The YFI token is a tool for coordination between Yearn's contributors, community and associated protocols. It was created to decentralize the management and development of yearn products while providing an environment for fast paced innovation.
Responsibilities of YFI token holders, and how the token itself plays into the Yearn is meant to be dynamic. All of its functions can be modified by the community at any time, and there have been multiple instances of this already.
From the week of YFI's emergence, there was extensive discussion around emissions, supply and powers of token holders.
When the YFI token contract was deployed, users of various DeFi protocols were able to obtain it through providing liquidity to specific pools. 30,000 tokens were rewarded proportionally to liquidity providers of Curve Finance yPool, the YFI/DAI Balancer pool and the YFI/yPool LP token Balancer pool. The output tokens of depositing in these pools were staked through a discontinued Yearn interface, and stakers were rewarded in YFI for approximately 7 days, until the supply ran out.
YFI was designed with a minting function built in. Originally, this function was solely controlled by Andre Cronje, but shortly after the token emissions began, that control was handed to a multisig wallet.
Because the intention behind YFI was to completely decentralize control, there were no concrete plans for emissions after the intial 30,000 YFI were distributed. YIP-1 approved a weekly distribution of YFI, but the execution of that proposal required a second decision about how to distribute, which did not come to fruition.
Phasing out YFI staking revenue
Starting with YIP-36, a portion of staking rewards were redirected to the multisig wallet in order to fund operational expenses. When the multisig wallet had a buffer of $500,000, rewards were distributed to token holders.
YIP-56 disbanded the staking system all-together and opted for a buyback system. This directed more capital to Yearn's treasury while benefiting token holders by taking YFI off of the open market. With this, the YFI Governance Vault was retired, and holders were allowed to participate in governance while holding YFI elsewhere.
YFI holders voted to mint 6,666 YFI. 1/3 of the newly minted YFI would be vested to key contributors and 2/3 of the newly minted YFI would go to the treasury to be deployed and controlled by governance.
After YIP-57 passed, all tokens were minted within a single day.
Defined powers in Governance 2.0
Governance 2.0, described in YIP-61, expanded YFI token holder's responsibilities from creating and voting on Yearn Improvement Proposals (YIPs), to creating and voting on Yearn Delegation Proposals (YDPs) and Yearn Signaling Proposals (YSPs).
YSPs allow token holders to formally request that a yTeam executes a decision with th power they are entitled to. This allows token holders to have a voice while avoiding a drawn-out YIP process. yTeams can choose to respect the suggestion or not, and if they don't it can become an issue as a formal YIP.
YDPs are proposals that change where any discrete decision-making power is delegated. This is relevant in Governance 2.0 as it introduces yTeams, who are given an objective, and certain powers that can be modified by token holders.