YIP-81: Prepare for Full On-Chain Governance

Summary

This proposal outlines the preparatory steps for implementing on-chain governance (OCG). By formalizing processes, parameters, and roles while governance is still off-chain, we aim to iterate and refine the system before its deployment.

Abstract

If adopted, this proposal will:

1. Extend the veYFI system to cover all governance proposals, beyond gauge emissions and parameter changes.
2. Formalize yChad's role as protocol Guardian.
3. Establish percentage-based voting requirements for Liquid Locker Protocols (LLPs).
4. Enable optional extensions like veYFI delegation and budget requests.

The goal is to ensure a smooth transition to full OCG while addressing potential design flaws during this preparatory phase.

Background

YIP-65 [1] introduced the veYFI system for governance, and YIP-73 [2] further formalized it with gauges, epochs, and a voting process. This proposal expands veYFI's scope to include all governance proposals, facilitating the DAO’s move away from Snapshot voting.

Out of Scope

• Governance of yPools (e.g., yETH, yUSD), which remains with respective staked token holders.
• Governance of yTeams, managed by their contributors.
• No new tokens or airdrops are proposed.

Motivation

Refining the governance system during the off-chain phase enables us to identify and address flaws, ensuring a robust foundation before the full OCG deployment.

Future Possibilities

• Directing protocol income dynamically during epochs via OCG.
• Allocating YFI dynamically during epochs via OCG.
• Appointing governance bodies or councils with specific powers.

Risks

• Design or implementation flaws causing unexpected behavior.
• Low veYFI lock rates, voter apathy, and/or lack of attention/incentives leading to limited participation.
• Domination by a single Liquid Locker Protocol, posing systemic risks.

Specification

1. tl;dr

1. Apply YIP-73’s operational framework to all governance proposals, including Yearn Improvement Proposals (YIPs).
2. Formalize yChad's role as protocol Guardian.
3. Enforce percentage-based voting for LLPs.
4. Enable optional extensions where technically feasible.

2. Apply YIP-73 Framework to All Governance Proposals

1. Use the 2-week epoch pattern from YIP-73: proposals are submitted in the first half and voted on in the second half of a veYFI epoch.
2. Require a minimum of 1 veYFI for proposal submission.
3. Proposals pass with a simple majority (>50% of veYFI votes).
4. Apply the quorum and vote decay parameters from YIP-73 to all proposals.
5. Snapshot voting remains the venue for voting until OCG is active.

3. Formalize Protocol Guardian Role

1. yChad’s role as protocol Guardian is formalized and encoded in the protocol.
2. The Guardian can nullify a proposal or governance decision but cannot make proposals.
3. Guardian powers are implemented before OCG and persist after deployment.
4. The Guardian role can be reassigned via a YIP vote.

4. Liquid Locker Percentage-Based Voting

1. Define LLPs as protocols that lock veYFI on behalf of users and aggregate dYFI boosts.
2. Require LLPs to support percentage-based voting, ensuring user preferences are accurately reflected.
   • Example: If an LLP's users vote 55% FOR and 45% AGAINST, the LLP votes 55% FOR and 45% AGAINST.
3. LLPs failing to comply may have their votes rescinded by the Guardian.

5. Optional Extensions

5.1 veYFI Delegation

• Enable delegation of veYFI voting power to external addresses or smart contracts, similar to the mechanism already used via the Snapshot system.

5.2 Budget Requests

1. Allow budget requests and funding proposals to be submitted via veYFI governance.
2. Ensure on-chain execution for approved proposals.
3. Maintain Guardian oversight to rescind adopted requests.

6. Implementation

1. Changes take effect immediately where feasible.
2. Features not supported by Snapshot remain disabled until OCG is live.
3. Contributors are authorized to deploy necessary smart contracts post-design, development, and audits.

7. Iterative Improvements

1. Run the system as a public beta to identify friction points or flaws.
2. Significant changes require additional YIPs for approval.
3. veYFI voters can propose design adjustments through new proposals.

8. Use at Own Risk

Yearn protocols are governed by veYFI holders, who make strategic decisions. Contributors are not liable for failures or losses resulting from veYFI or governance usage.

References

1. YIP-65: Evolving YFI Tokenomics
2. YIP-73: Activate veYFI Rewards with dYFI Gauges