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tags: docs-v2
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# Governance

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These docs are in active development by the Yearn community.
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***Below notes are temporary, an open approach to my thought process before I present the idea to the community, none of the following has been agreed by the community:***

## Goals of the exercise below:

- Align token holder insentives in ways that maximised participation,
- Ensure insentives remain liquid and trustless,
- Ensure governance double voting abuse is not possible,

## Current idea's & concerns surfaced by the community

- Existing governance model is not aligned with token holder behaviour, in that:
- Token holders continue to deposit YFI into higher risk protocols; seeking higher yield,
- Token holders wish to combine yield farming activities with governance;
- Other than external smart contract risk;
- Depositing YFI into other protocols brings risk of well funded entities borrowing YFI to sway YIP direction,
- This in turn brings risk of double voting / token locking:
- I.E. Where an entity borrows YFI to vote in YIP, this locks the YFI in a lending contract, meaning the true owners are not able to unwind from their previous positions in order to participate in YIP's.
- Discussions that may overcome much of the above: https://forum.makerdao.com/t/mip10c3-sp10-proposal-yfiusd-oracle-collateral-onboarding-oracle-assessment/4220

- Existing governance model holds governance participants rewards hostage between votes:
- Long periods between YIP's mean rewards become illiquid, deterring participants,

## A new model

### Ideal state

- An off-chain governance model that allows participants to:
- Engage in 'yield producing' style activities and
- Our observations suggest an APY of ~20% (*or greater*) will draw the greatest number of participants,
- Below this APY, participants are more likely to be actively looking for alternatives.
- Engage in 'governance' voting and
- Receive rewards for their continued participation and
- To continue to have access to rewards between YIP's

### Proposal to be considered
#### Proposed User Journey (v1.1)
v1.1 Edits:
- Replace yCRV with yUSD as governance rewards
- Replace ygYFI with gYFI to align with previous forum discussions
- Added assumption: use of snapshot for off-chain voting

#### Assumptions
- YFI is accepted as a collateral type on Maker: https://vote.makerdao.com/polling-proposal/qmtlcudehuiqc3d3qtty6xgf82gzuxg1rlf9cdg4ffrcj6
- A strategy similar to yETH can be implemented
- The following (v1.1) can be implemented using off-chain voting (snapshot)

##### DEPOSITING

- YFI token holder deposits YFI into a new YFI governance vault (YFI token holder hence for called the 'Owner')
- On deposit of YFI, Vault mints gYFI
- Smart Contract (Hence forth referred to as 'SC'): deposits gYGI into Governance contract
- gYGI will **NOT** begin to receive governance rewards on deposit
- SC deposits YFI into Maker Vault
- SC mints DAI
- SC undertakes a **DAI Strategy**

##### VOTING

- On YIP release: (**Vote: FTU**) (First Time Use)
- The owner navigates to yearns off-chain governance portal,
- The owners deposited gYFI, represented as YFI; will be visible,
- The owners rewards in yUSD will be visible, (As it is the owners FTU, their rewards will be displayed as 0.00)
- The owner participates in first (FTU) vote,
- On vote tx confirmation:
- The owner will become eligible to receive rewards
- Rewards will begin to accumulate against that owners wallet address
- Rewards will unlock and 'Claim' CTA will become active
- The owner may now claim all rewards earned
- The owner will maintain access to rewards and
- The owner will continue to be able to claim rewards until,
- On **a new** YIP release: (**Vote: Non-Zero State**)
- Rewards will lock and 'Claim' CTA will become inactive,
- The owner navigates to yearns off-chain governance portal,
- The owners deposited gYFI, represented as YFI; will be visible,
- The owners accumulated rewards in yUSD will be visible,
- Rewards will be locked until vote tx has confirmed,
- On vote tx confirmation:
- Rewards will unlock and 'Claim' CTA will become active
- The owner may now claim all rewards earned
- The owner will maintain access to rewards and
- The owner will continue to be able to claim reward until a new YIP is released.

##### UNSTAKING

- When the owner wishes to reclaim their YFI, they will have two routes:
- Route A:
- The owner will navigate back to the YFI vault
- On selecting the vault, as it expands, in the withdrawal section:
- A withdrawal warning will be visible
- This warning will explain to the user that by withdrawing their YFI they will also:
- Withdraw from governance any and all accumulated yUSD rewards
- If the user wishes to continue participating in YIP's and/or receiving rewards they will need to either:
- Redeposit their YFI into the YFI vault or
- Deposit their YFI directly into the governance contract (as existing)

- Route B:
- The owner navigates to yearns off-chain governance portal,
- The owners deposited gYFI, represented as YFI; will be visible,
- The owners accumulated rewards in yUSD will be visible,
- An 'UnStake' Panel will be visible,
- Selecting the 'Unstake' Panel will reveal the following:
- A withdrawal warning will be visible
- This warning will explain to the user that by withdrawing their YFI they will also:
- Withdraw from governance any and all accumulated yUSD rewards
- If the user wishes to continue participating in YIP's and/or receiving rewards they will need to either:
- Redeposit their YFI into the YFI vault or
- Deposit their YFI directly into the governance contract (as existing)

- On [%] withdrawal:
- SC will withdraw all accumulated yUSD rewards and
- SC will burn the [%] gYFI and
- SC will withdraw the [%] YFI from the maker vault and
- SC will balance the YFI maker vault and
- SC will deposit to the owners wallet; the claimed yUSD and [%] YFI.

### END
##### FURTHER ASSUMPTIONS / UNKNOWNS

- Having YFI on Maker eliminates those above listed risks because YFI is not lent out as is the case with other protocols accepting YFI.
- Is it viable to purchase open market YFI upon harvesting the implemented DAI strategy and
- Undergo the above steps, including minting of gYFI? Or
- Is it more viable to; upon harvest, deposit the harvisted DAI into the yDAI vault for users (owners) to utilise as they see fit?
- Note:
- We should NOT assume ALL users (owners) will want to compound their growth in the underlying asset
- We should consider providing users (owners) with output (withdrawal) options such as:
- Harvest asset options
- Type of asset to accumulate from harvested asset (if different)
- Activity with newly aquired asset (if different from active strategy)

End of notes