Yearn Reimagined: As Governance Token Participant vs. Dumper

Imagine:

Yearn Vaults collect Governance tokens like UNI, CRV, SWRV, METRIC and others likely yet to come such as DYDX, 1INCH, METAMASK, etc. instead of dumping them. Stay with me here…

Imagine the collective Voice in Ethereum ecosystem Governance that the Yearn Community could yield as more and more capital is aggregated.

Here’s what I propose:

Instead of dumping Governance tokens like CRV and UNI, let’s bring them back into their respective Vaults and keep the “yield” as a paper yield, as an Unrealized Gain.

Those who wish to sell their UNI or CRV are free to do so. And those who like to keep their Governance tokens are also free to do so.

Why does this matter?

  1. By default, less Governance tokens would be getting dumped, changing the perception of Yearn from short term profiteer to long term collaborator and Ethereum ecosystem participant.

  2. In protocols where minimum representation thresholds are difficult to breach, this vision can become a reality via Governance delegation portals such as Andre’s yuni.finance, which already has over 8 MILLION UNI tokens delegated to represent the Voice of the Yearn Community in UNI Governance

  3. Everyone wins. Short term traders are free to sell these Governance tokens as they choose, price suppression of these tokens is mitigated, and the Yearn Community expands its signature goodwill.

Some may say that this plan is no different from the current Yearn approach, as anyone can use their Vault specific profits to buy any other Governance token that they see fit.

While this is true, the Big Difference here is that this is a major Shift in Yearn protocol Perception.

Perception shifts away from short-term Profiteer and Dumper more toward long-term Participant and Collaborator.

This mental shift in perception changes the narrative around the Yearn Ecosystem into more of an Ethereum Governance Union that can represent an ever widening constituency to participate in the future progression of many of the other Ethereum protocols that we know and love.

Is this crazy? Crazy good maybe?
Please share your thoughts.
-Red

P.S. After a significant number of comments below, many seem to like the idea of having two distinct Vault options.

  1. Instant Yield Vaults
  2. Gov Token Accumulation Vaults

The GTA Vaults could include portals to access yuni.finance, for example, for UNI token delegation and other such Ethereum Governance Union initiatives in the future.

Please weigh in and throw a few punches.

11 Likes

I agree with this. This make sure we have a say in lot of these future protocols. And yes will differentiate yearn from a lot of the yield farming market.

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Hi, I havent participated in any yearn products so far. I’m pretty active with Curve governance so I kind of come from this outside perspective of how the relationship with yearn is from the other side.

I can tell you that the relationship with yearn feels like a strained friendship. People at Curve acknowledge the liquidity yearn brings us that helps Curve grow, but there’s definitely a sentiment that yearn takes advantage of our generous inflation schedule. However, I understand that your strategy involves locking some farmed CRV to boost your CRV income, which is also giving you voting influence.

There’s a financial incentive to lock enough CRV to make LP yields go up. Also, locked CRV earns half the trade fees earned on the platform. I can’t speak for other governance tokens, although I know it’s been mentioned that UNI could capture a portion of trade fees on their platform. It’s potentially a much more lucrative long term strategy to become more of a long term stakeholder in these applications, as you suggest. There’s a lot of value to extract from these applications, and it may require a powerful entity to push for designs that best capture that value. And that’s not to say it’s an entirely mercenary endeavor, because it would be in the interest of the organization to maximize value creation in the first place.

I’d be much more inclined to participate in something that resembles this “Ethereum Governance Union” rather than what I currently view yearn as being, which is kind of scalping quick profits when opportunity is present. I think that mentality is the product of the yield farm craze, which is likely to be dying down. I think many people have yet to realize how lucrative it will become to have long term ownership stake in some of these protocols.

Decentralized governance as individual stakeholders tends to be fragmented and unreliable. I think we need something (what yearn could be) that lets many small voices assemble to steer the direction of DeFi. It should be an organization that continues to be profit motivated: create as much real value in the underlying portfolio applications as possible, and engineer the assets to maximize return to shareholders. As it stands, the farming for quick profit strategy may be missing a big opportunity to expand yearn’s power and influence long term.

8 Likes

Thanks for this thought provoking response brother.

Getting Andre’s yuni.finance delegation over 10 Million UNI tokens is a good first step to expanding the idea of Yearn as Ethereum Governance Union.

Incredible insights here and I hope everyone takes the time to read what you’ve written! Respect.

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I suppose with V2, any strategy - including locking in any rewards/fees etc - could be put up and then it’d be up to people to decide if they wanted to invest in that Vault with their feet.

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It sounds good. Better way to control those tokens

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I like this idea. I suggested something similar here.

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DFO point out the issue

lot of bots party behind the scenes

Uniswap automatically routes trades to arbitrage in the user’s interest, but only via pairs tied to these six, hard-coded tokens.

This process ensures that the prices of those pairs are kept in sync with each other. Unfortunately, it also provides their prices are out of sync with every other pair.

Because regular trades only occur among pairs tied to those six tokens, prices only change within those pairs , desyncing them from prices in all other pairs. This opens up price disparities between these two types of pairs. Arbitration bots swoop in, profiting off the difference, stripping them of value, and taking off with free ETH

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@redarmanino I like this idea, though not sure how the mechanics would work to get the compounding returns. An alternative would be to sell the governance token not for the underlying token, but YFI itself to create a flywheel ‘buyback’ effect on the YFI token.

I oppose this approach.

I understand where this is coming from. It’s a fair attempt to change yearn narrative from “short-term yield” and make it a better partner to projects. That’s reasonable.

But the ultimate decision here should be the customer? To which customer is yearn building to?

If yearn is a yield optimizer, this is not necessarily the yield optimizing path - it’s speculative. The worst position to be in is to be a long term investor in something the rest of the market is dumping constantly – i.e. CRV. If yearn stops offering this strategy, someone will. The narrative that yearn is dumping CRV is tantalizing, but the truth is most of the other farmers are doing the same. And they won’t stop

Governance tokens made the yields higher, but made everything messy in this sense. I’m not against offering this as a separate strategy, but I’m unsure about the demand for it.

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I agree with your opposition as a general feature for vaults.

However, building a new product “Governance Vault” could be an option, if the demand is there.
But all in all, do we really provide added value here? Where´s the difference for investors opposed to farming on their own? Since there are no frequent transactions involved if you keep the gov. tokens, it doesn´t make sense in my view.

Also, after reading the original discussion about a proposal like this from @JonathanErlich it appears to be a very complex political issue. Governance Black Hole DAO Vault

Let´s stay focused on the practical, added value for vault participants. Farming governance tokens and hodling them is not added value since everyone can do that without disadvantage. Same goes for participating in governance/voting.

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It is ironic to criticise yEarn for maximizing yield for its depositors, at an equal footing with everyone in the market, all while overlooking the elephant in the room: CRV being a massively pre-mined and poorly designed token, and its contracts are proprietary.

While I am in favor of @redarmanino idea that in principle it may be sound for YFI Treasury to hodl some governance tokens, CRV is certainly not one to hodl.

Another reason not to hodl CRV is that yEarn will probably have its own rent-free stablecoin-optimized AMM one day, once the dust settles and we assess the viability or lack thereof of other options like Swerve and Shell.

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I love this idea. I think the idea of being a large shareholder voice/representative is a strong, long term idea. This will allow the Yearn voice to be clearly represented on other chains.

I think it is tough to come up with a percentage of Retained Earnings to hold – but perhaps this could be tied into reserve requirements, so it is reduces the cost of holding. Perhaps even two options for vaults in the future – an income-based model, and a re-investment model?

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The question to ask is: who’s going to invest in this strategy? If I want to farm and hold, I can do it on my own without paying extra fees. 100% agree with @DeFiChad . It’s an interesting proposition but mostly a distraction - yearn has to add value from the get go, and not if a series of different scenarios play out in the future (governance vault grows + governance reaches point of actually adding value + other protocols actually accrue value…). Too many unknowns and too speculative.

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Appreciate the response. Yes I think we could have 2 options here.

For example, we could have a yETH Vault for Instant Yield that sells CRV and a yETH Vault for Governance Token collective participation that accumulates CRV.

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Totally agree on the optionality here. This way it is more automated for the end user.

Yearn would still manage the switching of strategies for the end user.

So if yETH Vault switches from farming CRV to farming UNI, that switch would be handled for the user. It may seem like a basic switch for the user to make, but if there are gas fee optimizations then lots of capital can be aggregated under this narrative. Also, future strategies may get far more complex than the simple farming strategies we have today, and these strategies may also be rotated in for the end user automatically to maximize yield (whether instant yield or unrealized yield from accumulation of Gov tokens).

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Point well taken. I would prefer if there were 2 different Vaults for these purposes as well.

One yETH Vault, for example, that produces instant yield via selling and
One yETH Vault that accumulates Gov tokens

The end user in the second Vault could ofc withdraw their Gov tokens and decide to sell them at any time.

But having this structure could really help us coalesce an Ethereum Governance Union around the Gov Token Accumulation Vaults Portal page.

Vaults could have sub categories essentially:
Instant Yield Vaults
Governance Token Accumulation Vaults

On the Governance Token Accumulation Vaults page, there could be other resources for, for example, delegating acquired UNI tokens to yuni.finance and could even be a check-box option to auto-delegate any farmed UNI from each user’s pro-rata share to yuni.finance.

The idea of the Governance Token Accumulation Vaults would be to form the beginnings of an Ethereum Governance Union where shrimps and dolphins can collectively bargain and amplify their Voices to have a seat at the table with Ethereum Whales.

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i dont completely disagree but there will be costs associated with claiming rewards from veCRV so there is still some reason to be pooled.

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