Well, it was never a question of “if”- just of “when.” YFI is now available for deposit and borrows on Aave. This provides a new benefit for YFI holders (to use their YFI as collateral), and may ultimately result in a more efficient market for YFI overall (with the ability to short it).
But with this may come some other consequences. This is by no means an issue yet, but it’s something I’d like folks to think about proactively:
Now that YFI is available for deposit on Aave, it also means that it can be borrowed. This means that a malicious actor (or just an actor with a relatively unpopular agenda among “real” YFI holders) could borrow YFI at the market rate and use it in YFI governance.
Current governance rules do not require any minimum staking period before someone can vote with their YFI tokens. All that exists (I believe) is a 3 day lock-up period on the back end where someone cannot withdraw their YFI after voting. That lockup on the back end is good as it will prevent participants from flash loan participating in YFI governance.
In looking at recent votes, we seem to have about 2000 to 5000 YFI participating somewhat consistently. We’ll have to see how these Aave markets evolve, but I could see it being possible (at some point) that for an especially close vote, an actor is able to borrow enough YFI to swing the outcome.
To be clear, I don’t view this as an imminent threat, but it’s something we should all monitor carefully and consider options to address if it becomes a problem. Some options might include:
- Require a minimum time tokens are staked before they can be used in a governance vote
- Lengthen the withdrawal period
- Vest additional voting rights or profit rewards the longer tokens are staked in the governance contracts
Each one of these has progressively more severe drawbacks, but we may need to be proactive and consider one or more of these.
EDIT: I totally missed this, but here’s a proposal from Andre which ties to point #3 in possible solutions. I support a solution like this gYFI time weighted voting power distribution.