Call for Ideas: YFI Tokenomics Revamp

With the renewed interest in YFI tokenomics in recent days and the v3 protocol development still being in the phase when it’s malleable enough, it might be a good time to properly tie the two together.

Everything is on the table, be it token split, liquidity mining, tail emission, veCRV-style lockups.

If you started YFI right now, how would you structure it?

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sweet. i strongly support a token split for reasons detailed here.

but for many of the same reasons, i’d also advocate going further, and at the same time if possible & practical.

the market for mindshare and talent is extremely competitive and due to get evermoreso. the magic of defi is incentives. imo ideally yearn would actively incentivize community contributions/development, political participation and (strategically) vault deposits with additional yfi minting.

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Personally, I am a big fan of the veCRV Model (including weekly distributions): You have to commit long-term to have decent voting power, which increases participation and allows to pass proposals that could create short-term pain but ultimately create long-term gain. Regular distributions vs. buybacks increase visibility of cash flows and allow YFI to become a high-dividend play such as some consumer stocks. (Technically buybacks achieve the same while having a tax advantage, but at least I don’t have to deal with selling YFI to create the cashflow myself → Bias, but still prefer dividend over buyback, especially since there is no need to sell in a downturn to create my cashflow).

Not much reason to bring back liquidity mining: In my opinion only useful to bootstrap initial participation, but YFI is already big (Might make sense for any new products from YFI though)

For Token split, apart from getting rid of Unit Bias not much upside in my opinion (but also no downside).

So to answer the question:
I would structure YFI just like CRV (without rewards, though those could be implemented for new products) + split token; 1YFI becomes 1000 split YFI (there is no downside to a split so why not)

Best regards,

Komodor

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I also support a token split. Maybe 1:10 000 which would make each token worth about $3.

Additionally, I would like to see some portion of revenue share with token holders. Perhaps 20% of Yearn’s fee revenue gets directed to buying back YFI and distributing it to stakers. This could tie in with veCRV style tokenomics with stakers receiving a dividend scaled in proportion to their lock time.

With Yearn being one of the most revenue generative protocols in DeFi, I wonder if some tokenholder revenue share is now feasible, while still providing the protocol with adequate funds to operate and grow.

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In reference to fee sharing, I think it would be smart to consider what the tradeoff might be. I like veYFI as an idea because we can build a gauge system to create some sort of positive sum cycle in the tokenomics, instead of just giving away dividends for free.

One example would be for v3’s design, letting veYFI decide the strategy allocations the way currently is being set manually by the management role in the vault. If that were combined with some sort of backstop mechanism, it’s sort of a “Holy Trinity” of incentives: earn fees by properly balancing reward (historical yield rates) vs. risk (potential for loss) continuously (rebalancing every week). Contributors can provide the data necessary to make these decisions, leaving the repetitive and exhausting work of continual re-balancing in the communities’ hands

The backstop mechanism could also be a little more interesting than Aave-style liquidations. Since veYFI would have variable weight from staking over time, we can leverage the “locked” YFI (as it would otherwise be inaccessible) as collateral to take out a loan and repay potential losses and shortfalls, repaying the loan with protocol fees (which we saw be very successful in the February yDAI hack). There would be a saturation point to the available funds for this kind of backstop (40% of TLV, planning ahead for unlock time), and this would provide some natural incentive to consider allocations seriously, but also take some consumerate level of risk as the backstop exists in case the mark is missed somehow on risk management.

TL;DR Lets have some fun with it!

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Give more utility to YFI.

For example, stake YFI in a vault to get the vault fees waived.

If the general idea is approved, of course, then details can be polished out, e.g. does only the 2% get waived or also part of the performance fee? How does the discount scale with amount of YFI waived? Etc.

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I think the Yearn protocol generates meaningful value to users (depositors), strategists are rewarded for their work, and the protocol makes money. But it is unclear how the value generated from the protocol is captured by YFI tokenholders. For this reason, I think YFI has arguably been underperforming. There is little financial reason to buy the token, outside of pure speculation. If you create a mechanism where the fundamental value can be increased it should be reflected in token price.Treasury does buybacks, but that doesn’t seem enough to trickle down to YFI holders.

I think a fee distribution mechanism either through xYFI or resuming staking rewards, helps put fundamental value on the YFI token and aligns it to capture value generated from the protocol.

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So far there have been several ways of getting utility out of YFI (i.e. not focused on Price Appreciation). This article has a good list of uses for YFI.
I would add a couple more recent ones: collateral for Abracadabra.money ==>MIM through the Yearn YFI vault and it also allowed to be a whitelist participant in some new launches at the discretion of those protocols (e.g. Float Protocol).

Whatever change is made, the focus should be on not losing the current composability (i.e. use as collateral).
Also, there should be a way to start sending some of the cashflow (~9M in Q2 2021) to the YFI holders in any of their forms (i.e YFI as collateral, as LP, in Yearn Vaults, etc.). Not sure if that is technically possible (i.e. if you are in an LP), so this may not be feasible.
However, if that cashflow can be reinvested for higher growth, it should be considered too.

I personally like some commitment to cash distributions as it forces some discipline and it allows for a little more stable DeFI environment by having organic cashflows in your portfolio.

The veCRV model although is a solid idea is very cumbersome and limiting, as well as expensive for the staker. I would stay away from something like that, or implement it in a different way (stake for a defined period without decay over that period).

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Not really a to do the point answer, but tokenomics have both their material value and their symbolic one. The material is related to the revenue the tokens would bring, while the symbolic one also translates to capital. I think unit bias plays a big role, so a token split would be likely to have positive effects on the material value.

Price comes down to the interaction between supply and demand of token liquidity.
Tokenomics are based in the social constructs that the market participants have related to the token.

As to the symbolic value, I think that having a manifesto of sorts can help inspire and direct new community members. I dont have specific points for a manifesto, but I think that a methodology for a decentralised way of achieving that is by exactly actions like the one that banteg did - catalyzed community contributions so that they can be included into something which people can work their way up on agreeing.

Some of the ideological values of the manifesto are present in the decentralised nature of the space, but the manifesto itself can help bring an agenda to the table. That can too change along, but it’s more to start with and can give a general direction.

I remember when I was growing up that I would read the declaration of human rights for a MUN - and I thought that those are the kinds of standards that should exist, as I grew older I received a reality check as information became more available to me.

I personally think tokens could be used for way much more than just voting on how money is moved on chain - like giving small amounts of at the very least it could be used to run profitable businesses offchain.

And I also think that no one really knows what the heck they re on this planet for but I’m sure many would agree that helping others experience the cool life that many of us have is worthy of effort. Most say that it’s not their job, others, or the govt should do it, as they’re busy pursuing other stuff, like finding their own happiness.

So what is it? Communism token? Socialism token? Capitalism token? Make money at all costs to whatever resource in existence token? Happiness token? Nihilistic token? Delegate credit from YFI holdings to celebrities that YFI holders think are cool and would bring value? I don’t know.

I dont know how to do successful tokenomics, i would love to know what that would mean for people though - is that making the current holders the most money? For how long? Is that making the most people the most money? First holders the most? Is it changing the world currency into YFI? Turning into an overleveraging king to eat up the financial world? How about acting as a catalyst? Turning it into something stories are written about for millenia after us? What if we could deliver a little bit of YFI in the hands of every person born? How? I dont know, many ways, but my life not long.

Why do we have token besides paying bills and capturing value and somehow time in these magic hash bottles?

YFI could be used for funding vetted political candidates on platforms that include purchasing stablecoins for the municipiality, antibody research, or neural implants to get ourselves out of harm’s way sooner.
The best kind of tokens are those that change lives - and this changed mine about a year ago by getting me jumpstarted back into crypto. Now, the world is of course different forever cause of YFI and what it achieved so far - this timeline, in that regard, is pretty cool! How would I redesign the tokenomics of YFI before launch?

I would go out on discords and ask people what their short medium and end goals in life are, and then I would change the purpose of my tokenomics accordingly, based on how my priors got affected by the conversations I went through. Then, we’d write a decentralised manifesto and tie the currency to the values written in there. The infrastructure for communication and debating would be kind of relevant, so I would spend some time thinking about it, using logical dialogue schemes.

Yield farming on EVM chains would be a big part of YFI, but for long term consumer adoption it would probably be fitting to have values that new entrants can relate to and others can write about - i’d invest in “lore”, like the church and the nation states did.

TLDR: split token for unit bias, start the process of making a manifesto and tie tokenomics to it too

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veCRV model works well as a fee redistribution mechanism. I think you could tie in iron bank to allow veYFI lockers to retain some sort of liquidity retention as well. I’d also be in favor of offering reduced management fees and control over vault token votes. Altogether, something like this would be cool -

  1. Users lock Yearn for veYFI (1-4 year lock, standard ve multiple)

  2. Yearn redistributes 50%? of protocol fees to veYFI holders. The distribution mechanism is up for debate, but I personally think buyback-based distribution mechanisms work well. So protocol fees would be used to repurchase YFI which would then be distributed to veYFI holders.

  3. veYFI can be used as collateral in iron bank. Handling liquidations here would be a bit odd due to the lock but it’s probably doable.

  4. veYFI gives you a discount on vault management fees (up to 100% based on veYFI amount).

  5. veYFI can be staked in a gauge to allocate votes for protocol-controlled CRV, CVX, etc…

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Yes on token split! Has never been a better time to increase engagement with the community.

Also, given the explosion of user engagement in crypto, surge of VC money backing new projects, and resulting competition for dev talent, I could not agree more on the need for additional yfi minting. Continuing to grow Yearn ecosystem requires more capital, and the Yearn community-first ethos is not compatible with soliciting VC investment on terms better than those available to the community.

The time to grow and, therefore, split and mint is now.

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imo, distributions are not a priority. focus should be on growth.

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imo, short-term return on investment is not the appropriate metric to gauge YFI utility. rather, it is the number of new users recruited by each existing user. reduce barriers to community entry and true, community-focused utility for the token will emerge organically. end of the day, we are all here to save souls by bringing them into the Yearn family. let’s simplify this.

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Split is the NO.1 of course. Please don’t compare price with 1 BTC. guys.

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Yearn should aggressively retain and grow it’s market share. What it has achieved so far is due to first mover advantage and quality of devs and community. But this competitive advantage is eroding. Certain products benefit from scale and it’s appropriate to reward those who provide this scale. Yearn can institute liquidity mining and stay in the fight or settle for a more diminished role within defi. Also, split or don’t split who cares.

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Contributors can provide the data necessary to make these decisions, leaving the repetitive and exhausting work of continual re-balancing in the communities’ hands

This is the key: To build Utility for YFI, we need to put the work in the hands of stakers.

Two major areas where the crowd can help:
1.) Vault allocations/weighting/rebalancing - Strategists provide multiple strategies per Vault, but needs to be allocated based on risk/reward/scale of return (we are large enough to impact returns). Imagine if CRV had to decide all weights themselves internally, well this is similar to the work our devs do with rebalancing…

2.) Backstop/Insurance underwriting - Staked YFI as an insurance backstop for Vaults (which could be locked up and used as liquidity to earn interest to repay a loss as we have done in Feb yDAI hack) would need lots of analysis/votes on things like potential added opt-in insurance fees, max coverage limits, what % of returns go to stakers, voting to approve/evaluate hacks, setting bounties, unlock times, % TLV locked/risk, etc… (for example our tolerated risk is influenced by current rates of return so risk allocation should change weekly/daily) IMHO this is a LOT of work, it’s adding a whole new business line to Yearn and it could be powered by an army of stakers/underwriting risk quant nerds. “Self-Insured” Vaults is something only Yearn can do with our scale, reputation and Iron Bank/etc relationships.

Monthly/weekly rebalancing/fee setting/underwriting type voting mechanisms guarantees YFI holders are put to work. The value of a “valueless governenace token” is the value of the governance. Let’s build systems like vecrv, where regular interval voting is a key mechanism that takes work off of the shoulders of our devs.

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https://gov.yearn.finance/t/switch-to-gyfi-time-weighted-voting-power-distribution/3314

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Fun topic!

Looking at the calls for the Token Split I think we can point to $Woofy
1, 2, 3

We’ve done the token split. There was a pretty big marketing push for it, but that may just be because I’m in a bit of a Yearn Eco-chamber.

(Not sure if Woofy holders can vote or not, but if not we should do what we can to make Woofy holders first class citizens)

As we discuss this I’d be interested to see how we could create some kind of tokenomic synergies between the Yearn Ecosystem, and how we could capitalize on our dev skill to capture market space as the L2’s and EVM chains get stood up.

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1:20,000 split of YFI token

And make the total supply 1 billion tokens

The inflated portion to be received by Yearn treasury via monthly/weekly unlocks

TLDR we can all agree that YFI tokenomics need revamping, but let’s revamp in a way that actually can make a meaningful difference to the protocol and not do so in a way that is freeriding or grounded in price speculation.

The ultimate goal with any revamp of YFI tokenomics is to align incentives for the betterment of the protocol. In light of this point, with regards to some points that have been raised thus far:

YFI Token Split: Splitting YFI makes no sense unless doing so is believed to benefit the protocol, and not just the market cap of the YFI token. If it is believed that a token split will increase community engagement (as some have argued) because unit bias is real, do we believe that increased community engagement will drive more traffic to the Yearn protocol and translate into more users of Yearn vaults? If not, it’s a waste of our energy and resources to implement. If so, it’s worthwhile. I don’t know the answer, but I do think that a case study on Woofy is warranted before we move forward with a token split. Was there any noticeable increase in user engagement, TVL, or any other protocol-performance-related metric? Is there any other case history where token splits of other projects have improved these metrics?

Revenue share with YFI holders/stakers: Giving away protocol revenues to YFI holders/stakers makes no sense unless YFI holders/stakers are serving a purpose that benefits the protocol.

The main questions that should be asked are

  1. What is a goal of the Yearn protocol?
  2. How could the YFI token be used to incentivize addressing that goal?

I have a few answers to the above (not saying my answers are correct…just saying answers to tokenomics should be framed in this manner):

  • Goal #1: Sustainably (not artificially or through temporary incentives) increase protocol deposits/revenues.

    • Potential Tokenomics Modification:
    1. Incentivize YFI holders to deposit their wallet holdings (ETH, DAI, etc.) into Yearn by offering better yields (or fee rebates) to YFI holders. Think FTT (FTX token) for YFI.
    2. Improve depositor confidence in the safety of their deposits by utilizing YFI as a backstop. Above posts by @fubuloubu and @dripdrop sound like very interesting approaches to this.
  • Goal #2: Avoid/eliminate (unjustified) value extraction from Yearn depositors by the Yearn protocol.

    • Potential Tokenomics Modifications:
    1. Make Yearn depositors = Yearn controllers. Value extraction from protocol depositors to protocol controllers is difficult if the depositors ARE the controllers! How do we make this happen? I don’t quite know, but I think the answer is paramount to the success of Yearn, since the least extractive platforms will win. veYFI is worth exploring. Again, @fubuloubu’s post above regarding veYFI is really interesting because, if implemented, it would bring real utility and potentially make for a more efficient and improved system for Vault strategy allocation. Another half-baked idea would be to allow Vault depositors to opt in to reduce their % yield in exchange for voting power; in practice, a portion of Vault earnings would be automatically exchanged for YFI that is then used to give voting power to the Vault’s opt-in-voting depositors.
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