Yearn Governance Roundup #6

Week Ending November 1, 2020

Welcome to the Yearn Governance Roundup — a weekly newsletter covering everything in the Yearn Governance pipeline.

📋 Quick Hits

⚖️ Proposals and Discussions

Make sure you join the governance forum if you want to get involved with these discussions! Table of contents:

Proposal: Rethinking Capital Allocation

RyanWatkins shared this proposal on Oct. 28. Here’s the summary:

Yearn is DeFi’s leading yield aggregator and continues to be one of the most exciting community-run projects in DeFi. It only took two months for this project to grow from relative obscurity into a $450 million DeFi powerhouse. Still, Yearn is in its infancy and there’s still a lot of work to be done. This YIP could meaningfully improve the attractiveness of contributing to Yearn, by providing contributors with upside exposure to YFI.
This proposal will use system income to buy back YFI, which will accumulate in the Yearn treasury. Once implemented the community can then decide how to distribute this accumulated YFI to different contributors in the Yearn ecosystem.

All in all: This proposal aims to rethink the distribution of Yearn’s income. Instead of distributing yCRV/yUSD to governance stakers, it proposes that we use Yearn’s income to buy back YFI and use that YFI to reinvest in Yearn’s growth — through grants, salaries, etc.

The analogy used in the proposal is that DeFi protocols would be better suited replicating early stage startups / businesses. These early stage firms rarely ever use their financial resources to buyback stock or issue dividends to shareholders. Ryan proposes that Yearn — and other DeFi protocols — should take a similar stance. The specification is simple: Buy back and accumulate YFI in the Yearn treasury. The community can decide on how that YFI is distributed in future votes.

Ryan’s proposal has sparked some valuable conversation on how the Yearn ecosystem should think about grants, rewards, YFI’s value proposition, and more. Catch up and share your thoughts here.

Proposal: Increase Strategist Rewards

SamPriestley shared this proposal on Oct. 28. Here’s the summary:

Strategists currently receive 0.5% of the profit from their strategy. Imagine a strategy that averaged $1m AUM at 10% APR and lasted for 6 months. The strategist would only earn $250 ($1m * 10% * 0.5% / 2). Which is less than what they would have spent.
This may not have been a problem for V1 as AUM and APR were very high per strategy. But going into V2 there will be multiple strategies per vault sharing the AUM and APRs are settling.

There’s not a ton of commentary to add here. Basically, this proposal raises a concern that the existing strategist rewards are too low and V2 Vaults could highlight that point further.

Yearn thrives based on the quality of its strategies. Without proper incentives to build strategies, less strategies could come in, which means less revenue for Yearn. If we want the best strategists to migrate to the Yearn ecosystem, how do we best achieve that?

I don’t write strategies, but I would be curious to see if others agree with this take. If so, make sure your thoughts are shared here.

Strategy: CRV vault strategy

cryptoyieldinfo shared this proposal on Oct. 30. Here’s the summary:

Build a CRV vault which gains yield from both the veCRV lock and also claims a small percentage of boosts to all Bitcoin/stablecoin Curve pools. Designed this way, this CRV vault would in theory be even higher yield than CRV locked directly as veCRV on Curve.

This strategy aims to capitalize on veCRV to maximize Curve yields in Yearn vaults. It highlights that veCRV is a critical advantage that Yearn could have in providing depositors across several Vaults with boosted yield — potentially creating an insurmountable moat against Yearn competitors who are also using Curve for yield.

YFI could pool CRV into the 4 year lock veCRV, then directly receive the veCRV holder APY (at time of writing 275% APR). On top of this, the CRV vault depositors would also receive a percentage, say 5%, of the boosts to all the other Yearn vaults which use Curve. The depositors in other Vaults will be happy since they have a higher boost and the depositors of CRV will be happy since they have higher return on their deposit than veCRV locked directly in Curve.

While this strategy could, and likely would, yield significantly higher returns; it presents a glaring problem — the four year lockup. This lockup would prevent the vault from being as liquid as other vaults and could lead to significant opportunity cost for depositors.

This strategy was just proposed today, but your feedback would be much appreciated. It will provide valuable insight into how the Yearn community approaches long time horizons, opportunity cost, and more. Share your feedback here.

Grand Finale: A new face for Cover NFTs

This isn’t a proposal, but your action is needed! The grand finale for the Cover NFT branding competition is in full swing.

The two finalists are:

If you’ve picked your favorite, you can head over the Snapshot page for this competition to cast your vote. You have until Oct. 31, 2020 — so vote quickly!