ARC: Deepen cooperation with Yearn

AAVE governance wouldn’t have any direct specific extra YFI voting rights unless the members of governance held YFI or aYFI or had delegated authority from a holder of aYFI or YFI but also ARC would deliberately and specifically closer align AAVE’s success and benefit to that of existing YFI holders. I hold both and care about both.

Question. What excess or extra or added value or benefit might justify the requested credit facility?
I see it as a good synergistic opportunity for AAVE to grow more as Yearn grows without a great deal of sacrifice or risk or overt effort after the discussion of details which for the long run is very attractive in my view long term. Years after ARC passes (if it passes) the value added will continue to grow and compound and benefit AAVE.

I think there is a lot of additional risk to the proposal. The current liquidation ratio for YFI on Aave is 55%, which leaves a lot more room to accommodate volatility and price declines before Aave starts to lose money (versus proposed 85% ratio).

Stablecoin rates were averaging above 10% for the past month, so some combination of other borrowers, depositors, or the Aave platform would be subsidizing yearn to the tune of 5-10% APY on their borrowed amount.

I’m open to hearing how this could be mutually beneficial, but so far it seems one sided.


I’m not sure if I could word it differently, not only would aYFI get voting rights ( which I will just admit I see governance rights even unused governance rights as having high intrinsic and potential value for any protocol and I am most likely valuing them higher than most people reading this) besides that I guess I’m just more optimistic about the efficiency of Yearn and think that 10% APY yield sacrificed would be quickly dwarfed by affiliated fees earned and accrued due to the program and the LPs and the opportunity to (imo relatively safely) grow TLV for AAVE and have AAVE users be able to get more options that benefit both AAVE and Yearn, AAVE from fees and loan interest and Yearn from AAVE liquidity, AAVE LPs of course get LP incentives and those who choose not to use such an offer aren’t negatively affected by those who do. There are extra fees and utilization of assets brought on by the offer. I would have to break out the old spreadsheets to do a proper modeled analysis but it’s my current understanding that the demand for borrowing YFI isn’t high and the value of accepting the offer would outweigh the value of interest earned from not accepting it. The concerns about it looking like an unfair deal biased towards Yearn is actually understandable and the systemic risks should be discussed but 1,000 YFI seems like a large enough number to me to be large enough that a more stable tier isn’t irrational. Maybe even a lower base rate with a variable rate based on the market or some other aspect to ensure that AAVE doesn’t just subsidize Yearn while everyone else faces higher and higher rates that would make it look like AAVE and Yearn whales/Devs don’t care about the greater ecosystem or the small users, that’s at least reasonable to me. I understand that I have a positive bias towards Yearn but I don’t actually see this as an unreasonable offer from anyone and would like to see more of why it’s not beneficial for AAVE. Because I’m only interested in it if it’s seen as a mutually beneficial symbiotic relationship and while I still think it is I understand that the community is large and varied.

yeah, completely agree, they want a higher rate, and the pool is not supposed to be able to lend YFI out to pay the rate?


This proposal is asking for a lot while representing very little gain for Aave.

I don’t see why Aave holders would vote for this.


This isn’t YFI. You can’t bully AAVE holders into accepting a bull shit proposal that puts the protocol at risk. YFI got hacked, doesn’t respect on chain governance votes to burn mint keys, and now you want to up the risk factor to a level where AAVE holders would get screwed if YFI gets hacked again… which already happened… AND you want beneficial borrow rates AND you want to take liquidity from actual protocol users.

Is this real life? Does this shit actually fly in the world you come from? This is pure bully tactics.

You want to work together? Fine. Don’t bring this “you don’t care about defi synergies and the space” bull shit in here. You want one sided advantages for your bags. Go back to the YFI holders you have left and bully them into shit.

Use Maker. That was the implicitly threat in the proposal. Keep doing that. Or is that the point? You’d rather use AAVE but “why not try to take advantage of them while we’re at it?”

Nah, the point of defi is that everyone has equal access. “muh grow value of defi in general”. More like “grow my bags”

Move along.


Could be wrong, but I think the affiliate program and fee sharing would be available to any protocols/interfaces that deliver TVL to Yearn. So Aave approving the loan request part of the proposal should be considered separate from the potential for referral partnership.

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This seems a little harsh.

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It does until you realize that they will say ANYTHING to pump their bags. They made a new website that just said "numba go up’ on it. And making people feel like saying no is ‘harsh’ is his is how they get away with this shit. “Be reasonable.” They bulled their own bagholders into a 25% mint after 90% voted ON CHAIN to burn the mint keys. Is it reasonable to go against a 90% yes on chain vote? We just gonna casually ignore that?

“90% of YFI holders voted in favor of the mint”- yea 1. after an on chain vote to burn and 22. because andre blocked anyone who disagreed and Banteg mocked everyone and threated to quit. So anyone still holding with a brain sold because it was clear YFI governance is worth exactly as much as Andre said from the outset. Spoiler alert: zero. You either take their vision and deal with hacks along the way, or you draw a line.

You cant deal with people like this cordially. If you do, they ram your cordiality down your throat and make you eat it. “well you don’t care about growing the space, wah wah wah”. Did they come here hat in hand? Offering something? No. They offered goverrnance (which doesn’t matter in their protocols) and preferential rates that would negatively impact every existing user.

The implicit threat to those who are good people and don’t understand how manipulators work: they came here saying “were gonna keep using maker if you don’t take this proposal that is entirely one sided.” My vote is let them. Because they don’t want to do that. They wouldn’t have made this proposal if they did.

Imagine finding more benefit in someone else’s protocol, but then demanding they give you special access vs all existing users for the privilege of your patronage.



"The increase in interest rates would be caused by the higher utilization ratio, not because of the proposed fixed 3% per annum borrowing rate. — “The rate we get that far exceeds anyone else doesn’t matter. These aren’t the droids you’re looking for. Just give us a giant advantage no one else gets.” Any sizeable loan on Aave would increase the borrowing rate. So no one uses aave to borrow eh? Or just well, it doesn’t help to talk about them because it won’t increase acceptance of the proposal.

“I think you’re asking whether the higher interest rates due to Yearn’s loan could discourage other borrowers on Aave. This would be true if nothing else changed. However, higher borrowing interest rates mean higher lending rates and this would incentivize more lenders on Aave which could further increase total value locked (TVL).
Aave risks giving up the opportunity if Yearn chooses to borrow from another lending protocol.” <<<< There it is @monet-supply. The implicit threat accidentally stated. If this is the type of deal you have to accept to get YFI’s business, then good. There isn’t a SINGLE CONCESSION GIVEN despite this being an entirely one sided proposal.

Nothing you stated above makes this even a remotely useful partnership. Utilize the platform with no preferential treatment or go use maker as you threaten to do.


Every one of us is, in the cosmic perspective, precious. If a human disagrees with you, let him live. In a hundred billion galaxies, you will not find another.
– Carl Sagan

We can agree to disagree about yearn, friend. Regarding minting YFI, many people have been confused by our governance process and it’s totally our fault. DAO’s are confusing and we didn’t have great docs on voting for a while but we’ve updated them. Re the signaling vote to burn the keys, here is a post with links that I hope explain why it was not binding or implemented.

I’m on the ops team at yearn, this is my first post on aave governance. I’m a long-time aave fan and holder. You guys are creating something truly amazing here and I’m honored to be on this forum.

If this proposal which I helped create, or a modification of it, is not beneficial for both yearn and aave, I will vote against it. No one wants to force anyone to do anything.

This is a process of group sense-making. Let’s see if we can work together and build something that benefits both communities. Something that can bring hundreds of millions of TVL to Aave and provide Yearn with a better way to put its treasury to work. And if not, that’s ok too!

Thanks @monet-supply and @Emilio for the thoughtful feedback. We’re working on it and should have some new ideas to share soon.


^^^ This is exactly the type of manipulation Yearn excels at.

I am happy to let you live. Just not gonna let you do so in peace while trying to screw over all AAVE users. You can live in peace using Maker.

It’s not totally your fault. People believe yearn when they said that you could vote on how the protocol was run, and governance matters. Human nature tells us that this cannot last. Your proposal proved it. I don’t care the technicalities you found to get out of doing what the community wanted. Thats the point. Yearn seeks maximum exposure and tries to push the risk to other protocols.

You wrote the proposal so you participated in development of a completely 1 sided approach which means either 1) you knew you were sticking it to a bunch of AAVE users and didn’t care, or 2) as a core YFI contributor, you’re too dumb to know this was one sided. I actually don’t think you’re dumb. I think you’re extremely smart, you just use your intelligence amorally so number 2 is unlikely.

Since you knew this was completely 1 sided and proposed it with 0 benefits to AAVE users and in fact significantly increased both the risk level of the platform overall as well as severely impacting borrow rates for all customers, I do not think AAVE should engage in any amendment of this proposal as Yearn is not acting in good faith.

He simply now realizes that this has been exposed and is seeking to save face for YFI. @monet-supply - this is why you need to be harsh. They don’t respond AT ALL to reasonable requests because they aren’t truly interested in collaboration. It isn’t actually malicious, it’s just amoral advancement of your bags. I for one am glad you put your blatant arrogance on display here trach and this salvo of a response which is 100% at odds with the proposal you craft pretending to want benefits for both communities? No - you most certainly do not. If you did that would have been in the initial proposal. I think it is good for the community to realize that the Yearn team’s focus on maximizing exposure while pushing the risk associated with said exposure to other protocols isn’t just from the community, it comes from a core ops team member as well.

I appreciate your response trach. It makes my point: This isn’t an offhand proposal. The core ops team at Yearn is involved in this. The counter this proposal is: Use Maker. You threatened to do it implicitly in the proposal, the threat was explicitly stated in response to a challenge, and now maybe you aren’t getting it: we aren’t going to be threatened. Your bluff is called. Go use maker.


@tracheopteryx I saw you typing? No response? Let’s hear it. Not in a new proposal where you pretend none of this discussion happened. Here.

Hard disagree. I think there is no reason for you to be as aggressive as you are. You can argue against the proposal without assuming ill intent or making personal attacks.


Agree to disagree. I didn’t assume ill intent. I assumed amoral intent. This is gross negligence at best on their part.

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The Risk Team has reviewed this proposal. It seems important to look at the current positioning of YFI within Aave as well as Aave’s risk appetite which are misaligned with the ideas proposed.

YFI current Positioning in Aave

There is $126m YFI on Aave V1 and V2 representing 2.4% of liquidity and 2.2% of TVL with around $40m of borrows. Only variable borrowing is available for YFI, with a 30d average borrow rate of 1.25% on V1 (over 30% utilisation) and 0.80% on V2.

Aave Risk Framework places YFI at a B risk level with the highest risk being volatility at C-. The risk parameters are:

  • V1, LTV 40%, LT 65%, LB 15%
  • V2, LTV 40%, LT 55%, LB 15% and RF 20%

In parallel Aave’s stablecoin borrowing demand is strong, leading to high 30d average variable borrow rates driven by utilisation above the optimal point:

  • USDT—V1 30.53%—V2 19.90%
  • sUSD—V1 22.22%----V2 22.61%
  • USDC—V1 15.19%—V2 16.24%
  • DAI-------V1 7.78%----V2 17.79%
  • TUSD----V1 7.76%----V2 35.49%
  • BUSD----V1 6.38%----V2 17.38
  • GUSD---------------------V2 11.83%
  • V2 borrow rate average is around 20% while the borrow rate at optimal utilisation is just 4%; showing a very high market demand for stablecoins.

Now let’s dive in the proposal:

1. Disable YFI as a borrowing asset

Borrowing of assets is the number one source of income for the Aave ecosystem as well as the only ecosystem collector source of income from Aave V2. It’s not only a source of income but also of governance power collection.

Disabling YFI borrowing would result in nearly $30k of weekly income loss. YFI is still mostly used as collateral so it would continue to be leveraged by borrowing against, resulting in an income in the corresponding borrow assets. There is already a very high borrowing demand for stablecoins, this could add $15m of borrowing.

Governance attacks have been a concern for Aave, as described in @Jordan’s brainstorm post.

Furthermore, disabling borrowing would enable aToken voting, hereby increasing the functionalities of aTokens. However, there is currently $26m of borrowed aYFI which would result in double counting.

Overall disabling YFI borrowing has a negative impact on Aave’s revenue and governance power with the loss of YFI’s borrowing market. This would be accompanied by some user experience improvements of aToken voting, yet some assets are already borrowed so more though needs to be put into implementing it.

2. Special Borrowing Terms

It’s surprising to see the proposed parameters are completely out of the range of Aave’s risk appetite. It would be interesting to understand the rationale behind this parameterisation.

Gauntlet Network has already identified YFI as the riskiest asset for Aave, while the full report is imminent, @wfu share a primer on the forum. In a preliminary analysis focused on Aave V1, Gauntlet drilled into the Aave Protocol to understand the market risks of each assets and wether the risk parameters are appropriate. Gauntlet stress test projections show that YFI (used as collateral) would result in the most insolvency value in case of crisis. This is due to a combination of YFI market metrics and Aave’s YFI depositor behavior who are riskier than average. As a result, V2 YFI’s risk parameters were adjusted to be more conservative in line with Gauntlet’s recommendations.

Minimum Deposit 1000 YFI

This proposal minimum deposit corresponds to $35m or 31.5% of YFI currently deposited on Aave. This results in increased concentration risk on YFI with a significant increase in potential liquidation volume resulting in higher slippage which affects liquidators profitability. Combined with larger market price impact during liquidations which may cause cascading liquidations. These two factors reinforce each other through a recursive process threatening the Aave Protocol of systemic failure. YFI has already been identified as the riskiest asset, with higher exposures, the risks increase further.

YFI borrowing limits

The proposed risk parameters for are completely out of the range of both versions of Aave:

  • LTV 65% corresponds to YFI’s V1 Liquidation Threshold. This would require to increase the risk adjusted borrowing power of V2 by over 50%
  • Liquidation Threshold 85% corresponds to the highest liquidation threshold in Aave, allocated to the safest asset USDC with a volatility risk at A+ while YFI level is C-. This would also require to increase the V2 threshold by over 50%
  • Liquidation Bonus 5%, 3 times less than the current bonus. The analysis previously pointed that the increased YFI volume would result in higher slippage for liquidators; reducing the liquidation bonus will results in a further reduction in liquidation incentives; already negatively affected by network congestion. This means liquidators will have less incentives to liquidate YFI collateral positions with higher risks of undercollateralisation.

Fixed borrow rate

The Aave Protocol relies on the interest rate model to manage liquidity risk transferring some of this risk to borrowers. When utilisation goes up, the borrow rates go up to incentivize the repayment of loans and compensate depositors who’s liquidity risk increases as there is less liquidity to withdraw. The stable rate is a solution that offers more stability, whilst still offering risk mitigation possibilities in extreme utilisation cases.

A fixed borrow rate, ignores Aave’s risk management strategy. It’s not clear which assets will be borrowed, but most likely stablecoins which are already under high demand with the highest need to mitigate liquidity risk.

In addition to generating significant additional risk, the requested 3% would also result in a significant discount and revenue loss for depositors, being 17% lower in absolute than the current 30d average borrow rates of V2 stablecoins.

Given the algorithmic nature of the protocol, as it is, this cannot be implemented.

3. Native Credit Delegation to Yearn Vaults

There is indeed some excess credit capacity on Aave with capital that could be allocated for more efficiency. Facilitating credit delegation for Aave users could enable them to optimise their strategies. This can easily be built on top of Aave without the need to change the smart contracts. What are the advantages of modifying the source code?

Yearn is asking to modify Aave’s source to facilitate operations in exchange of revenue share from the Credit Delegation - are there some projections and estimations?

Aave is open to exploring potential interplay with decentralized protocols for collaborations that are beneficial for both. The whitelisting process will be its own governance vote by the $AAVE community.


It is not clear how this proposal might benefit Aave, on the contrary, points 2 and 3, leads to a significant increase in risk without compensating rewards:

  • Increased systemic risk - albeit an increase in TVL
  • Increased liquidity risk
  • Reduced income and influence of Aave (no YFI borrowing, borrow rate at -17% of the protocol’s rate)

100% agree with this fundamentally.

@tracheopteryx just wanted to reiterate- are there even any changes to the smart contract codebase that need to be implemented for the referral system? I was under the impression that it’s a front-end integration.

If that’s the case, correct me if I’m wrong but that would make it separate from the Aave protocol & DAO. Is that right?

I don’t see why we can’t discuss multiple parts of any potential deal, maybe I actually am too dumb to participate in governance but negotiations and collaborations usually require multiple inputs and have multiple points. At the least I see it as productive that you’ve suggested separating it and asking questions about it because that’s better than just aggressively dogging Yearn or anyone else. So thank you @monet-supply for that. I truly appreciate it. Also thanks to @Alex_BertoG and @Zer0dot for productive comments on governance.

I still think that this seems like a worth while effort but I also truly disagree that YFI governance is useless or any other governance participation is valueless.
I also hold so little of both tokens that my vote is unimportant and my primary contribution will have to come from serious good faith discussions in the governance forums.

Hey Ali and Sam.

Thanks for doing it clear and concise. I will have appreciate that the poll offers different options to vote. Each point needs a different vote and offering ‘yes’ or ‘no’ it not granular enough.

It is an interesting proposal. Few thoughts about it :

  1. Disable YFI as a borrowing asset in order to prevent governance and shorting attacks, which in turn enables aYFI to be accepted in Yearn Governance, thereby increasing the utilization of Aave within Yearn products.
  • Using the “governance attack” argument is wrong imo
  • Flashloan governance attack is a threat all tokens available for borrowing on Aave are facing.
  • Maker implemented 18 lines of code and other solutions, that answer your governance attack issue.
  • If you think disabling borrowing for gov token is a better solution you can share on the dedicated post.
  • Even if we disable YFI borrowing, other lending protocol will not.

  • Also it seems despotic to disable borrowing for an asset. I am in favor of freedom and user empower, I will not vote for this.
  • If Yearn bag holders need to disable borrowing to make sure there bag is not getting short on the market, it is dramatic.
  1. Extend a special 3% fixed interest facility to Yearn’s Treasury , which commits to making a 1,000 YFI deposit maintained with up to 65% utilization (loan-to-value).
  • The 3% is an APR you pay to borrow stable coins ? Or is it an interest rate you pay on top of borrow APR, directly to Aave treasury ?
  • From what I understood it is a fixed APR for borrowing stable coin. I wish it is not that (knowing that average APR for borrowing DAI on last month is 15.20%
  1. Enable access to Native Credit Delegation for Yearn vaults , allowing Aave Liquidity Providers (LPs) to delegate to Yearn vaults directly from within Aave’s interface. Aave in turn can earn a share of the revenues generated from the vault fees.

I do not agree.

  • Yearn did an amazing job, paving the way to autonomous asset management in crypto.
  • Despite the 11M DAI fresh hack, Yearn is considered as a secure platform.
  • The yearn v2 design, and now this CTA integration demonstrates the will from Yearn community to make more mainstream the protocol

  • Nonetheless, dedicated builders are competing and building on the yield aggregating market. I promote competition and innovation.
  • As an Aave user; what would I think if Uniswap was adding a CTA on their UX to redirect users to Compound so that they can make their recent swap growth ?

I am curious about what this proposal will lead to :eyes:


Under point 2, the 3% is an APR that AAVE will pay to YEARN, which make this entire proposal absolutely horrible for AAVE. They pay Yearn money, allow YEARN holders to take our riskier loans, and give up a revenue stream, while getting 0 in return. Plain extortion