Anna (00:05):
Welcome to Zero Knowledge. I'm your host Anna Rose. In this podcast we will be exploring the latest in zero knowledge research and the decentralized web, as well as new paradigms that promise to change the way we interact and transact online. Tarun and I chat with two Yearn core contributors, Trach and Facu. We talk about the origin of the Yearn protocol, what it does under the hood, a look back at last year's DeFi Summer. We talk DAO management and what's next.

Anna (00:40):
But before we jump in, I want to encourage you to jump into the Zero Knowledge Podcast community, and maybe join the conversation over on our Telegram channel. There you can stay up to date on events, get news about the podcast, and also about the larger zk community. It's a great place to ask questions, and there are a lot of helpful people in there to help you out.

Anna (01:01):
I also want to thank this week's sponsor, Mina Protocol. It's a project that I am an advisor on, and one where the Zero Knowledge Validator also runs a block producer. Mina is the world's lightest blockchain, powered by participants. It's a layer one protocol creating a private gateway between the real world and crypto. The entire chain is about 22 kb, even as it scales, thanks to recursive zk-SNARKs. This protocol replaces the traditional blockchain with zero knowledge proof, ensuring a super-light and constant sized chain that allows participants to quickly sync and verify the network. And SNARK-powered dApps, called Snapps, allow access to verified real-world data from any website for on-chain use. The ecosystem is growing fast and the mainnet is live. So visit minaprotocol.com to find out more today. I've added the link in the show notes. So thank you again, Mina Protocol! Now here is our episode all about Yearn.finance.

Anna (01:57):
In today's episode Tarun and I are chatting with Tracheopteryx and Facu, both core contributors at Yearn.finance. Welcome to the show guys.

Trach (02:11):
Hi.

Facu (02:11):
Hi, hello.

Anna (02:11):
In this episode, I hope we get to dig into the Yearn protocol, talk a little bit about DAO management, what's coming up for the project, but I also am just excited to talk to a DeFi project today, because there's so much going on with basically MEV and the emergence of L2s. And I just want to get a sense for how you're approaching those kinds of topics as well. I'm also really glad that Tarun is with us to be the co-host for this episode. Tarun, I feel like you're well versed in all things Yearn.

Tarun (02:43):
Well, I guess I was around when it started, and I was on the multi-sig for a while.

Anna (02:49):
Let's start off with a little bit of an introduction to Yearn. What is the Yearn protocol?

Trach (02:55):
I think all three of us can probably answer this in different ways. It started off as a yield aggregator and that continues to be our main product as a way to really easily earn yield off of different stable coin assets. The product autonomously uses various other DeFi protocols to do that. And since then, we've also created a number of other things and also just the community and culture around innovation.

Anna (03:20):
Let's go back to the beginning. Tarun, you just said you were there at the beginning, what is the beginning of Yearn? Where does this start?

Tarun (03:27):
So basically last summer, I remember a bunch of people were like, "Hey, do you want to join this random telegram chat?" And I was like, "Ah, no". I think right after Compound farming launch, there were a lot of sketchy things. And I was like, "Ah, I don't really want to join". And then at some point, Michael Egorov from Curve was like, "Hey, this is a legit project, it's trying to go past the strict yield optimization of just allocating to 2 or 3 protocols, but actually wants to execute these strategies and have some questions". And so then I joined this group and I was like, "Whoa! This is actually crazy that this is moving at the speed of light, compared to everything else in DeFi". And I think it had this kind of ephemeral talent aggregation that I haven't ever seen since and haven't seen before, at least for DeFi, where all these people got really, who had different expertise, joined this like traveling band for a month and somehow it aggregated this insane amount of capital and interest. And it was something that, I think, initially it seemed like something that wouldn't be... Seemed very short-lived, in the sense of like, "Oh, are these farming rewards going to be around long enough for this to work out? Does this idea of a farming aggregator that sells all the yield farm tokens instantly make sense? Or will it actually kill all the farms, because it's dumping all the coins and stuff like that?". But it became much more clear that the end user does not want to learn how to yield farm themselves. They just want to click one button and get interests, as if it was a bank. And so it was interesting to learn all of those lessons in this two week period, where everyone and their mom was starting a new yield farm.

Anna (05:30):
Trach, what was the beginning like for you? And when did you join the project?

Trach (05:34):
I think that was a wonderful description. And what happened for me is I wasn't in DeFi, I'd been tracking crypto since 2010, but I had been doing a number of other different things. And my friend messaged me "buy 'Wifey,'" you know the YFI token, last summer. And I was like, "What is this?" And I looked into it and I was like, "Holy shit! This is awesome. What's going on here? DAOs are working!" And not only that, but this amazing guy Andre Cronje gave away all the tokens. And I was just blown away. I talk about this period as a kind of inflaton field, which was the moment after the Big Bang, when all the particles and soup of the world came into being. And the end of that moment was the cosmic microwave background. You've got this imprint of that moment forever. And it crystallized everything around us. That's kind of what happened, but it was a magic spell that he cast through this incredible act of integrity and generosity. And it called people in. I was just sucked in and I was spending 12 hours a day just doing stuff with the Yearn crew. And this was last July, August. And so it started for me.

Anna (06:40):
Were you working somewhere else at the time? Did you have a full-time gig that you were sidelining or..?

Trach (06:45):
I was kind of retired writing a science fiction novel, so I sidelined that.

Anna (06:51):
So how far are you in that? Have you revisited it?

Trach (06:54):
The novel? God, I think about it occasionally, but I will finish it eventually. It's a good story.

Anna (07:06):
Facu, let's hear your story of how you learned about Yearn, when you got involved. What that beginning looks like for you?

Facu (07:12):
My story is similar to Trach's, but different, in some sense. I was out of Ethereum. So I was dipping my toes into Ethereum, I used to work with open source software a lot, so I heard of a DAO that was forming up. It was yDAO and I had some free tokens that I got farming, that was YFI. And you had to pledge those tokens. So I said, "Okay, let's experiment with those". And I found this amazing team that everyone was helping. And that helped me to learn a whole lot in a little amount of time, sucked me in, because it's actually open source, but with money. And the team is amazing. And I stayed around.

Anna (07:57):
Facu, what role do you actually have in the project today?

Facu (08:02):
I facilitate with vaults and strategists. I don't write much code, but what I do is help the strategists and the core developers do their work.

Anna (08:14):
Actually, Trach, what's your role in the project?

Trach (08:18):
Well, Yearn is kind of magical place where we don't really have job titles or anything like that. And we really look for people to figure out what their calling is and do that in different ways. And for me, that's mostly been, I've experienced running companies in the past and has been around also a lot of experience in next generation forms of human coordination organization. And so I've really helped with the governance and the organization, the structures, the way that we work together and collaborate also like onboarding, hiring, things like that.

Anna (08:48):
Cool. I want to go back to that origin story though, DeFi Summer, where it crystallized. What are we talking in the lifespan of the DeFi Summer was the YFI, the yDAO? When did that land actually? Just to give us a bit of a date.

Trach (09:06):
July 17th was the first time that, of 2020, was when the first YFI was farmed and the farming went on until the 26th. So about nine days.

Anna (09:15):
Oh, wow! And then it stopped. So this was a unique feature of this project, the fact that there was this limited supply. This is unique in the space, is it not? Is this the thing that was like..? When you talked also about integrity, was this part of one of those pieces of integrity?

Trach (09:31):
I mean, it's actually fascinating. It was never supposed to be just a week. Andre has said that he expected that the governance would vote to continue minting. And there were a number of, there was about 8 different governance proposals in the early days to try and extend the minting. And for one reason or another, it never happened. We were able to do another limited mint, I guess this was February. So 7 months after the project launched in a kind of miraculous event. But the thing is that when this all happened, there was no organization, there was no company, there was no foundation, there was no boss, there was no plan. Andre was doing his amazing, magical Andre thing. And all of us were just like, "Okay, what do we do?" And so we had to figure that all out from scratch. It was awesome.

Anna (10:18):
Cool. What role do you think the YFI token, the Yearn project has in DeFi Summer? Was this coming after AMMs were already picking up steam? Was it something that accelerated it? I'm just curious, what role that played, cause I do remember hearing a lot about it, although I was very, I definitely heard about it too late. I guess I can say that much. I did not know about it while the minting was happening. I would have heard about it later in the summer. So yeah. I'm just curious, what impact do you think that actually had on that Summer and the way that people were thinking about DeFi?

Trach (10:54):
I would love to hear Tarun's answer for this idea.

Tarun (11:00):
I mean, if I were to give the chronology, I guess, It was COMP started the fire and then Curve had their weird rigged launch. I don't know what to call the launch where someone randomly launches it.

Trach (11:15):
That was after YFI actually, the Curve one. Slightly.

Tarun (11:19):
Slightly. Yeah. Sorry. I guess I think of the Curve launch and YFI is like very intimately connected, given some of the early strategies, but yeah, you're right. And I think the initial version of Yearn, at the very beginning, I couldn't figure out, cause iEarn Finance has existed for a long time. It was this InstaDapp competitor that had existed, since January or February, 2020. And I think a bunch of us who were around at that time just remember it as like, "Oh, it's like InstaDapp, like the poor man's InstaDapp". And it had, if you looked at the TVL at that time, that reflected that. InstaDapp was really the number 1 place where people were like, "Oh, Compound and Aave, we don't want to figure out where to put our funds. We have some USDC. We want to optimize our yield between the two protocols. Let's put it in InstaDapp". And I think the thing that was interesting was that unless you were actually really paying attention closely, I don't think people saw that there was this huge leap that changed from that to the strategies at that time. And so I think Yearn catalyzed pretty much the whole Summer. I know all the YAM people and, for instance, they were completely driven by watching Yearn be successful. So all of the other protocols that had their launches that summer were basically, they looked at Yearn and said, "Hey, we can do that too." Both from "we can build a product that's similar, better or whatever". But the interesting thing, and I think this is the thing that a year later we can can say, is Yearn was much more unique than a lot of the other things that launched after. So if I were to rank things by importance, COMP is number 1. There's just no doubt, that started everything. Investors were very skiddish about crypto, until the COMP launch. The COMP launch brought back a lot of investors who were burned in 2017, back to this space and not viewing it as sketchy. And then number 2 is definitely Yearn. And then number 3 is Sushi. But in terms of AMMs, I mean, the AMMs enabled things like Yearn to work. But we didn't have as much volume driven to them until Yearn happened. And then there were 5 million copycats. The copycat effect really just drove Uniswap's metrics. Because every new coin that happened would just add volume in an AMM.

Anna (14:01):
When Sushi arrived, cause we did a 3-part series on Sushi at the time last year, what did that mean for Yearn? As you were sitting there and the SushiSwap thing happened, did you care? Did that actually influence anything?

Trach (14:17):
Not really. I mean, I think we love Sushi, but at the time... We partnered with them later, but at the time, from my perspective, it was just great. Another routing for our strategies. It wasn't substantially more than that. I don't know, Facu, do you have a perspective?

Facu (14:33):
Yeah. At first, there was a little bit of drama around Sushi and the whole history. So we were always super careful about what we introduce into the strategies and stuff. But as Trach said, we didn't really care, it took us a little bit of time to start using it. And then we partnered with them or whatever we call that.

Anna (14:56):
You were a little skeptical maybe at first, but then...

Trach (14:59):
I mean, it ended up being wonderful for us, because they're such an incredible team and Andre and them have collaborated in a bunch of code and we've been able to work with them in a number of different ways. So it's really expanded Yearn's offerings and it's been a great mutual relationship.

Facu (15:13):
Yeah, totally.

Anna (15:14):
I think one thing that we should probably do for our listeners is go a little deeper into what Yearn is. And one way to do that would be to talk about these products that live under the Yearn umbrella. Because before this interview, we were doing a little bit of chatting about what Yearn is and it sounds like it's not a thing. It's not a dApp, it's like a collection of things. And then there might even be products within the Yearn umbrella, but also products outside of it, but within the ecosystem. So let's do a rundown of what these products are and what they do. So what would you call the most important or the most visible Yearn product?

Facu (15:51):
The vaults, without a doubt.

Anna (15:51):
Which one, Vaults?

Facu (15:55):
For me, at least. Yeah.

Anna (15:56):
Okay.

Trach (15:57):
Yeah. Let's say the Vaults are our biggest product for sure, where the vast majority of the TVL is. Then there's also the Earn or the iEarn protocol, which was the first thing that Andre launched back in January of 2020, which just is a very simple job of finding the best rates between the Compound and dYdX. There's been a few different versions of that. It's better, but it's very simple protocol. And there's also the Iron Bank, which is a collaboration with Cream, which is a borrow-lending uncollateralized lending tool. But then we start... It's so interesting, we were talking about this before, but what is Yearn and what is not Yearn is a blurry space. And I think that that's a pretty cool thing really, it's something we're all getting used to, but in DeFi you see this in a really profound and new way that the boundaries, the membranes between the different products are much more permeable, and between different teams too. So there's also Keep3r, which is something that Andre launched, which is not technically part of Yearn, but there are two full-time people at Yearn basically working on that, and it has its own token. And, um, and then there's yGift, which is a project we started a while ago to do NFT gifts. And then Coordinape, which is a new product that spun out of Yearn to do community grants. And then a bunch of R&D projects like StableCredit and all these other things.

Anna (17:20):
So in our research, we found something called Woofy. Can you explain what Woofy is? And where does that fall? Is that a product within Yearn or is that a project within the ecosystem?

Trach (17:33):
Woofy is ultra-hound money and it's 1 to 1 million with YFI, it's pegged with YFI and it's certainly a product of Yearn.

Anna (17:47):
Okay.

Facu (17:47):
Yeah. It started as an experiment to test the unit bias, because 1 YFI is really, really expensive. So the idea was to launch a token that was much, much cheaper, but that it's pegged to the YFI price.

Anna (18:03):
Cool. I want to dig into some of the products that you just mentioned to just explore what those are too. So you mentioned, Facu, the core or most popular product is Vault, the Vault. What is that? What does that mean? How do people engage with it?

Facu (18:21):
That's a good question. Actually Vaults are like containers of tokens. When you put your money on the Vaults, use strategies, investment strategies, to accrue yield. The particular thing about the Vaults is that if you deposit a token, let's say DAI, you will always have more DAI. So the yield is always compounding. And that's a really nice thing.

Anna (18:47):
With Vault you don't have to input both sides of a trade, right? You can just put a single token in and it gets... I am curious to what is happening to it behind the scenes?

Facu (19:00):
Well, a very simple example is governance staking. You have a governance token, whichever you want, you stake that token into a smart contract, a governance contract, and you receive rewards. That's fine. That's what happens with most of the governance tokens.

Anna (19:22):
But wait, let's make maybe an easier example here. Like what if I have DAI? So if I put DAI into a Vault, what happens to it?

Facu (19:30):
That seems to be easier, but it's not easier.

Anna (19:35):
Okay. Are you doing a lot behind? From my perspective as a user, it looks really easy.

Facu (19:40):
Yeah. But for example, Curve is easier because it does one thing and one thing only with those Curve tokens, the LP tokens from Curve. So let's use Curve as an example that it's super simple. And then we can talk about DAI.

Facu (19:58):
Okay. Sounds good. Do Curve then.

Facu (20:01):
Okay. So the Curve tokens that you deposit into a Vault are locked into Curve to provide liquidity.

Anna (20:07):
Are you saying beforehand? Does the user lock it into Curve and then put it into Yearn? Or do you put it into Yearn and then Yearn, behind the scenes, locks it into Curve?

Facu (20:17):
No. The full step-by-step is I have DAI. Let's say, I have DAI. And I want to deposit into a Curve vault. I have DAI, I go to Curve, I deposit into 3pool, for example. I do a single side deposit and I get 3pool tokens. I got those tokens, I go and deposit into the 3pool Vaults on Yearn. So what Yearn does, what the strategy behind that Vault does, is to lock those tokens in Curve again, to receive CRV rewards. So that Vault is getting rewards in CRV.

Anna (20:59):
Interesting. So it's putting it back into the protocol and it's doing, I guess, it's doing it in the most efficient way, in a way that a user wouldn't be able to do somehow.

Facu (21:09):
Yeah, because we're doing it in batches. So let's say, we forward the deposit and then all the tokens are locked into Curve. So it's much more gas-efficient.

Anna (21:18):
Aha! And so you're saving on the gas in this case. If an individual was to do it, the amount of gas per the amount of money, maybe wouldn't be worth it. But if they do it through you, you're spreading that gas cost over a larger pool of these LP tokens or these stake tokens.

Facu (21:38):
Yeah, exactly. That's what we do.

Anna (21:41):
Got it. That's the Vault.

Facu (21:42):
But there's a detail with Curve. Those CRV are coverted back into 3pool tokens, because the Vault only manages one token and one token only.

Anna (21:52):
Got it. So as a user, you're actually earning what are you calling it? 3pool?

Facu (21:59):
Yeah. The underlying token.

Trach (22:01):
I think there's an important other piece to this to understand, which is Andre's genius in launching YFI in the first place was because he realized, looking at the ecosystem of DeFi, that there were so many different possible yield strategies that one person would never be able to create strategies against all of them. And so he needed to coordinate strategists. He needed to bring in people to write all of these different strategies. And one of the foundations of the Vaults program and Fubuloubu Doggy's incredible Vaults 2.0 system is the ability to have a whole group of strategists writing independent strategies, add them to Vaults and they can then robotically go out and pursue the latest and greatest best ways to earn yield across the entire ecosystem. So our Vaults can run actively up to 20 different strategies. And each of those strategies, like Facu was saying, can be extremely complex, but from the user perspective, it's very simple. You have one asset, like ETH, and I want to earn yield on ETH. And I don't want to take all the time to go research all the different places I can do that, I just put it in an ETH Vault, I know it's maintained by the top team of strategists with the highest security measures in all of DeFi. And I'll earn yield, super simple, because whatever it does with ETH... One of the strategies is a Maker CDP strategy. It'll put the ETH into Maker, it will borrow DAI against that. And then it'll utilize one of our other strategies to reinvest that DAI. And then the yield from that DAI strategy will then go to buy more ETH, compounding your initial asset. So you always stay within the single asset, without ever losing any of your principal. It's only up only.

Anna (23:37):
Got it. I do want to go back to the DAI example, because clearly I'm stuck on that. But so, Facu, I followed on the staked Curve and the fact that what you actually earn is not... What is it, CVRE? CRV. It's not the behind the scenes assets that are being earned. You would convert it back into the asset that had been deposited into the Yearn Vault. And so as a user, you're just getting what seems like interest on the token that has been deposited.

Facu (24:08):
Yeah. That's that's right.

Anna (24:09):
Cool. Why is DAI more complicated?

Facu (24:12):
Because being a simple token, it's a token that everyone knows. So it's one of our biggest Vaults. And having a lot of tokens is good to socialize gas cost, but when you have like 500 million, it starts to get complicated to get some serious yield. So the DAI Vault has 8 different strategies right now. So that's why I told you it's quite different, because we're not using one thing, we're using Alpha Homora, we're doing Idle, we're using Rook. So those are all different strategies that all compound and sell the rewards to DAI.

Anna (24:51):
Got it. How do you decide between these strategies?

Facu (24:54):
Oh, we have a whole process for that.

Anna (24:59):
I'm guessing it's not someone with a switch, right?

Facu (25:02):
No. That's a lot of people arguing about it, like what's the better yield? What's the most safe way to do it? And they're serious of things that we have to decide. It's not only the strategy we're going to use. It's also the amount of money we're going to put. The Vault, if you have 8 strategies, it might not have the same allocation for all of them, so that, we call it the debt ratio, because we can see that strategists borrow money from the Vaults. So we decide, depending on the liquidity in the protocol, the APR or the amount of yield we're going to get, and the safety of the protocol.

Anna (25:43):
Got it. I think this leaves us a little bit into, maybe... What you said there is that there's decision-making happening. That there's some conversation happening. I now want to talk a little bit about the governance. Is that something that the Yearn DAO would actually be making a decision on? Or is the Yearn DAO focused on something else?

Trach (26:03):
Well, this is a good question. So imagine that a hundred new contributors, all trying to work on an incredible software platform within a DAO, where you have on-chain voting with YFI, what decisions do you make? What decisions can you make on your own, which have to be proposals. It's a non-trivial question. A lot of the time stuff gets hidden in normal DAOs. You see proposals flow through, but actually most of the actual, the real operational decisions are happening behind the scenes. And so that's also, by the way, natural. Human organizations of multiple people do not have only one consensus mechanism for deciding on anything. I get to decide autonomously what I say at a meeting, I don't need any gating on that. Then there's other decisions that are totally safe to make by yourself. And what we, cutting to the chase, what we've tried to do at Yearn is allow for the most amount of independent decision-making possible, and to only protect things that need critical protection and to create a transparent and malleable system to support that. And so we went from this completely understructured space, after the inflaton field of the YFI gift, to a totally new system of governance, we call it "constrained delegation", where YFI holders have the ultimate authority of delegating specific discreet powers, like the power to mint YFI, or to pay salaries, or to decide on budgets, delegate them to specifically ratified groups of people like councils. But instead of it being just one council, there can be any number of them, depending on what different groups of people need to make what different types of decisions, and all of this is visible. And all of it is controllable through votes. But then in the small groups, you can have whatever consensus process, whatever timescale or timelock is required for that specific type of decision-making.

Anna (27:58):
I mean, this speaks to any blockchain governance. If you make the crowd decide all of the decisions, then you will have a large group of people with no specialized knowledge about those things. And so they are very susceptible to politics or sway, or groups trying to convince this whole crowd that doesn't really know the details.

Trach (28:22):
Well, it's just not reality. Anyone that's saying that an organization that's creating any type of complicated product, the decisions are not being made by the DAO.

Anna (28:32):
Yeah. And so what you're doing is the larger DAO decides somewhat the funding channels, but once it goes into these smaller groups, then it's within that group to decide how they want to run it.

Trach (28:44):
It's actually not just funding. It's actually... A lot of the times you look at things like this and you think funding is the operative system to look at, but actually it's decision-making. So what we've done is we've enumerated the various critical decisions required to be made in this DAO, in this organism, and considered them according to the different axes that define them, timescale, impact, expertise, domain, all these different things. And we've made each of those decision-making power as a discrete object that will eventually be an NFT, once we put this all on chain, and that can be basically traded by YFI holders and with a system of checks and balances, including veto power and things like that, so that the whole system can function safely.

Anna (29:27):
Would you say the strategies that underline, going back to the Vault, are those strategies in one of these delegated groups? Is the decision-making around that in a delegated group? Or is it within the larger DAO?

Trach (29:40):
It's a good example. So Doggy's genius in creating the V2 Vault platform was to really separate strategies and Vaults, and see them as potentially adversarial. So that's reflected in the governance process. We have a multi-sig, 3 of 10 Gnosis multi-sig Safe for the strategists group and they have the power of managed strategies, so they can create strategies. And they test them at Ape Tax, which is outside of Yearn, it's a very experimental place to test new strategies with caps. And they can manage those strategies. And then yDev yTeam, apologies for the atrocious use of Ys, yDEV yTeam yDecides yWhat strategies get added to the Vaults, but in this way, it's the balance of power. So the yDEV team has the power "add strategies", but then it's the yChad, the actual, what we call the main multi-sig...

Anna (30:42):
What do you call it? yChad? For real? Like Chad, Chad? Okay. Cool.

Trach (30:51):
So yChad actually has the execution power, has the "execute transaction" power. And so actually all of the decisions that get made in the whole entire environment flow through yChad, because there are basically safety and reputation valve, where it's a 6 of 9 multi-sig with people, previously Tarun was on it, people with very high integrity, high reputation that we can trust to not rug anybody. Six of them would have to collude to rug the system. Now this is a controversial point in DeFi safety. I actually believe it's a safer mechanism than most, because the other systems have worse flaws in a lot of ways. But when you have 9 really high integrity, trusted public people, you're pretty safe that they're not going to rug you.

Anna (31:36):
And the 6 of 9, this compares to another one that you'd mentioned was a 3 of 10, where you only need a little less than a third to actually push something through. And here you're actually need 2/3rds.

Trach (31:47):
Right. And that reflects the difference in security concerns for each of these different decision-making bodies. So with managing the strategies, that power, there's little damage they can do. So you only need 3 people to commit consensus.

Anna (32:02):
I want to check in on something you just said. That exploratory space where you test things out, what's that called?

Trach (32:07):
Ape Tax. I think, Facu, you built that site, right?

Facu (32:11):
Yeah. In the early days I built that. Now there's more contributors and it's more a group effort, but yeah.

Anna (32:21):
What is that? Is it an environment? What does that look like?

Facu (32:25):
It's a UI, super simple, just text and a few modules. But the thing is that for Yearn it's really, really difficult to do economical tests in testnet. So we really need to test with funds, like with real funds in mainnet. So we encountered a lot of issues in testing in Brownie or Etherscan, or super technical methods to deposit funds. So if we wanted to attract some apes, we needed a tiny UI to help them deposit and help us test.

Anna (33:02):
Wow. So it's real participants, but they're putting in super high risk things that could blow up at any moment.

Facu (33:11):
Yeah. Because if you go to ape.tax, you will see the warning signs, signs all over it, like "Warning, warning!".

Trach (33:20):
And they still fill up immediately.

Anna (33:21):
Oh, no!

Facu (33:24):
That's crazy, right?

Trach (33:24):
It is kind of crazy. I've never deposited in any of them, but people do.

Facu (33:31):
But it's like a playground also, because sometimes you will find strategies that will never make to mainnet, because they are too risky. But yeah, it's cool.

Tarun (33:39):
Let's say we actually have a viable layer to that Yearn feels comfortable with, as a community. Do you think the Yearn would ever move off multi-sig to some sort of hierarchical governance? I mean, you sort of are doing that right now, but presumably you could modify things like the Compound governance contract or Aave governance contract to effectively represent these hierarchies. Actually, I think, Aave governance is about to add this thing where you can delegate responsibility for certain markets to certain people. And so it replicates a little bit of the multi-sigs and teams. So I was just curious, how important is it to get to the point of more autonomous systems for doing governance and delegation versus multi-sig? Do you view that as crucial or do you think the current multi-sig stratas of behavior is the way you view the long-term?

Trach (34:39):
I think it's pretty crucial to move to a new system, but we're taking a conservative approach. We're really testing the dynamics here, on the social layer. So right now we're basically implemented these different decision-making groups and telegram groups with processes, mostly because the friction of deploying it all as an on-chain system is too high and it makes it slower to learn, slower to change. The things that are critical are on multi-sigs, on Gnosis Safes, but the other things can just be done in the social consensus layer. And we've been talking to a lot of different groups: to Colony, to Orca Protocol, to Tally and Gnosis about ways to build what we want. And there's a bunch of people that want to build it. And we're excited to do that. We've thought about using Compound Bravo and Governor Bravo and Aave and all these different platforms, for a lot of reasons. One is that it's a high friction point of the main multi-sig, all the transactions passing through there, it's a hard job operating that, as you know from experience, it's a lot of transactions.

Anna (35:43):
Wow.

Tarun (35:44):
Also just the time zone coordination and stuff like that.

Trach (35:47):
Yeah, it's a pain. And it also just beyond that point of failure potentially is the ethos of really putting the levers of power in the right places, not having a gated decision-making process, unless it's required or important fundamentally for that decision-making flow. So giving those independent yTeams control over their own domains make sense. It gives more responsibility, more accountability, as there's a number of ways to do that. And we will do that, as soon as we feel that the technology is ready.

Anna (36:22):
Tarun, you started that question mentioning L2s, but I don't actually understand the connection point there, with the hierarchy of DAOs and L2s.

Tarun (36:30):
Oh, it's just too expensive to do on mainnet.

Anna (36:32):
Oh, I see. Okay. Has a lot of the DeFi governance already moved or is planning to move to the L2?

Tarun (36:38):
No. But I'm just asking more from a logistical standpoint. You're definitely not going to do it on mainnet right now.

Trach (36:45):
A lot of them move to Snapshot, to signature-based voting rather than gas voting, because of the expense. And then also you can all say vote delegation is a response to gas costs as well.

Anna (36:58):
This DAO, as you've described it, it's focused very much on decision-making delegation, but going back to the funds and funding of things, how do funds work within that system?

Trach (37:10):
Yeah, that's great. So we did a few governance proposal YIPs late last year to change around how fee flow all works. And as it is now, the Yearn team gets a fee share from all the revenue that goes, all the yield from the Vaults. And then governance can spend that money through YIPs and there's a couple empowered teams within Yearn that can spend that money. And there's yBudget which can create budgets. And then there's yPeople which can pay people. Then as part of that budget process, we give every month a community grants budget, which is currently $60,000/month and is going to go up pretty soon. And the way that that's distributed is through a product that we've made, called Coordinape. That's "coordinate" with an "ape" at the end, Coordinape. Little pun intended.

Anna (37:53):
Lot of Ys and lot of apes, huh?

Trach (37:57):
We're ridiculous. And what that does is it's a really decentralized way to do grants. So back in the early days, when we did community grants, with Facu and me, a few other people would be like, "Well, who should we give money to?" And we did it in a really beautiful way, which was like, "Who's doing cool stuff? Let's give them money!" It wasn't a quid pro quo. There was no expectations. We were just rewarding the community, but the top-down mechanism for that is quite limited. And we were always missing people. And people didn't really feel part of it. So we developed Coordinape to allow the wisdom at the edge of the network to make these decisions. So everybody, once we deploy it on-chain, you'll have an NFT badge that will be your membership within a network like Yearn or other ones, we have like 20 other protocols who are using it. And then everybody in that network gets to, every month in an epoch, give 100 give tokens, which are like poker chips, to everybody else in the network. And at the end of that epoch, the total allocation, then just divide against the monthly budget. And that's how the monthly budget gets distributed.

Anna (39:01):
Cool. The token that you're using, the governance token, is the YFI token, right?

Trach (39:07):
Yes.

Anna (39:07):
And that's limited supply. So I want to go back to the beginning of the launch of this thing. It was being minted. People were minting it here and there. I'm just wondering, does that mean that it's primarily those at the very beginning who either minted it or bought it early that actually get to vote? Maybe give me a little bit of the history of the distribution, so we have a sense for who is actually able to participate in this.

Trach (39:31):
It goes back to the July 17th, 2020, when the first YFI he came out and Andre structured in a really cool way, with 3, I think it was actually 4 different pools. It was kind of an education. It was like a "sink or swim" DeFi education. Each of those pools was a different way to use, there's a Balancer pool, there's governance, staking. So it was all these different core skills you need to operate as a DeFi Chad in this world. But then after that, there was 30,000 YFI. That was it. And those were the governance token. That was the only... Well actually early on, you could vote with YFI or BAL, but then they changed it to just YFI. And the only power in Yearn came through those, voting with those, defined power that is. And then later we put... Ton of community effort... And after seven months of working for peanuts and not having any money, but seeing like all of the owners of YFI become extravagantly wealthy and Andre earned nothing from this, the community came together and we put a proposal to mint more YFI, and we minted an additional 6,666 YFI. And we used that to reward early contributors and to give good compensation packages to new contributors and to reward the community and also to have a nice treasury.

Anna (40:49):
How active are the YFI token holders? Is there a big turnout? If you say there's limited amount, how active are they?

Trach (40:58):
Well, they've been active at different periods in our history. In the beginning, it was very active and we would see like 50% quorum, 50% voting activity of all holders and stuff for some of the early votes, which was wild, but then it dropped off and then you get governance fatigue. And now it's actually pretty quiet, which I count as a major success, because the governance is working.

Anna (41:19):
Wait, are there actually..? Now I'm just realizing though, a lot of the governance you talked about were multi-sig. So it's like 3 out of 10 or 6 out of 9 multi-stakeholders. So do you need the token actually?

Trach (41:28):
They don't need the token, but the token holders empower or disempower them.

Anna (41:32):
Okay. I see.

Trach (41:32):
That's the constrained delegation model, where you delegate power to different groups, but YFI holders, the ultimate authority, they can always take it back.

Anna (41:40):
Are those multi-stakeholders then decided..? How would that maybe that top 6 out of 9 be decided?

Trach (41:47):
For the main multi-sig, which is the most critical piece of infrastructure and security at Yearn, each signer has to be changed only through a YFI vote.

Anna (41:54):
Over global one.

Trach (41:56):
Yes. There has to be a total vote.

Anna (41:58):
And that's using that token?

Trach (41:59):
Using the YFI token.

Anna (42:01):
Got it. Interesting. Let's move a little bit into the mergers that you had mentioned. You mentioned a product, the Iron Bank, which is a collaboration with Cream. I don't know if I'm supposed to call these collaborations or mergers or joint product releases: Pickle, Akropolis, SushiSwap. Tell me, what are these, what are those things? Are these more like ecosystem projects? Maybe give us a little bit of a sense for how you're working with these other teams.

Trach (42:30):
Yeah. You're right in struggling to choose a word, it's unclear what these types of relationships are. It's really a new terrain. You think about a merger and generally there is a financial transaction, or some legal transaction or agreement, but there was none of that. In these cases, Andre initiated this wave of mergers and it was basically due to partnerships, they would enhance our abilities, mutual abilities. So he needed a borrow-lender to work on some code that he wanted to work on. And then Cream and Yearn merger happened. We ironed out some rough ideas of how we'd work together and we send a press release and boom, you're merged! No change of funds or anything like that, or change of control. But it's actually been really beautiful, because it was with Cream, with Sushi, with Akro, with Pickle, with Cover, and then an unmerger with Cover. It's been a Wild West DeFi world, but what it's done is it's created a really nice kind of family ecosystem. We can all help each other out, we're always down to jump in and help with one thing or another, people work between teams occasionally. And Iron Bank is one example of that. It's a Cream and Yearn partnership.

Anna (43:37):
But is it a strategy? Is it a behind the scenes strategy product? Or is it like a customer facing or ape facing website, where something is happening? That's what I'm trying to understand, if they're super visible or if they're more on the strategic side, behind the scenes.

Trach (43:54):
There are different versions of this. So Iron Bank is something that's more at the protocol level. There's no UI. Facu, is there a UI for Iron Bank? There's not, right?

Facu (44:01):
No, I think there's not, no, because it's undercollateralized loan. So you need to trust the other party. So it's a whitelist.

Trach (44:10):
But then in Pickle there are Pickle Jars and stuff that are based on that collaboration and Sushi stuff. And the oSushi idea was something Andre and Maki did together. So it comes out a bunch of different ways.

Anna (44:23):
Got it.

Tarun (44:24):
What lessons have you learned from these M&A activities in this new space? Because I think when things happened and I guess everyone has seen the announcements when things first start. But if you were to retrospectively look back on these, do you feel like they drove engagement, capital, whatever the metrics you were looking at? Or do you feel like they were more for community sentiment? And do you think they were successful?

Trach (44:55):
Yeah, that's a good question. I think they were successful and there was mixed, we've learned a lot from them. In some cases, we spent a lot of effort on things that didn't turn out the way we wanted them to. In other cases, we have really healthy partnerships and new products that have come out of them. In a way it's less of a merger and more of just a, for lack of a better term, friendship of some sort, it's like we're trusting with each other and we help each other with stuff. And when that works well, great things come out of it. And the places... I think one of the lessons is have good boundaries. This is the lesson for all things in life. And be clear about what your expectations are and what your boundaries are in these types of business relationships. And that makes them work.

Tarun (45:38):
Yeah. I mean, one thing, I think we're certainly not at this portion of this economy yet, but in some ways DAOs can only really make contracts with other DAOs. It's like they can do this very ragged interaction with individuals and companies, but it requires multi-sigs and requires some different trust model. In reality, DAOs can only really purchase services or products from other DAOs. So I guess this was the first attempt at that. And I imagined... In a world where there's actually more expressiveness and less compute constraints, you could imagine these more deep relationships. But I was just more curious, from that lens, how do you view these? I feel like Iron Bank is a good example of DAOs actually, on a technical level, having contracts with other DAOs.

Trach (46:35):
I think that's exactly right. And super interesting. So we don't need legal contracts. We don't need any of the M&A stuff, but how does this get deeper and more intertwined? And I think one of the ways is, while you write actual code together, and then your addresses are the binding, because you both have control over it through the software layer. And then you can also think of the future of governance through discrete powers. And if you look at all the different types of decisions that need to be made, sharing those. And like that defines how an organism, organization operates, it's who makes the decisions.

Tarun (47:11):
That was a good Freudian slip though... Do you know what the concept of Keiretsu? I can't pronounce it correctly. Sorry, the Japanese word. I feel like the Yearn M&As reminded me a lot of that. It's K E I R E T S U, it's this thing that Japanese companies did where they formed mutuals in the 1980s and they made these weird community organizations, where they managed certain parts of their funds together.

Trach (47:42):
Interesting. I'm fascinated to learn more about that. Cause it sounds similar. What we call, what we did, it's always a confusing thing. What exactly are these mergers?

Tarun (47:53):
Yeah. I think mergers is the wrong word. In Japan and Korea, I think they had partially, after World War II, they had a lot more of these centrally-planned industries. And in the process, what you had was this weird coordination between competitors, potential competitors, that oftentimes you would call that antitrust, but in this case it was more about how they shared insurance burdens or they shared other things like that.

Anna (48:22):
It actually made the whole stronger.

Tarun (48:24):
Yeah. They basically would share health insurance costs across multiple. Instead of having to have a government back of the insurance, stuff like that. So it's not the perfect analogy, but they didn't merge. They just scoped certain thing for commingling funds.

Anna (48:45):
Cool. I have a question about somebody who has been brought up a couple times on this episode, Andre. This person who I've never met, have seen on Twitter, started Yearn. But tell me a little bit about what is Andre's role today? I mean, I guess in the past Andre's role was develop cool things, ship them. People got excited. Work with those people. But what does Andre do today in the Yearn project?

Facu (49:12):
Right now? He's a contributor, a really important one, he's a contributor actually. At the beginning it was super interesting, because there was not much coordination. So we were basically a bunch of people that were interacting and trying to do good stuff for Yearn. And one morning you wake up, you pick up the telephone and you see a Medium article on Twitter by Andre, "That's a new product". And you have a lot of people asking about that product that you don't know, you have to promote it. You have to have with a UI, help with the fixes. So what you do is you read about the product, you try to read the code, you ask Andre a few questions and there you go. So Andre is a really good prototyper, a shipper, I could say a shipper, the original doer, but today he's a contributor, an important one, but a contributor.

Anna (50:08):
Would you say, does the Yearn project have a leader? Does it have a group of leaders? You have the multi-sig. And I know maybe even the term is annoying, but is there some sort of Head of Yearn?

Trach (50:19):
There's about a 50 leaders at Yearn. I think of it as a leaderful organization. And our goal is to really allow everyone to lead, but there is no overarching leadership, no executive board, no top-down command and control. And actually we've worked really hard to spread that type of formalized power out and allow for natural leadership to emerge, as much as possible, and to be fluid and change.

Anna (50:44):
Is that a challenge? Does that get challenged? Have you seen attempts?

Trach (50:48):
Oh, yeah.

Anna (50:48):
Okay.

Trach (50:48):
I mean, it's certainly a challenge.This is the most fun stuff in the world, so crazy. You create this unstructured space with all this possibility. And when people come into that environment, it's not like you immediately take on some next level, like enlightened mind of how to work together, you take your previous experience and you projected on this new space. And you're like, "Okay. Well who's my boss?" You're like, "Okay, well here everyone does their own thing and you're supposed to be guided by your own wisdom." You're like, "Okay, great. Well, who do I report to?" It's not that bad, I'm characterizing it. But this is natural for all of us. I see myself doing that. I'm like, "Okay. Am I doing okay?"

Anna (51:31):
Who is gonna give me some credit, when I did it. Yeah.

Trach (51:32):
We all have this. So it's extremely interesting and challenging to create structure and culture and processes that can support this new frontier of organizational design.

Anna (51:46):
It is totally. I mean, that's a super interesting, exciting part of the space, but it always does feel quite experimental. And one question I have now is how big is this group? Because I don't know if you've read about organizational structures, but there does seem to be a cap, at which point very decentralized structure breaks down. And I'm guessing you're under that cap.

Trach (52:08):
Dunbar's number, you're thinking?

Anna (52:09):
Yeah.

Trach (52:09):
No. There's 35 full-time compensated people and then there's another 70 from active contributors. So it's about 100 people and that's pretty fluid, people move in and out in different ways. And also not all of those people are active in the core, the center of the network coordinating functions. Some of them just do a piece of work, drop it off. And then float off.

Anna (52:34):
Interesting though. Do you have hope for it? Do you feel like it's... I mean, you did talk about having to potentially change these tools to be able to maintain it somehow.

Trach (52:45):
It's always evolving. And oh, do I have hope for it? I mean, I am here because I feel like this is the hope of the planet. I don't mean to say that like...

Anna (52:56):
This experiment is important...

Trach (52:56):
Yeah. So I think of the stuff that we're doing in DeFi in particular, I was never interested in finance, I actually don't know much about finance. What I'm interested in is a human coordination and how do we scale our collective organizations organisms so that we can love each other and that we can be free and creative and do the work and solve these incredibly wicked challenges on the planet, so that we can move past resource wars and zero-sum games and win/lose theories. And the DAO, you can try and go fighting in Washington on this stuff and lobbying whatever. But that's like you can't fix a broken tool with a broken tool kind of thing. You need fundamentally new structures of human cognition, of collective intelligence. And that's what we're doing. And the reason why DeFi is a perfect place is because you have the blood flow, you have the money, which is the blood of the collective. And that gives it life.

Tarun (53:48):
It sounds like you're writing your novel by doing those...

Trach (53:53):
You don't know how accurate that is. My novel was this exact type of thing. But then I was like, "You know what? I'm not gonna write the fucking science fiction novel, I'm going to build it!"

Anna (54:00):
You're going to live it!

Tarun (54:01):
To see that novel, you want to be in the world.

Anna (54:04):
Something I want to talk about before we sign off, something that gets talked about a lot right now in our space is MEV and currently reorgs. And I'm really curious, what are you looking at? Does the Yearn project care? How does it care? And can you do anything? Are you trying to build around this? For this? I'm just really curious what a DeFi project like yours, focused on strategies... How you would engage with this problem?

Facu (54:34):
Yeah. That's super technical, the MEV, so I will do my best to say it in simpler terms, but the MEV is something we need to fight with, unfortunately, because MEV is the miner or the maximum extractable value of the chain. So it's like money sitting there, that is waiting to be taken.

Anna (54:58):
And someone will take it. So far, it was a very... You needed a special technical expertise to actually access it. And I'm sure there were some miners doing that, but recently it's been productized. So the idea of accessing that value has been made a lot easier, but what does that mean for you guys?

Tarun (55:16):
It's not just that it's been made easier. It's that you've crowdsourced, Yearn strategists, you've crowdsourced the people to actually find the optimal ordering versus the MEV searchers doing all the work. It's not just like you've commoditized things. You've commoditized it in that you've crowdsourced the MEV, which I think actually is interesting for projects in some ways.

Facu (55:39):
Yeah, it's super interesting. But for us it means we need to protect our users, because that's necessary to have a mature market, because arbitrage and all that kind of stuff, it's happening. You've seen the MEV, that's actually the M-EV, arbitraging between two values or hidden transactions and the sandwich attacks and the uncle-block attacks, those technical terms. And we're actually fighting it, because our Vaults, when they invest and when they swap tokens, when they do any economical activity, they are subject to MEV attacks. So what we implemented yesterday, this week, actually, is stealth transactions. You've seen, what Tarun mentioned, he was referring to using Flashbots. So we are using Flashbots to send stealth transactions, so no one can see them in the mempool before they're executed. So we avoid those sandwich attacks or those kinds of attacks, the MEV attacks.

Anna (56:47):
Got it. And these were the stealth transactions that would go through a trusted execution environment? SGX or something like that?

Tarun (56:54):
They don't right now, right now you trust Flashbots, because they run the only... I mean, they've been under a lot of spam too lately. But in the medium term, they want to move to SGX, in the long run they want to do something else. But I think, let's just say the problems of getting too big, too quick have made it too hard to switch quickly. If that makes sense. Also SGX just sucks for a lot of reasons. I mean, from a developer's, their entire stack is written in Go, but their interface such SGX, it's only C++. There's just a lot of engineering hurdles that I think, unfortunately, are making it hard.

Anna (57:27):
Last thing on this. And I actually haven't dug in very deeply to this, actually at all, this Bandit thing, is this going to have any impact on projects like Yearn? I don't know if I'm saying, what's the name of..?

Trach (57:39):
The Time Bandit.

Tarun (57:40):
It's just forcing a reorg to do a particular, certain orientation. I think, to focus point though, the thing you're going to see more of is just basically protocols doing the MEV for their users. And that's just going to be... The equilibrium isn't going to be... I think certain people have wanted to maybe make their public presences more elevated by trying to talk about this a lot. But I would say that, A) this stuff has been around forever. And B) the protocols and apps capturing the value for their users, there's going to be some weird equilibrium, where it's going to be all the different protocols fighting each other, instead of their users.

Anna (58:18):
Interesting. Cool. I want to say thank you for sharing with us the history of Yearn, going through the DAO, the governance, how this works, how it's changed. Also some of your thoughts on the newer phenomenon happening in the DeFi or general Ethereum space. Yes, I want to say a big thank you to you, Trach and Facu, for coming on the show.

Trach (58:39):
Thanks, guys. It was really fun to be here. Thanks for having us!

Facu (58:41):
Yeah, it was great. Thanks a lot.

Anna (58:43):
One last thing. Trach, Tracheopteryx... Where does that name come from? I should have asked you at the beginning, but now I just can't end without asking. It's an amazing name!

Trach (58:53):
It's a mixture of a human trachea, the organ of song, and the first feathered dinosaur, which is an interesting transition point.

Anna (59:02):
Oh. Is this also going to feature in this future sci-fi novel, maybe?

Trach (59:06):
Maybe it will, maybe. Well, I haven't to this point, but I'm probably offered into that name now.

Anna (59:12):
Very cool. All right. So thanks again to both of you. Thanks to Tarun for coming on to co-host. I want to say thank you to the podcast producer, Andrey, thank you to the podcast editor, Henrik, and to our listeners.

Anna (59:23):
Thanks for listening.