Keeping Yearn Great - Funds, Incentives & Rewards

[Arcturus]

Keeping Yearn Great - Funds, Incentives & Rewards

Preface:

Some of you may be aware of recent conversations regarding the desire to create adequate incentives for our diligent strategists who have been busy working away to ensure Yearn V2 will be the defacto gold standard yield optimized platform. In fewer words, some conversations have arisen that contributors/strategists do not feel like they are being compensated enough to participate in the expected upside from YFI(there’s a bit more nuance here but this is put simply).

Context:

With the glut of food tokens / stable algo tokens / <insert other “lucrative” idea here> and the delay in the release of v2 vaults as a result of audits, the allure of launching one’s own dApp/platform or joining another protocol with guaranteed pay is ever more enticing. The much-awaited Yearn v2 vaults are undergoing their final round of audits and as such are still in an “experimental” stage with 1.5M maximum limits for TVL(total value locked). This means that strategists(which despite the name have been doing more than just figuring out new yield strategies) have been in stasis not earning what they had expected to and the concern is that they could end up leaving the Yearn ecosystem which is not ideal (for more thoughts on incentivization see aligning incentives via: Guiding Principles).

Problem:

Now before we actually go ahead and begin trying to scramble for solutions let’s first understand the problem and exactly what we need to solve this problem. Currently, it appears that the problem is that Strategists are not earning enough because v2 vaults have not been released and they also don’t feel like they would benefit from YFI appreciation since some do not have any. The Yearn Treasury does not have a token war chest like some other projects do because there was no “pre-mine” or dev reserve %, remember the fair launch?

You may ask ok well what does the fee structure look like? Glad you asked.

• In v1 vaults this was 0.5% withdrawal with 5% fees on yield with 10% of that going to strategists and 90% to the Treasury. Reminder when we launched the vaults our Treasury was filled to 500k within a few days.
• Now for v2 vaults based on YIPs 51, 52 and 54 the fee structure is 2% mgmt, and 20% performance with 50% of that going to Strategists and the other 50% to the Treasury. (Thanks @Juanma see more at: FAQ - fee structure)

It may not be entirely unrealistic to expect v2 vaults to do similarly well, if not better. If the issue is strategists wish to earn more, the data-driven approach should be to see how they perform first. We could always vote to increase the strategists’ share (from the current 50% for v2 to something higher) at the expense of the treasury’s share provided that it makes sense. Additionally, this share can be paid out in YFI. If you need some context as to how much is earned in weekly fees please see Figure 1 in Proposal: Buy Back and Build. At $100k a week in fees taking the lower bound this would be $50k in fees to strategists at current fee structures. If we expect fees to increase due to increased usage then this number should go up.

If the issue is they do not want to wait any longer for the final audit to be completed and want the potential upside now, then we can risk Yearn’s methodical reputation for safety remove the caps prematurely to allow strategists to begin earning. If we do not want to risk it then we can incentivize in other ways provided that remuneration makes sense. Now, these are the questions that would make sense following from that.

Open Questions:

Knowing that we want to incentivize contributors with upside to Yearn.

• How many active/key contributors do we have?
• What is the # of YFI needed (this determines our avenues) for these key contributors (We currently have 21 YFI in Treasury)?
• How soon is this needed to prevent attrition?

Solutions

i.e. ways to get these YFI for proper incentivization in parallel to monitoring & adjusting fee structures

A few ideas have been proposed recently in order to provide more funds to the Treasury and build that YFI war chest(and by extension the possibility to incentivize contributors - including strategists):

• Proposal: Buy Back and Build aka BABY - (Use YFI staking rewards to buy back YFI on the open market. backtested by Banteg would have provided 90 YFI) - Strongly Support - buying YFI and building instead of distributing dividends. Personal Opinion Staking and Governance should be used for the below V
• Deploying unused capital from staked YFI in governance(LP’ing in Bancor or using Maker debt strategies for seeking additional yield from unused capital which is used for more BABY) see: Making Yearn Great Again - Strongly Support
• Community match donation 10-20 YFI for Dev pool from me - Strongly Support more on this below
  • Steps: If you want to donate, send your YFI to the YFI Treasury address which is ychad.eth (put that address as the recipient, confirm on etherscan if you want to be sure)
  • Donation tracking dashboard: YEARN Heroes: Contributors Donations (thanks @miguel567) - Note: this doesn’t track Andre’s yGift only Treasury donations
  • Thoughts from Eric meltzer
    • “if it’s not a huge amount of work to create or repurpose a threshold contract where people’s donations are only finalized once a threshold is hit, my outsider view is that such an event would be ludicrously bullish because it indicates that the community was able to work its way out of a truly hard coordination problem via sheer voluntary force of will”
• @sambacha’s idea for a debt instrument via YFI holders loaning against future strategy cash flow Depending on implementation may agree
• Auctioning v1 vaults @monet-supply Depending on implementation may agree
• Controversial: Minting more tokens - Strongly disagree
  • Against:
    • Memes are real. The social contract would be broken. The initial 30,000 genesis would be forever tainted. Narratives are powerful. We have alternatives. It’s the “easy choice” and doesn’t demand creativity or engender anti-fragility. Why build better incentives or strengthen community? Just print.
    • As an aside @Wot_is_Going_On mentioned “I think we should always be mindful of YFI being classified as a US security. It would be worthwhile to get a legal opinion on how minting tokens could be viewed if we haven’t already. Minting tokens could look like issuing shares.”

I’d rather not go into the controversial rabbit hole of minting more YFI in this post as this is getting long enough but suffice to say I’d like to see how v2 fees look and explore our other options before rushing into minting more tokens for Treasury. We may be able to fund it and keep everyone happy while also keeping 30k supply. As @sambacha said At the end of day branding and culture can’t be forked - YFI is part of that, and its a defensive moat can’t be recaptured once it’s tarnished.

Additionally much as I want to believe in the genuine goodwill of our large holders I also do not discount the possibility of manipulation wherein YFI can be shorted contingent on this decision, let alone adversarial lone wolf actors influencing the court of public opinion. My fear is that without long term locked tokens for voting which ensure skin-in-the-game, it is unknown if current actions are with Yearn’s best long term interests in mind. I’ve highlighted some of those concerns here: Making Yearn Great Again I would only support minting if locked tokens voted for this for obvious reasons.

Community Matching

Community is touted as what sets Yearn apart from other projects, let’s make sure that isn’t just a meme. As Andre led in the fair launch initiative trusting in the community to be adequate stewards of the platform we should pay this forward and demand better from our community. VCs who continuously praise fair launch values, is it for virtue-signaling purposes, or will you back those words up? I remember well reports of handsome profits being enjoyed by many of our large holders, many bragging however humbly about seeing the value of YFI early. Will you trim some of those profits and give them back to the community which gave you such riches? Where is your noblesse oblige for those building the very same platform you benefitted from or is this solely a rent extracting endeavor?

As I’ve always been a fan of practicing what I preach, I will be donating 3% (equivalent to what would be minted in many proposed ideas) of my YFI holdings back to the Treasury. If our 30,000 YFI holders also did so that would be 3% in our dev fund. I do not think or expect everyone to do this but those who I do, you know who you are.

Et tu?

If Andre’s fair launch can be considered the stage 1 rocket, then let’s be the stage 2 fair booster to bring us into orbit. Plus there can always be an NFT (like POAP) for Proof of Stage 2 Fair Boost for entry into the citadel and/or Tokyo right for those who donated right?

The fair launch did not end with Andre, it has just begun.

Yours Truly,
Arcturus

[IndridCold]

100% agree with this approach and your points. You broke it down just as I’ve wanted to.

The near term buyback and community match which generally have broad support should be sufficient to fund devs and give them some skin in the game in the near term, which I really want to happen. If we didn’t have these options, I’d be much more open to minting. But if we have an aggregate of millions dollars worth of YFI that can be distributed without inflation, then that should be done before any conversation around inflation, which has much bigger social and second order effects than perhaps some are realizing (including the large VC holders)

Minting proposals can perhaps be taken more seriously after V2. Many people have shown open concerns around Vault strategies not performing as well or rolling out with as much focus lately (Hasu mentioned this many times and many share his sentiment). I know things are being done around this and much of the focus has been on expanding the ecosystem, but it has made some people question the current utility. I’d want to solidify market position and roadmap before any inflation is considered, especially as Alpha Finance and new competition will obviously emerge. The fair launch / token economics are actually one of the key differentiators right now compared to highly dilutive VC-backed projects like Alpha who are already doing well on product and value capture.

I assume any plausible mint strategy would need to come with a key burn and vest period as well. But if we embark on that journey, get ready for a lot of scrutiny around “Why weren’t keys already burned” and criticisms of decentralization theater. I’m not someone who thinks it would fundamentally impact price in the near term, so it’s not even about that. It’s more about trust and sentiment. Trust is everything in DeFi, so I do believe the slippery slope argument has merit. But I do see the other side of the argument as well. I just think this should be a phased approach and we should implement the first programs now and gauge output and results.

The question I’d pose is, How much skin in the game do the Devs need to feel satisfied? This is a tough question. How many hours have they put into Dev (I know it’s a lot!) Can we somehow quantify this instead of coming up with numbers like 1000 new tokens? Why 1,000? Why not 500 or hell, 2,000? It should be quantified by output and expectations, not by just saying “1,000 is 3%, which is low like BTC!” This also helps define a potential vest period and other things. We need to quantify and answer this question fairly if we’re going to move the minting conversation along.

You also have my 3% for the donation/match.

[defispartan]

This post summarizes my thoughts exactly.

You have my 3%!

[cciebryan]

How do we contribute the 3% for Dev funds.? Or do we need a proposal. I like this idea. Will show who’s here for long term YFI .

[0xyfi]

I love it but but whale Vance refrigerant thinks he’s too big and won’t give again he wants socialized losses but private gains

[Arcturus]

@cciebryan

How do we contribute the 3% for Dev funds.? Or do we need a proposal. I like this idea. Will show who’s here for long term YFI .

Figuring out the logistics as we speak so that @onlylarping’s match in 10-20 YFI for Dev pool from me applies.

Update: Send your donation to ychad.eth as the recipient (you can double check that the recipient ychad.eth is the governance address in etherscan if you want to be sure). That’s all you need to do if you wish to donate back to the Treasury, it will be matched.

@0xyfi

I love it but but whale Vance refrigerant thinks he’s too big and won’t give again he wants socialized losses but private gains

I would propose that if the whales do not donate and they mint anyway that all donations are returned, would seem fair to me.

[iTo]

What happens to the idea of bonds or options?
Long term YFI deposits backed by BABY?

[cryptouf]

Nice work here. Hope people will take times to read it carefully !

[dripdrop]

Or x% of new wYFI minted goes to treasury? Leave YFI capped, but have some small frictional inflation for wyfi

But to the main point, community matching is the best and purest form of support. Similar to the early v2 vaults maybe participants can get early access to test products (and thereby add value as beta testers) or an actual holder-contributor chat room (we have a new test chat app on v2 website right?). That way we can add product testing value and quality community discussion value too.

[Dankmonty]

At the end of the day, the devs are going to do what they think is best regardless of community opinion, just like v2 fee structure. So just let us know. No need for all this drama

[Arcturus]

No drama, just outlining options. This will soon all be put up to votes so I’m doing my best in informing my fellow Yearners as to what has been transpiring so that they can make the best decision with the information available. The not burning the keys was signaling but it never was officially passed. In any case I highly recommend reading the above links to all my fellow Yearners to understand how all of us have been and will continue contributing to our ever growing ecosystem.

[miguel567]

DONATIONS TRACKER: YEARN Heroes: Contributors Donations

YEARN HEROES!

[Rockmanr]

This is the most convincing argument to abstain on minting. A comprehensive and valuable post as always. Thanks @Arcturus

I’ve donated my 6% to Andre’s yGift. https://ygift.to/gift/45

[criptodee]

The amount said about this topic has exploded in the last couple of days. This is great, but I feel there are still some core contradictions and inconsistencies (below) that are unaddressed.

As someone with limited bandwidth, it’s difficult to follow every single discussion about these matters. It’s possible these are already addressed somewhere, but I imagine there are quite a few community members who love yearn but have limited understanding due to time constraints and would like the answers to these questions as well. Any strong relationship is built on good communication, typically over-communication. The relationship between the team and community would be even stronger if these contradictions are addressed in a more deliberate way, perhaps in a consolidated proposal the team comes up with.

FWIW even if these questions aren’t answered, I’ll still be voting in favor of any proposal the team unanimously supports.

1. @tracheopteryx’s clarification that there was never a binding vote to burn the YFI minting keys is very helpful. However, the spirit of the contention about the 30k cap is that it was something that Andre himself pushed quite strongly. It looks like Andre had a change of heart about burning the minting keys, and it would help to set the record straight if he makes a statement about this himself rather than communicate via @banteg.

2. The devs have indicated that they don’t feel like they are being compensated enough. This is a topic the community cares deeply about and wants to solve. The last time the community responded in a concerted way to address similar developer unhappiness was via gitcoin funding, but then the money was given back which is a bit of a mixed message. Was that because the amount was too small? Do the devs have some amount in mind?

3. It feels like many of the issues brought up in YIP-56: Buyback and Build were supposed to be addressed by YIP-54: Formalize Operations Funding, after the v2 fees kick in. Is there some reason we didn’t wait for v2 to be launched before introducing YIP-56? Is there some underlying issue that was unaddressed by YIP-54 that will show up again even after YIP-56?

[tracheopteryx]

Thanks for this summary @Arcturus, I disagree with you on some points but very much respect your wisdom.

And hey @criptodee really thoughtful and helpful post as always, thanks for asking this stuff.

I can speak for myself and give you my perspective and ideas around this. Stick a bunch of IMHOs in everything I write below pls.

@criptodee

@tracheopteryx’s clarification that there was never a binding vote to burn the YFI minting keys is very helpful. However, the spirit of the contention about the 30k cap is that it was something that Andre himself pushed quite strongly. It looks like Andre had a change of heart about burning the minting keys, and it would help to set the record straight if he makes a statement about this himself rather than communicate via @banteg.

I wouldn’t say “pushed quite strongly” at all, though I can see how it might seem that way. As I recall at the time we were getting psyched about on-chain governance, and the idea to use it to burn the keys came up and it was exciting. Andre frontran us as usual and put out that poll, but it really was exploratory. Think about it, burning the keys is one of the most significant decisions we could make as a DAO—it wouldn’t happen with one briefly worded forum post. That was a post to gauge sentiment, the way we always do.

I was really psyched on it, then I let my mind be changed by the community! There was a really good discussion, I learned a lot, thought about it more, and changed my mind.

Re Andre’s change of heart, if you look at the tweet @banteg is replying to on that thread I assume he means Andre’s recent medium post Building in defi sucks (part 2) where he talks about the lesson he learned from giving away all the YFI.

@criptodee

The devs have indicated that they don’t feel like they are being compensated enough. This is a topic the community cares deeply about and wants to solve. The last time the community responded in a concerted way to address similar developer unhappiness was via gitcoin funding, but then the money was given back which is a bit of a mixed message. Was that because the amount was too small? Do the devs have some amount in mind?

I can’t speak for Andre on this. I trust his own unique principles and integrity around money. He will accept funding when he decides it’s the right time, or he won’t. For myself, I can say we are clearly not being compensated enough. I didn’t come here for money. I came here like most of you, because yearn is fucking awesome and I just wanted to be a part of it. There is nowhere else I want to be, nothing else I want to do. That being said, I made 10x my current compensation in my last position, and I could probably improve that if I wanted to. I have started a number of companies, I could start my own new defi thing and have a good shot at melting the shit out of my face. And this is true for basically every single person on our team.

We should not ask our contributors to sacrifice their financial future to work at yearn. We are better than that. And also some people do not have the luxury of working for 10% of their market value. Can you blame them if they go elsewhere in this climate?

Good opportunity to clarify something, often you’ll see yearn people write “devs” when they talk about this—that does not mean just software developers. It is short for anyone deeply engaged, actively contributing, adding real value, and developing yearn—designers, writers, comms, ops, etc.

Luckily there are extremely smart and experienced people in the yearn network who care deeply about this and are running numbers on what compensation should look like. It’s long overdue honestly. Most of the team, if you ask them, will not ask for more money. It’s deeply touching to me, and speaks to their character. But it also indicates a culture of humble olympics that I’d like to see us outgrow. It is ok to know what you are worth and go after that, there is nothing wrong with wanting money. It’s pretty useful stuff to have. But for now, we’ll do better by relying on the uber-pros in our network like Santiago, Vance, and Eli to draft up numbers. Our team deserves it. And from what I can see, the overwhelming majority of the community wants this.

@criptodee

It feels like many of the issues brought up in YIP-56: Buyback and Build were supposed to be addressed by YIP-54: Formalize Operations Funding, after the v2 fees kick in. Is there some reason we didn’t wait for v2 to be launched before introducing YIP-56? Is there some underlying issue that was unaddressed by YIP-54 that will show up again even after YIP-56?

As a coauthor on BABY (YIP-56) I can speak clearly to this.

The most important thing to know, is that we are all reacting and adapting in real-time. There is no master plan we mete out in drips. We are riding this tiger and doing the best we can. No one is in control. This is not like a traditional company where the executive team has grand private strategies they orchestrate over time. Yes, we each have our own visions for the future and things we’d like to do; we discuss things openly and in private (like anyone else)—but how things develop is super emergent. I think that’s a strength. I would also like to do some more common vision finding and am working on a project to collect that now—in a format authentic for networks. But that’s a tangent.

I’d been questioning the value of the current dividends program (staking rewards) ever since I read @RyanWatkins 's Proposal: Rethinking Capital Allocation. At first I didn’t like it—I made good income from dividends, it supplemented my low salary. But then I started to see the wisdom. I work on the ops team, we facilitate budgeting and grants among other things. For an entity with a billion dollar market cap, we operate on a shoestring budget. Read our quarterly report to see for yourself. That just didn’t make sense to me. Why couldn’t a system earning millions of dollars a year in fees properly compensate a team of only a dozen people? What could we do if we had a proper budget??

I realized we had made a mistake and we needed more money. Yearn needed all the revenue to invest in our team and growth. I reached out to Ryan about reviving his proposal, he was up for it, others on the team started to agree, and we made this new proposal.

I also coauthored YIP-54 and am very happy with the YIP trilogy (51, 52, and 54) that was a part of which did a ton to update our financials. Could vaults v2 provide enough revenue to provide for the team and do dividends? Maybe. But when? And more importantly, why? Maybe it would be enough for us to get by, but why just get by when we can eat the world? Dividends don’t make sense no matter how you slice it. Especially since opportunities for earning ROI on YFI outperform dividends elsewhere and we already have the code to enable voting from productive locations. What’s the point?

There was discussion about waiting to do BABY after we see v2 revenue, but why wait really when there is no point to dividends until we grow a lot. And if others disagree they can vote against BABY. Also we started realizing how dire our compensation gap was and how much waiting longer than expected for v2 vaults to be ready was costing us. Btw, it’s 100% the right call to get those right and wait until they are right and no fault of anyone’s—these things take time and I’m so so glad we have a culture that allows for things to take the time they need.

Is there an underlying issue that could come up again if BABY passes? Yes. And this has become more apparent just recently. @vsh_p2p framed it super clearly in a recent convo, it’s the difference between paying contributors just enough to get by, or giving them enough so that they are exposed to a decent amount of upside. (Apologies if I have misinterpreted you Vasiliy!) The issue is face melt, and specifically there not being enough of it with BABY.

We hadn’t even considered the possibility of minting when we published BABY, but then Andre wrote his medium which got people frantic as per usual and a random dude I didn’t know (the lovely @yfi_lit) posted this out of the blue [Proposal] Developer Incentives and all of a sudden minting was a possibility again. Just have to take a moment to appreciate how cool decentralized governance is, ideas literally coming from between minds, wisdom beyond any one of us… Gives me literal chills. But anyway, this changed the game.

I have come far around on this point and now am clearly in favor of minting. You can read more about my thinking here. It opens a whole new range of possibilities for yearn. This is a controversial topic being discussed at length. I trust the community to decide. We’re working on a new proposal backed by data and hard work and will present it when ready. At first I worried it would be at cross purposes with BABY, but now I see them working together quite well. More on this soon.

Sorry for the novel!!

[Matternhorn]

Can YFI holders collectively take out a loan (some kind of mezz or preferred share class) structure. We can essentially a mint a preferred class that is sold in the open market (pYFI or mYFI) to raise funds for strategists. The proceeds of the debt/preferred offering can be used to pay strategists. All income for YFI holders (excluding the money that goes to strategists) goes to paying off the debt/preferred share until it’s completely paid off. That seems way better than some of these alternatives, although I also very much like the idea of auctioning v1 vaults.

Otherwise, I’m actually okay with minting more. My mind has been changed and I trust the devs.

[criptodee]

Hey @tracheopteryx, thanks for your thoughtful and detailed response.

It’s incredible what the yearn team and community has built here. It’s an honor to be a part of this experiment in decentralized governance.

Since there seem to be good intentions all round, I think a quick fix for the inconsistencies I mentioned earlier is simply to communicate a little more deliberately.

In my normie life, I manage the managers of various developer and design teams. I’ve learned through my many mistakes that to keep a group of people aligned as the group gets bigger, the leaders and members of the group need to foster a culture of over-communication. Cultivating a habit of providing more context and nuance than what seems to be required starts off feeling unnatural, and so needs to be a deliberate effort. I expect this to be even more important when governance is decentralized since there is no “keeper of the truth”.

Here are a couple of specific examples of what I mean:

@tracheopteryx

We should not ask our contributors to sacrifice their financial future to work at yearn. We are better than that.

This is spot on, however there is some missing nuance in how this gets perceived. The community clearly supports incentivizing contributors well, but some past contributor compensation decisions could have been more transparent.

Take the bluekirby incident. I’ve seen several community members wonder why he/she was paid for being “just” a marketer and how the subsequent involvement in the Eminence and Off Blue episodes were a stain on yearn.

Although I myself don’t know if bluekirby just left or was fired, I personally have no problem with what happened. A good marketer is worth their weight in gold and hiring and firing calls are always messy. But I can also understand how community members, when not given enough context, feel that these compensation decisions were arbitrary and unfair.

I’ve made my share of unfortunate hiring calls. But I’ve found the best path forward is to provide context to the team about what happened. If a mistake was made, so be it. But the sharing and discussion around the incident builds trust and alignment around future hiring and compensation decisions.

@tracheopteryx

As a coauthor on BABY (YIP-56) I can speak clearly to this. The most important thing to know, is that we are all reacting and adapting in real-time. There is no master plan we mete out in drips. We are riding this tiger and doing the best we can. No one is in control.

…

And if others disagree they can vote against BABY.

I feel like all the additional context you provided in your response to my question about YIP-56 is more valuable and important than you think it is.

Most of us voters here, and in all governance systems really, have to make decisions about proposals with much less information than is needed to make the best call. Someone may disagree and vote against BABY only because they didn’t have the nuance and context you provided here. Context which might change their vote, or at least elevate the quality of discussion about the proposal. It would be great if this amount of context could be provided for more proposals, maybe as an optional auxiliary section.

Anyway, my only goal here is to make the case for more deliberate communication by the team to Keep Yearn Great. I’d like to see this grand experiment in decentralized governance succeed, and not fail for the wrong reasons.

[dripdrop]

We need more novels.

As an early user and participant, I myself went through many of the same change of opinions. Values change because Yearn’s value has changed. To those just joining the discussion, it’s important to see how all the YIPs and proposals interconnect and build upon each other.

I admit I was initially against minting, since it was an opinion I formed way back during the genesis month and first YIPs last year. But I realized I formed my opinion in a vacuum before our vaults launched and dev team was assembled.

The addition of BABY (as a deflationary balancing force) allows for an interesting new monetary policy which may allow us to launch a rocketfuel warchest now and repay it later, to be our own bank, treasury and yfederal reserve. (My thoughts were only half formed a few days ago: **[Proposal]** Net Zero Mint (3k YFI yBond) which I shared not as a final solution, but to document and share my own initial thought process as it changed from an anti-minter to a pro-mint with baby backend economy, as I tried to reconcile conflicting viewpoints)

Thank you everyone for some of the best discussions—I hope even more people will share their considered opinions and, more importantly, give them room to breathe and evolve. To me, “v2” is not just v2 vaults, but also v2 yecosystem integration, and hopefully v2 money policy and v2 gov community—the latter two may even outlast or v2 product as it funds v3+++v26

Edit: Also, spreadsheets. We all need more models to evaluate the economics together

[aleks-blockchaincap]

Thanks to @tracheopteryx for the excellent summary of the issue and main options discussed so far. I’m posting on behalf of Blockchain Capital here and wanted to share how we’re thinking about the issue.

To offer some quick context, if we we’re structuring the cap table of a company we were investing in, it would look very different from YFI’s current distribution for many of the reasons highlighted in Andre’s post. It’s clear that contributors to Yearn need to be fully aligned with investors/holders of YFI. Our thesis for Yearn centers around the ability to adequately incentivize the best builders and strategy writers to contribute rather than compete, so in our view this is an existential question and it’s critical that the solution thoroughly addresses core team concerns and also puts Yearn in a competitive position from a hiring and growth perspective.

The main arguments against minting seem to be that 1) it breaks the 30k meme (which drew BTC comparisons in early days) and 2) it undermines the governance process.

While these arguments are certainly worth consideration, if Yearn can’t retain talent and invest in growth, no meme is going to save it long-term. The meme may have been helpful in getting early people interested, but it’s not the reason contributors stay. As for the governance process, it’s more important that the governance mechanism improves over time than it is to honor an exploratory signaling vote (which was not formally ratified on-chain) from a time when we had a less complete collective understanding of Yearn. The most bullish outcome for governance here is arriving at a solution to the existential problems of talent retention and growth.

In our view, the most important questions to focus on are:

1. Do we need to mint YFI?
2. If yes, how should we go about it?

1. Do we need to mint more YFI?

This is a question about long-term alignment between contributors and holders as well as opportunity cost for contributors.

To address it qualitatively first, we can rephrase the question: Does the YFI community want the most critical piece of the Yearn ecosystem, its core contributors, to be employees or owners? As venture capitalists, we think it’s important for investors and the core team to have aligned incentives and we typically don’t get comfortable backing teams unless they have sufficient exposure and thus motivation to stick with the project long-term. This model has a lot of precedent and it is recognized as best practices to make sure that the core team has sufficient upside. We can safely conclude that the core team needs to be exposed to YFI somehow, but how much YFI? And can it be funded through Yearn fees?

How much comes down to the market for talent and the opportunity cost for YFI contributors. We looked at other successful DeFi projects to see what the market says top-tier talent is worth:

The UNI team has 21.3% of tokens (which includes tokens for future employees) and UNI holders collectively control a treasury with 43% of the supply. At current market prices of $9.2 (which reflects a fully diluted valuation of $9.2B), each bucket has several billion dollars worth of UNI – team ~$2B and treasury ~$4B – giving the Uniswap team significant fire power for hiring and enabling a lot of future growth spend from the treasury (both buckets are subject to 4-year vesting).

The COMP team has 26% of tokens and a smaller but still significant treasury with 7.8%. At the current market price of $226 per COMP, the team allocation is ~$580M and treasury ~$176M.

You can quickly see that a treasury of $500K and a team allocation of 0% is way off market. The reality is that for Yearn to allocate even 5% (which would be well below the examples above), at current market prices (~$37K) Yearn would need to either earn $56M or mint $56M worth of YFI. Given that a conservative figure is presently an order of magnitude higher than annualized YFI holder income, the only reasonable way to bridge the gap in the near-term is through a mint.

To those arguing that V2 fees may achieve a level of income that could be in the range we’re discussing here – that will take an unclear amount of time to determine, and kicking the can down the road on this issue is extremely risky, as core contributors have noted that they’ve already lost talent to competitors. Other protocols don’t have to wait to see if fees are big enough in a year to pay their teams – to the contrary, most aren’t focused on fees today and are instead focused on growth and capturing market share so that fees in 10 years from now are maximized. That is the mentality we want to encourage here.

2. Assuming we mint, how much should be minted and how should it be done mechanically?

This is a bit harder of a question to answer, as there will likely be a variety of opinions and limited historical data to say what works best. I’ll briefly summarize our initial view but would note that ultimately it’s important to build consensus with other community members, and we would be supportive of a number of different flavors here as long as they directionally accomplish the goals outlined above.

High level thoughts:

• Mint of somewhere between 5-15% of total supply is reasonable and puts YFI in an incentive-aligned and competitive position when viewed in the context of the talent market. If we don’t burn the minting key, this can be on the smaller end since there will be corrective power down the line. If the minting key is burned, it’s even more important that the amount of dilution is methodically chosen. A good middle ground might be putting the minting keys behind a high quorum wall (as Aave does) – this would make it harder to mint but also retain the capability in case we learn something new in 5 years that changes everyone’s mind.
• We are initially in favor of capitalizing both the team and the treasury, as we think both are important and additive to Yearn. Thus we’re supportive of using some reasonable mint to capitalize the treasury, and doing so in tandem with a well-defined process including controls around how part of the treasury can be used to compensate contributors for past work and incentivize them + new hires for future work.
• Vesting for minted tokens. There is a good argument that some amount should be initially unlocked, as the team has accomplished amazing things in bringing Yearn to what it is today and should get credit for that. But most of the mint should be earned over time – 4 years is standard and will likely have the strongest argument from an optical perspective.

There are many more questions and angles to look at this from, so would love to see the forum discussion narrow in on mechanics of a potential mint as this will ultimately best inform an eventual on-chain vote.

[0xyfi]

Comparing to those vc protocols is a false equivalence. I’m all for Mint if it’s vested to gains. Devs need to say what they want otherwise it’s a lot of mental masturbation and time wasting. Specific to Andre and banteg milk.