{"id":6716,"date":"2021-02-15T11:34:44","date_gmt":"2021-02-15T16:34:44","guid":{"rendered":"https:\/\/cointelegraph.com\/magazine\/?p=6716"},"modified":"2021-07-20T04:51:17","modified_gmt":"2021-07-20T08:51:17","slug":"love-coordination-at-the-frontier-of-governance-how-yearn-minted-300-million","status":"publish","type":"post","link":"https:\/\/cointelegraph.com\/magazine\/2021\/02\/15\/love-coordination-at-the-frontier-of-governance-how-yearn-minted-300-million","title":{"rendered":"Love & coordination at the frontier of governance: How Yearn minted $300 million"},"content":{"rendered":"

On Feb. 2, at 6:00 pm UTC, Yearn Improvement Proposal 57 passed mandating that Yearn.finance, the decentralized and permissionless neo-hedge fund where I work, mint 6,666 new YFI tokens.<\/strong><\/p>\n

YFI holders themselves passed this vote, with 83% voting in favor, and the highest engagement since Yearn\u2019s now-mythical fair launch. The effects of this new twist in the story of DAOs \u2014 of what may be the most important governance action in the history of DeFi\u2019s most decentralized bluechip so far \u2014 are still being written. To me, this changes everything.<\/p>\n

Black Holes & Prokaryotes<\/h4>\n

I was captured by Yearn\u2019s vortex in late July of 2020 \u2014 literally on the day the YFI emission stopped. A friend messaged me \u201cbuy YFI\u201d and so I took a look.<\/p>\n

It was… very complicated. Being a nerd, I liked that. But what blew me away, what really set the hook deep, was that the project\u2019s creator, developer Andre Cronje, gave away all of the tokens. All of them<\/em>. He didn\u2019t keep any<\/em> or give any<\/em> to his buds or investors. All 30,000 YFI tokens were distributed to users of his platform over one week. At the time that was millions of dollars. And today, it\u2019s over a billion. A billion-dollar gift<\/em>.<\/p>\n

And so I set out to do everything in my power to aid in this effort. I, like so many thousands since, were so deeply inspired that we became instant acolytes at the church of the fair launch. I hung up my earning potential at the door, and got to work.<\/p>\n

Quickly I realized that no one was in charge, at least not in the way one would expect. Yearn was a truly decentralized, leaderless, and emergent collective intelligence. While there were leaders marshaling forces, directing energies towards goals, and gating critical resources, there was no org chart, no c-suite, no direct reports, and no HR. So I took on the identity of a flying dinosaur (as one does in these times), and made a role for myself. I knew a few things, so I started doing them. I found myself on the operations team with a rabbit and a glass of milk (the two glorious Russian hackers Banteg and Milkyklim \u2014 big-brained Daniel Lehnberg joined us shortly after). Our job was to hold the wheels on the bus while the most talented engineers on the planet shipped code faster than any organization I\u2019ve ever seen.<\/p>\n

Every company I\u2019ve ever worked at or owned has the same basic structure, built piece by piece to do a specific job. If companies are like machines, Yearn is more like a cell. It just emerged<\/em>.<\/p>\n

Andre built some kind of new psycho-industrial DNA from whole cloth, and within days a novel metabiology of collective activity emerged from nothing around it. This was the result of the fair launch, the result of a DAO blossoming in the wild without a Swiss foundation or ICO-backed team to shape it. It was pure magic. But in what may be the most fascinating twist of all, this turned out not to be enough.<\/p><\/blockquote>\n

The fair launch was like the birth of the prokaryote, capable only of sustaining a single cell\u2014but what Yearn wants to be is more like an ape than an amoeba. For Yearn to function, it needs to be a complex multicellular entity, an eukariote. And for that it needs mitochondria.<\/p>\n

But to strip away the metaphors for frens that read slightly less science fiction than I do: what Yearn really needs is a way to process and convert the bubbling enthusiasm and energy in our community into useful work in service of Yearn\u2019s users and YFI-holders. And for that, it needs money<\/em>.<\/p>\n

Enlightened Nerds<\/h4>\n

Yearn did have money, a lot of it. In August 2020 Yearn paid out $356,000 in dividends to YFI holders staking their tokens in governance \u2014 and nothing, literally zero, was going to operations, salaries, or growth. A ragtag team of geniuses was working 24\/7 to build Yearn while getting paid nothing. The cost of gas was extraordinary \u2014 over a million dollars last year. This and all other expenses were being paid out of pocket<\/em> by team members.<\/p>\n

This was crazy. We saw how unsustainable this was, and so we wrote YIP-41, a proposal that created a treasury of $500,000 and an operating budget of $200,000 per month. And in an inspired move enabling both speed and accountability, this treasury was to be administered by the multisig under the DAO\u2019s discretion. YFI-holders passed it nearly unanimously, with 99.9% voting in favor, establishing a new paradigm of decentralized governance that we call constrained delegation.<\/p>\n

YIP-41 was six months ago, in August of 2020. It allowed us to start paying people and to begin forming the essential structures needed to grow Yearn. I received a recurring grant that was about 1\/10th of the compensation I earned in my previous employment and it came without any equity or legal protections. Others received even less, like our founder Andre who refused to accept any kind of payment.<\/p>\n

Devs like banteg, who could easily start their own projects and make millions, had the same salary I did \u2014 maybe half what a junior engineer would get joining Google . . . but for we who cared about something more than money, it was enough.<\/span><\/p><\/blockquote>\n

The souls called into Yearn\u2019s orbit in those early days didn\u2019t come for the money. We could have made more elsewhere, at considerably less effort. But even enlightened nerds need to pay bills.<\/p>\n

Brrrr-less & Open Source<\/h4>\n

Most people in DeFi know the story of how SushiSwap forked Uniswap and built an incredible community-run protocol. A lot has been made of this \u201cvampire attack\u201d \u2014 the theory goes that projects without a subsidy token, like uniswap pre-UNI, were vulnerable since someone could fork them, add a token printer on top to brrrrr incentives, and siphon the liquidity with better APY (due to the added token value). Uniswap experienced a vampire attack once and there was uproar. The same thing has been happening to Yearn continuously, ever since YFII launched in August of 2020.<\/p>\n

Andre\u2019s founding vision was for YFI tokenomics to be a continuous subsidy for Yearn\u2019s products, but he had relinquished control of the protocol to the community early on so YFI\u2019s total supply was capped at 30,000 until governance decided otherwise. This left us vulnerable. There have been dozens of Yearn vault v1 forks since then, all able to add a token printer on top to drive TVL. Some have added value and innovation, some were scams, and others merely chased clout and wealth creation. That\u2019s DeFi: forking is part of the game, and the moral standing of forkers is as diverse as those of TV vampires.<\/p>\n

Where value is added it\u2019s a win for the community. Yearn has merged with Pickle and most recently partnered with Badger\u2014our open source and generous spirit has its benefits. And although we\u2019ve found new avenues to thrive, Yearn has been significantly under-resourced compared to its forks. Some forks have basically infinite brrrr and are offering developers, in one notable case, up to $90,000 per week<\/em> to work on strategies. Compare that to working for free at Yearn with the hope your strategy will one day earn you a share of the fees.<\/p>\n

But like all the minds drawn to Yearn, most of the strategists were seeking something more than money. They were at Yearn to learn and to collaborate, to invent the future of France with the biggest brains in DeFi. Even so, in the face of poaching efforts from competitors, some of them had to make serious financial choices\u2014and who could blame them really? It was up to the Yearn community to make this right.<\/p>\n

Buyback & Build<\/h4>\n

What were we to do? It was January of 2021 and the idiosyncrasies of an emerging decentralized governance process crossed with exuberant community-driven meme jubilee resulted in a fetishistic attachment to the number 30,000. At that time, no one even considered increasing the supply. Our only hope was to redirect more fees to the team and strategists.<\/p>\n

We had already embarked on this process with our YIP trilogy: YIPs 51, 52, and 54, which together reformed our vault\u2019s fee structure, increasing the rewards to strategists by twenty-fold and directing more sustainable funding to the core team. But this wasn\u2019t enough. Yearn was allowed a maximum of $500,000 in its treasury while many of our DeFi protocol peers had over a billion\u2014and the forks, our direct competition, had hundreds of millions<\/em> to spend acquiring talent.<\/p>\n

Yearn had the best tech, and the most talented team (I dare anyone to dispute this), and we were shipping faster than ever, but we were losing TVL, and the worst part is that we weren\u2019t able to properly reward the people who had sweat blood for months. We were losing them.<\/p><\/blockquote>\n

This was the impetus for BABY: Buyback and Build Yearn. Originating from Ryan Watkins from Messari, it was first proposed in October of 2020 to reinvest system fees into growing Yearn rather than distributing them as staking dividends.<\/p>\n

That proposal was initially met with a fair degree of skepticism, including from myself and other core team members, but the wisdom is now clear to me. We were too young and, honestly, too poor to be giving out millions a year in dividends, that money would be better spent investing in our team and growing Yearn further. The community agreed, and BABY passed with an overwhelming 99.44% in favor.<\/p>\n

The Mint<\/h4>\n

But the story didn\u2019t end there. While BABY was still in progress, a little-known community member, YFI_LIT, posted an alternative proposal to retain contributors by minting 1,000 new YFI.<\/p>\n

Now, it\u2019s important to recall that this wasn\u2019t the first time minting had been suggested. In fact, minting has likely been the most frequently proposed topic on our forum. The ability to mint was approved in Yearn\u2019s very first proposal, YIP-0. Plans were then proposed in YIPs 5, 8, and 30 and then further proposed at least seven times by my quick count. None of these initiatives were able to pass. Ten tries had all failed\u2014one would think that would foreclose the possibility, no?<\/p>\n

Nope. DAOs you see, are something new. In traditional dominator hierarchies where top-down processes analyze rising signals and lock in decisions for branching streams of work and humans to execute it, leadership is limited and fragile. A CEO making a decision that had been voted down 10 times before by the board might not last long. But a DAO is the mind between minds, possibilities are endless, and leadership is available to whomever knows how to wield it.<\/p>\n

When I first read YFI_LIT\u2019s minting proposal, like most of the team, I was against it. I too had been a host to the 30k only<\/em> replicator. But then something changed. Another minting proposal popped up. This was wisdom emerging from the collective. There was a voice of leadership rising in the crowd, and it spoke to me. I questioned my beliefs and quickly realized how constrained my mind had been.<\/p>\n

Our coauthor from the BABY proposal Ryan Watkins wrote it best:<\/p>\n

“While many in the community scoff at inflation because of the industry\u2019s anti-Keynesian intellectual origins, the mentality makes little sense in the context of DeFi protocols. DeFi tokens aren\u2019t money, so why try to limit inflation in favor of a scarcity meme?”<\/p><\/blockquote>\n

DeFi tokens aren\u2019t money<\/span><\/i>. It was a bit like being hit by lightning. The 30k cap made no sense! Yearn was not bitcoin, it was certainly not the Fed, and the hardcap was an accident. Our thinking had been hijacked by a meme. <\/span>YFI was always meant to be minted. <\/span><\/i>It just hadn\u2019t been time yet.\u00a0<\/span><\/p>\n

Shifting Overton<\/h4>\n

The same day Ryan published that article I formed the telegram group that would write YIP-57. I asked for Ryan\u2019s help of course, and our ops team, and then we brought in four of the largest YFI holders and yearn supporters: Santiago Santos of ParaFi Capital, Vance Spencer of Framework Ventures, Eli Krenzke of Polychain Capital, and Aleks Larsen of Blockchain Capital. Did I want their votes? Absolutely. YIP-30 had failed due to a large holder changing their mind at the last minute. I wanted buy-in from the start. But more than that, I wanted their help.<\/p>\n

Venture Capitalists can get a bad rap\u2014and in many cases deservedly so. But our VCs were dope. They didn\u2019t get a premine and they weren\u2019t seed investors. They farmed or bought it like everyone else. They were community members. Santiago and Vance had been part of our team, doing actual work, showing up to meetings, making shit happen. Real contributors and among the most sophisticated DeFi thinkers out there. They knew better than I how beneficial increasing supply would be.<\/p>\n

But even with their tokens we only had a few percent of the supply. Yearn is one of the most decentralized DAOs in existence, no one has enough tokens to overwhelm the collective. And even if we did, that would have fractured the community. It was up to us to make the best argument we could and leave it to the DAO to decide. This is the way.<\/p>\n

Over the next two weeks I witnessed what must have been the highest velocity Overton window shift in DeFi\u2019s history. On January 15th the vast majority were anti-mint, but by the time the vote closed on February 2nd, over 80% had voted in favor. During this time Andre and banteg went absolutely ape on twitter. Shitposting like true masters. The rest of us did our best to keep up.<\/p>\n

 <\/p>\n

\n

Could mint to 21m. You know, just for the memes. Just saying…<\/p>\n

— Andre Cronje (@AndreCronjeTech) January 17, 2021<\/a><\/p><\/blockquote>\n