yVCVault for future investments

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I’ve been thinking about a possible way to do something like this through the protocol and I think it could mostly be achieved using different tiers of liquidity smart pools governed by smart contracts. If these smart pools can be successfully implemented alongside the gYFI non-transferable tokens being discussed here, then it could be a way to also incentivize active participation in governance.

Example:

  • Create a YFI governance smart pool that is a mix of yCRV/yUSD rewarded as LP tokens from active participation and weighted by gYFI accumulated from staking YFI.

  • As long as the holder maintains a minimum threshold of gYFI, the LP tokens rewarded can be claimed as yCRV or yUSD (by swapping with the governance rewards pool), or used as collateral, or as a means to invest in VC Fund smart pools.

  • LP token holders could exchange their tokens for investments negotiated by the VC Fund DAO, and token projects would be able to sell those LP tokens into the governance rewards pool in exchange for the tokens allocated to investors.

  • The smart pool contracts parameters could be governed by a combination of gYFI holders and the VC Fund DAO.

  • More smart pools could be used to provide liquidity to trade synthetic token promises or illiquid tokens without wide distribution. All pairs could be backed by the LP gov tokens forcing all investments to exit through the governance rewards pool. The pools could also be calibrated to penalize early exits with high slippage and high trading fees, or reduced to optimize for a vault strategy providing additional liquidity. This is also gives latecomers a way to trade for these investments directly with their earned governance rewards, or as a VCVault LP.

  • Another type could be smart pools where whitelisted public investors and token founders could exchange in rounds of investments, while also giving an opportunity for early stage YFI VC investors to exit alongside the public sale.

  • The yVCVault strategies could then exist in two phases, during the private closed community investing, and after the token launch. The first phase would focus on investing in the private sales undertaken by the VC DAO and community. This could be accomplished by providing liquidity to the governance rewards pool to invest into the VC investments smart pools backed by governance LP tokens.

  • Once the token is live, public investments could occur directly by utilizing an asset management protocol, such as a balancer smart pool, or the melon protocol, or through a post launch vault strategy.

Advantages

  1. The governance rewards pool gives governance participants a way to join in the highest earning stablecoin vault without worrying about exit fee penalties (provided the governance pool swap rate is below the exit fee rate and the slippage is low).

  2. The incentives of using liquidity to subsidize the vault exit fee coupled with the ability to invest in early stage projects could increase YFI ownership and active participation.

  3. The tokenized compounding cash flow of YFI can be used to invest directly into VC investments and founders get a compounding asset they can cash in as they need it.

  4. If the mechanisms around gYFI can provide participant lock-in, then this sort of structure has the potential to create a community ecosystem that captures trading fees from rewards and speculative investments whether they succeed or fail. This means more returns for all participants.

  5. yVCVaults can supercharge early returns for private investors and provide additional liquidity, assuming there is demand and hype for the pre-Sale tokens.

Disadvantages

  1. More systemic risk and attack vectors with governance rewards.

  2. If the rewards pool is opt-in, it will likely need to be bootstrapped with incentives.

  3. Whitelisting token projects could introduce legal and regulatory risks and implementation challenges.

  4. Smart pools that provide liquidity for pre-Sale tokens and synthetic token promises would be difficult to manage if only a portion of gYFI holders could legally participate.

  5. There is an additional step to claiming governance rewards by unwrapping a LP token, and that plus the exchange for yCRV may exceed the cost of the vault exit fee when gas costs are high.

  6. Probably a lot more that I didn’t think of.

Any thoughts on this smart pool approach? It could be implemented slowly by starting with the governance rewards pool, while all the details of how to best govern the parameters around the pools and managing investments is still coming together.

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