Yearn Reimagined: As Governance Token Participant vs. Dumper

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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You don’t have to like the CRV tokenomics, but you should recognize that it has unique design features that could have big implications for how yearn will evolve. It is one of the only token I know of that shares the profits it generates directly back to the governance participants. And it reserves that benefit for long term stakeholders (only token holders who time lock their tokens up to 4 years, with higher priority given to longer locks). This means that, over the long term and given Curve continues growing, it will become less profitable to farm it and dump it, and more profitable to become a long term stake holder. I expect other apps to implement designs that prioritize long term stake holders because this helps ensure their longevity. In an ecosystem where liquidity comes and goes on a whim, everyone needs to build their moat. That is to say, yearn will probably need to adopt a long term vested interest strategy toward the apps it interacts with in order to continue delivering strong returns.

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Collecting rent is not very innovative.

Agree, and that includes assessing other stablecoin AMMs like Swerve and Shell and/or building its own stablecoin-optimized AMM thereby eliminating rent and minimizing governance risk.

A member of a community predicated on composability has NIH syndrome. Fresh

What happens if CRV drops down to a penny? In other words, it is WAY too risky to hold onto these highly-speculative tokens. Hence, dumping them for an immediate profit makes the most sense. Maybe we should have two kinds of vaults for people who want the immediate yield versus those that want to hold for the long-term gain. However, these vaults should only use tokens that are battle-tested like SNX, COMP, MKR, etc. Also, on the topic of AMMs I came across a radical new type of AMM that I think Yearn should look at either using or at the very least taking some of their good ideas and implementing it in our own future AMM. Read the whitepaper it is interesting: https://cofix.io/doc/CoFiX_White_Paper.pdf

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Rockin, totally agree with this. Thanks for the link!

I think with V2 a portion of rewards could be set aside into a Treasury type pool. The size and speed at which this grows can be voted upon with a simple vote.

All reward can’t be set aside as it takes away from the compoundig nature of the vaults.

I like this idea but I don’t think it needs to be all or nothing

Agree. I prefer two different Vault subcategories that are optional for the end user.

  1. Instant Yield Vaults
  2. Gov Token Accumulation Vaults

It’s really an option that can allow for Yearn’s established goodwill to continue and expand over the long term.