like

It would help think about this to get a feeling for how much revenue strats would generate pre-split. I believe it’s like $2,000/week on the lower end.

We’ll want to incentivize the best strategy providers, but also realize that cash flow wouldn’t be possible without the yearn ecosystem supporting it.

3 Likes

A decreasing residual based on the mean 7 day return sounds equitable.

However receiving compensation depends on if we want to measure users willingness for risk appetite or willingness for safety, ergo not all strategies would have the same objective per se, that is maximizing yield. Some may wish to purse captial preservation rather than risk return, so do we explicitly say only alpha producing strategies are welcome?

4 Likes

Would it better to set up bounties using the treasury money?

2 Likes

As I think through this more, I’m not sure there is a one-size-fits-all answer here.

Here are some of the different kinds of strats we’ll see:

  • copy pasta with just addresses changed
  • months-long engineering efforts with breathtaking innovation
  • extremely complicated and risky multi-protocol moonshots
  • popular and boring low risk and long-term solutions
  • highly collaborative efforts evolving over time with different people and code
  • alternative value concepts, eg capital preservation (@sambacha)
  • super buggy code that is only safe after tons of audits and help from non-strategists

Let’s say we landed on 50/50 in this poll. That feels ok for some strats and not others.

What kind of governance workflow would we need to allow collective intelligence to decide this on a case-by-case basis with low friction and good accuracy?

10 Likes

This issue is similar to how to encourage/reward external contributions to open source projects. There are some important roles in strategy curation and maintenance that aren’t rewarded here.

  • What is the threshold of originality?
  • If a strategy is a fork of another, should the original strategist be rewarded still?
    • Does this differ if the fork is innovative or not?
  • How should bugfixes be rewarded, both to live and proposed strategies?
  • How to reward collaborative efforts?

I think it’s also worth also considering the license that strategy code is provided under, as there seems to be an implicit assumption that this is some free software license. This could get very messy if it isn’t made explicit.

7 Likes

“innovative strategy” is too broad.

We think this would cause more pain than good. Imagine people non stop proposing shit due to reward potential proposed.

Maybe the model should be more case by case. If governance does deem something was “innovative” we’re all for someone proposing a strategist be rewarded for creativity. We could set benchmarks that the vault would have to hit APR wise and such for this to be considered.

7 Likes

Perhaps have both a baseline APR, but perhaps more importantly would be the fold change above what is considered the current basic strategy. But I definitely agree that a flat rewards system might be counterproductive– although we would also rely on governance to keep out strategies that aren’t really making large improvements to current strats.

For instance, we all know you can make 2-8% on DAI on Compound or Aave– but if someone came out with a strategy that 2x or 3x’d the yield you could harvest on major platforms, then that would be something really special– obviously I know the rates are currently much higher with the vault strategies, so then to switch from those, we again would want something reliably at least 10-20% better I imagine.

Similar idea for the ETH vault– it’s not easy to earn yield on ETH currently, so this one seems pretty innovative to me.

4 Likes

i agree, I do like this idea in scope, but I want more strict guidelines as venom suggested. I would like to see tests, trials, etc, before rewards were given. I also think it should be on a sliding scale where Gov can decide how much a reward should be given. theres honestly a bunch of different ways this could be done. I would like to see more discussion on this. For instance, a strategy creator should have “royalties” on the strategy of sort. I am not a creator but as a user this seems very fair. Andres strategy has earned me money and i think a % should go to him as strat creator for the life of the product. what percentage? idk? @andre.cronje as a creator ( or please any other creators chime in) what percentage do you feel is fair? should this % be applied to yield harvested? would this be total or a % applied to each account relative to how much you have in?

5 Likes

Im suprised that the voting that is winning is 20% for the strategist, I agree that not all strategies are cut out to be the same effort, but being a developer i sympathize more on the difficulty of figuring out the system to actually make a useful strategy and that could also be a team working to make it happen depending on how difficult that is, so i can see the strategist being a team of people. Also the stress of launching something that could potentially get hacked and lose people millions in money is not something that most persons can take easily. It has been an issue even for Andre, what happens to a new dev that builts a vault or strategy and it gets hack?

I lean towards giving the strategist the majority of the share (80%).

In summary i feel that if incentives are not well designed for building strategies, yearn wont get as much innovation and options for the end user as fast as other platforms. We will need to rely on Andre and a small team, which will become a bottle neck. And DeFi at this pace needs fast innovation.

2 Likes

Also take into account that we might have problems with very few people staking in the governance contract because it isn’t getting a decent APY because the cut for the strategist (up to 90% in one of the options in the pool leaving only 10% to stakers). Sadly, we already saw that a good amount of YFI holders only chase best yield and care not too much about voting. I didn’t like at all the release of the YFI vault because its high APY could discourage people from participating in governance, but at least it attracted YFI to the ecosystem from dangerous external new yields.

1 Like

I think it makes sense to reward people who come up with useful strategies, however, a flat % of the strategy’s profit looks like it would invite problems:
Is it novel?
Is it encouraging creation of more risky strategies to attract votes?
Is there a penalty if the strategy has a flaw that is exploited?
If someone creates a great strategy will we pay them forever?

Are we intending to give Andre 1% of all the profits of everything he has created to date? If not, why not?

I would suggest a lump sum bonus set by the multisig’s. Possibly awarded periodically (24 hours, 7 days, 28 days and 365 days after implementation, possibly again when it is superseded). Then we can reward different aspects of a strategy (yield, risk, lifetime of it’s implementation, innovation, lack of exploits).

2 Likes

actually, I’m leaning more toward 20% not 80%
The benefit for a strategist is the deployment of significant capital by Yearn towards it, with the assistance I imagine to develop the code for it in the first place
Not every strategist is going to be the right coder for it, while they can figure out the system and how the pieces fit together, they may not how to write the contract specifically, but can assist in solving roadblocks in writing
We should allow strategists to focus fully on ideating / architecting a system and not tie them to also writing the code for it, as while Andre can do both, we should expect everyone to have that exact same skillset
If a strategist wants to code it too, great, but wouldn’t seek to hold them to that
Reason why 20% > 80% is because without the complete Yearn ecosystem which is a significant moat, it would be 0% or 100% of a smaller capital deployment
Governance should be rewarded for providing these assets, resources etc appropriately. The creation of everything it takes to make a strategy by a strategist possible
That said, I do not agree with any conditional reduction of strategist fees over time
Because there is already enough competition that it’s unlikely for any single strategy to last a long time anyway
So really, if we had to balance things, there could potentially be a bounty for hitting performance targets? Higher ROI = higher %, on a tier based system
Where as ROI decreases over time
Then the % to strategist also decreases
This way it’s tied directly to performance

dmonkeyToday at 4:22 PM
We should allow strategists to focus fully on ideating / architecting a system and not tie them to also writing the code for it, as while Andre can do both, we should expect everyone to have that exact same skillset
@az Hello mate, I appreciate all the job u been putting at accelerating speed last days/weeks, thanks for that.
Regarding this point I heavily disagree. the point of having strategist that also code and own the responsibility of securely coding those strategies is (in my mind, please correct me if im wrong) to not relay only on Andre for being in charge of the strategies.

azToday at 4:22 PM
I do agree with you on owning the responsibility FOR the code
Just that they shouldn’t have to be THE coder if it’s not their specific skillset
I might know how to make a flowchart that describes every detail of the system perfectly
But I might know solidity and remix and vyper and alchemy
And there would always be someone better than me at that and who can also advise on security and vulnerabilities

dmonkeyToday at 4:24 PM
Just that they shouldn’t have to be THE coder if it’s not their specific skillset
@az they could form a small-group like 1 researcher/camper (staying put on all news, github developments, whatever) + 1 coder + 1 assistant/operations

azToday at 4:24 PM
Which in a collaborative effort would get resolved
yes exactly

dmonkeyToday at 4:25 PM
then we do agree that if there is a small group acting as one strategist they should own the responsibility for that strategy, its security and its profitability

azToday at 4:25 PM
yes

dmonkeyToday at 4:25 PM
cool beans

I think the percentage (10 or 20%) is less important now as we can adjust in the future so long as we start incentivizing now.

5 Likes

Definitely FOR.

If a person or group of people has made a strategy that has been approved for adding to the vaults, then the creator of the strategy should be rewarded for it if he so desires.

This is a mutual benefit for both the strategy creator and the yearn.

The amount of the reward are secondary for me here. We can probably vote for the commission every time when we vote for adoption of the strategy (for example, the person who coded strategy does not want to collect 10%, and is only ready to agree to add it only with a commission of 20% to him), but I voted for 20% as initial reference point.

2 Likes

Excellent. Changed my view, thanks.

1 Like

I find this to be a great idea in theory with lots of complexity in actually figuring out the best way to implement the rewards. One thought I had is that if we are rewarding the people who come up with strategies, can we also use those rewards as a potential insurance fund for vault participants if the strategy blows up?

For example, a portion of interest is directed toward a strategist rewards pool that is vested over a certain period. As time passes and the strategy proves itself, the rewards to the creator are released. If the strategy is updated by a new strategy, the rewards are instantly released to the creator. If the strategy is bad and has to be stopped due to losses or something like that, funds are directed back to vault holders to try to make them whole.

This way the strategists have skin in the game without having to enter the vault themselves.

6 Likes