Yearn Governance Roundup #7

Week Ending November 8, 2020

Nomad

Published in

Yearn Governance Roundup

5 min readNov 6, 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:

YIP 46: Set Vault v2 fee structure

banteg, lehnberg, milkyklim, and tracheopteryx shared this proposal on Nov. 6. Here’s the summary:

Set the fee structure for Vaults v2 to: No withdrawal fee, management fee (2%), and a performance fee (20%).
The proposal leaves:
— Total fees collected at roughly the same level as for Vaults v1
— Strategist reward allocation unchanged
— YFI staking and rewards unchanged
— Treasury management unchanged

It’s been a while since an official YIP was proposed, but with the new Vaults around the corner it seems appropriate! Remember: The design of the next iteration of Yearn Vaults, v2, has been voted on and approved by YFI holders. YIP 46 simply aims to finalize their fee structure.

If you’re out of the loop, here’s the fee structure for Vaults v1:

5% performance fee
— 4.5% to treasury
— 0.5% to strategist
0 to 0.5% withdrawal fee
— 0% when funds were available in the Vault
— 0.5% when funds had to be withdrawn from the Strategy

There are a few problems with this fee model. The first is that users get charged when they are the least happy with the vault — on withdrawal. This also means that the Yearn system is rewarded when there is capital flight when it should be the opposite.

Lastly, it makes fees unpredictable for integrations. Calculating the fees that will be charged on withdrawal is tricky — making it difficult to calculate ROI for users.

YIP 46 proposes replacing the withdrawal fee with a management fee. A management fee allows the Yearn system to receive continuous pay based on usage. It also encourages optimizing for retention; since Yearn earns more fees when users keep funds in the vault. Most importantly: It benefits composability, making it easier to integrate Vaults with other products and services.

The team back-tested the data to see how the new fee structure would have performed in Vaults v1:

As you can see, the new fee structure would have yielded similar results with significantly better incentive alignment. Looping back: The main focus for this proposal is replacing the withdrawal fee.

Voting for YIP 46 goes live on Nov. 7 and ends on Nov. 12 — vote here!

Discussion: Restructure fees and align incentives

banteg, fubuloubu, milkyklim, lehnberg, and tracheopteryx shared this proposal on Nov. 2. Here’s the summary:

With Vaults v2 approaching, it is a good time to analyze Yearn’s protocol-wide incentives and ensure they are aligned to produce the best possible outcome. This proposal reforms Yearn’s fee structure to keep it roughly at the same level, but charged differently, and distributed in a way meant to keep YFI stakers, strategists, and contributors better incentivized over the long term.

You might notice this discussion resembles YIP 46. The main difference is that instead of focusing on removing the withdrawal fee, it’s focused on the way in which rewards are distributed.

This early proposal starts the conversation with the following:

0% withdrawal fee
2% annualized management fee to the treasury (accrued per block, collected on each harvest)
20% performance fee
— Half (10%) to the treasury
— Half (10%) to the strategist reward

Continued: Protocol earnings would be used to market buy YFI through the YFI vault, which would become the centerpiece treasury vault where all earnings converge. The treasury would then be composed of yYFI in the YFI Vault.

Fees earned (the management fee and half of the performance fee) would be split by the YFI Vault between stakers and the contributor reward pool:

80% to YFI stakers
20% contributor reward pool

Yearn’s current operations budget is 181,000 yUSD per month for 6 months as defined in YIP-41. Should this proposal pass, the operations budget would be replaced by YFI.

Details of treasury management are outside the scope of this proposal, but there are some ideas for a mechanism to provide stablecoins or yUSD to pay grants.

This is a big change to Yearn’s incentive structure — your feedback is needed! I recommend reading the proposal in full and sharing your thoughts here.

Proposal: First step to contributors stash

milkyklim shared this proposal on Nov. 5. Here’s the summary:

Seize ~8 YFI from treasury contract and use these funds as a first step to create contributors’ stash.

As you can tell, governance has been hyper-focused on incentives this week. This proposal is simple: Start a slow paced accumulation of YFI for future contributors by seizing ~8.005026733686906244 YFI currently sitting in the treasury.

A Snapshot poll is live and voting ends on Nov. 12 — vote here!