YIP-90: yETH Optimistic Recovery Plan

tl;dr

• Zero Principal Spend: No Treasury principal is spent or distributed. Treasury principal is never impaired and remains fully owned by Yearn.
• Balance Sheet Neutral & Runway Safe: Treasury deploys its existing ETH holdings (currently ~1,600 ETH) toward recovery. No new ETH is purchased, exposure remains unchanged, and funds remain fully unwindable via governance.
• Immediate Recovery Boost: Treasury forfeits its own ~334 ETH ($1M) recovery claim, instantly boosting the user recovery floor from ~25% to ~30.38%.
• Shared Investment: stYFI holders opt-in to contribute 10% of protocol revenue temporarily, accelerating recovery and increasing stYFI’s long-term value flow.
• Voluntary: Users opt-in voluntarily and can exit at any time. Early exits reduce the liability and speed up recovery for those who stay.
• No Solvency Risk: This proposal does not impact Yearn solvency risk.

1. Summary

This proposal establishes a voluntary, DAO-wide recovery mechanism for users affected by the yETH exploit. It combines the strength of the Yearn Treasury’s balance sheet with the cashflow power of stYFI token holders to provide a credible path to 100% recovery without spending Treasury principal.

This represents a Unified Framework where every stakeholder contributes proportionally in the recovery:

1. The Treasury provides the capital base (principal protected).
2. stYFI Holders provide the revenue stream (accelerant).
3. Users provide the time and patience.

2. Abstract

If adopted, this proposal will:

• Authorize the deployment of the yETH Recovery Vault.
• Allocate the Treasury’s existing ETH holdings (~1600 ETH) toward recovery, with the intent to match net user losses over time through yield, recovered assets, early exits, and protocol revenue redirection. The principal remains under yChad multisig custody.
• Authorize the forfeiture of the Treasury’s claim on recovered assets (~334.7 ETH), redistributing it to users to boost the immediate recovery floor.
• Implement a temporary Protocol Revenue Redirection: adjusting the revenue split to 80% stYFI / 10% Treasury / 10% Recovery until the debt is paid.
• Establish a 90-day opt-in process for users to claim their recovery tokens.
• Delegate strategy management to the Yearn Curation / SAM team.

3. Background + 4. Strategic Rationale

Cut due to Snapshot character limit, full post can be found on the governance forum

5. Mechanics & Specification

5.0 Immediate Post-Approval Actions

To avoid unnecessary delays and begin recovery as early as possible, the following actions will occur immediately upon proposal approval:

1. Recovered Asset Withdrawal: All recovered apxETH will be processed through the Beacon Chain withdrawal queue as soon as technically possible.
2. Treasury Earmarking: The Treasury’s ETH allocation for recovery will be explicitly earmarked at approval, even prior to Recovery Vault deployment.
3. Early Yield Accrual: Once withdrawn, recovered ETH and earmarked Treasury ETH may begin generating yield for the benefit of users under existing Treasury controls.
4. Vault Migration: Once the yETH Recovery Vault is deployed, all earmarked assets will be migrated into the vault, preserving continuity of yield.

5.1 Treasury Allocation & Principal Protection

1. Capital Match: The Treasury allocates its existing ETH holdings toward the recovery mechanism. At the time of proposal, this represents approximately ~1,600 ETH. No new ETH is purchased for this purpose.
2. Principal Preservation: This allocation is a deposit, not a payment. The Treasury retains full claim to all allocated principal, under the ultimate control of the yChad multisig, until users are made whole or governance elects to unwind the position.
3. Liquidity Escape Hatch: This allocation remains callable. If the DAO faces a liquidity crisis, a governance proposal may be passed to withdraw the Treasury’s principal.

5.2 Treasury Forfeiture (The Boost)

4. Claim Forfeiture: The Treasury forfeits its claim on the recovered assets (~334.7 ETH).
5. Effect: This effectively makes the Treasury the First-Loss Tranche, immediately boosting the user recovery floor to ~30.38% (roughly $1M in value transferred). This incentivizes early exits.

5.3 Protocol Revenue Redirection

6. New Split: The revenue split[5] is temporarily adjusted to: 80% stYFI / 10% Treasury / 10% Recovery.
7. Cadence: The revenue redirection follows the existing YIP-88 accounting cadence. Revenues continue to accrue to the Treasury and are distributed once stYFI emissions are live, and continues to be in line with the stYFI distribution model thereafter.
8. Duration: This split remains active until users are made whole (SharePrice = 1.0), at which point the 10% reverts to stYFI holders.
9. Yield Backstop: For the purpose of the veYFI yield backstop calculations established in YIP-88[6], the 10% revenue redirected to the Recovery Vault will be treated as revenue distributed to stYFI. This ensures stYFI holders do not lose eligibility for any future backstop adjustments while the temporary redirection is active.
10. Optionality: Like the Treasury capital, this redirection can be modified or ceased via governance if protocol needs change.

5.4 Vault Logic & Exit

11. Tokenization: Users receive a transferable ERC-20 token, representing their pro-rata share of the recovery, that can be bought and sold on AMMs.
12. Yield: 100% of yield (from Treasury deposit, recovered funds, and redirected revenue) flows to recovery token holders. The Recovery Vault itself charges no fees; only underlying strategies charge their standard performance/management fees (which flow to stYFI).
13. User Exit: Users remain in full control. They may burn their tokens at any time to withdraw their share of the underlying assets (SharePrice * Amount).
14. Treasury Exit: The Treasury withdraws its principal once users are made whole (SharePrice = 1.0) or via the Escape Hatch.

5.5 Snapshot & Integrator Claims

15. Snapshot Block: Eligibility is based on yETH and st-yETH balances at the block immediately preceding the exploit (23914085).
16. Holder-is-Owner: Claims are attributed to the address holding the tokens at the snapshot. For integrators and lending markets, the protocol contract is treated as the owner; they are responsible for downstream distributions. This ensures Yearn does not mediate internal accounting among third-party lenders and borrowers; integrators must resolve these allocations according to their own governance.
17. Verification Window: A review period (7 days) will allow integrators to coordinate appropriate claim addresses via making public Pull Requests to the snapshot repo before distribution begins.
18. Passthrough Expectations: For integrator-held positions, the intent of this framework is that recovery value ultimately accrues to the underlying economic beneficiaries. Integrators claiming recovery tokens are therefore encouraged to publicly disclose their passthrough methodology and timelines, and to distribute recovery principal and accrued yield on a pro-rata basis according to their own governance and accounting processes. Yearn contributors do not adjudicate downstream claims but will make reasonable efforts to provide technical assistance and coordination to integrators implementing such distributions.

5.6 Opt-In Process

19. Claim Window: A Merkle Distributor will be deployed with a 90-day claim window.
20. Active Yield: Unclaimed funds remain in the pool during the window and generate yield, benefitting active participants.
21. Late Claims: Users claiming after the window must submit a manual request. They will receive their portion of the recovered principal only (no accrued yield).

5.7 Yield Strategy

22. Delegation: The Yearn Curation / SAM team is authorized to manage the underlying yield strategies.
23. Mandate: Provide the best risk-adjusted yield without exposing Treasury capital to excessive risk.
24. Transparency: Strategy allocations and changes will be announced to contributors for monitoring.
25. Candidates: Yearn-Curated Morpho vaults, yvWETH-1 (V3), or diversified ETH-native baskets.

6. Financial Impact

This proposal requires no expenditure of Treasury principal. The costs are solely the opportunity cost of yield on the matched ETH and a temporary investment of stYFI revenue.

In exchange, the protocol resolves a major incident, preserves its reputation, and demonstrates a unified front where all stakeholders contribute to the solution.