Call for Ideas: YFI Tokenomics Revamp

  1. Airdrop to all users Uniswap style
  2. veCRV model (incentivize long term players)
  3. Keep building like y’all are doing

Yes, so was thinking that this would be the “default” insurance, e.g. we can cover a Vault losing up to X funds based on historical fees earned for stakers, amount staked, etc. There might need to be some sort of dyanmic curve for staking involved here to ramp up the number of stakers to a sufficient level of YFI collateralization, and also to deal with the ratio of price between the Vault token and YFI.

My idea was that this wouldn’t be a “self-insured” product that you opted into (which we’ve talked about in the past, where you pay a portion of your profits as a depositor to get access to protection), this would be a “limited insurance for everyone” paid by stakers, for basic operation of the strategy allocation system. The risk/reward of picking a proper allocation here balances with the risk/reward to the stakers e.g. higher return strategies generate more rewards, but may be “risker” and more likely to lead to losses, which negatively impact stakers by locking their funds up for longer in an attempt to repay the losses.

This is beneficial though because in general, we don’t really know exactly “how risky” a strategy is, especially technically, and would want some buffer in place in case the unexpected happens that don’t match the stakers’ risk models. Without the potential oppurtunity cost of the capital, there’s no incentive not to go full risk-on with the strategies, as the stakers’ rewards would only be reduced if funds were lost.

I really like this way of thinking, new product is always a good idea!

Absolutely :+1: :+1: on this!

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I think there is significant upside to increasing Yearn visibility to users off chain, and we know unit bias impedes this growth.

Yearn may be a b2b protocol for the foreseeable future, but demand will be driven by end users at some point.

Also, how many people are gonna pick up the phone and call their representative in congress if we need them?

  1. I strongly support the Yearn/BTC narrative: Yearn is the BTC of DeFi. Therefore, I am against the token split. But I think that we should definitely strengthen this narrative. I would make sure that additional YFI will not be minted and prove it to the community. Demonstrate “scarcity”: this is the path that IMO we should follow to enhance the idea of the unique nature of YFI.

  2. As regards to revenues for YFI there are some legal arguments against. It would probably transform YFI in a security/financial instrument in every country of the world. It would amount to a kind of dividend. I would be in favor only after a serious legal sanity check about the existence of legal conditions to do so. YFI must not encounter risks. At any rate, YFI has just little more than 1 year. It is something that we could tackle again in the future. To me number 1 is the most important thing.

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tbh, it seems no one outside our prayer circle cares about the BTC analogy

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I always thought some kind of fee sharing/or discount to YFI holders would make sense to make the asset productive, but im interested to hear legal opinions if that has some implications around the tokenomics and potential legality issues in some jursdictions

My personal interest for BTC is zero. But I think that the small number of YFI is a peculiarity that lots of people don’t consider. It’s easily understandable and appealing. SCARCITY is a magic word for many old school investors. It’s the easiest way of convincing people to buy and hold BTC.

It also alleviates YFI’s problem: the token and the value proposition of the protocol are two worlds a part. The protocol goes super well, but this has no impact on YFI’s price nor on the holders.

Moreover, nobody cares about a certain type of gov. The decisions of this year were simply non-important. Yearn 2.0 gov. - which is a great architecture - gives an enormous freedom to the yTeams in order to create in a flexible way. The community became a kind of supervisor. But: first, it is not easy to supervise if decisions are taken in a plurality of telegram groups. Second, who would present a proposal to criticize the amazing work that has been done? I think that nobody retains a tokens in order just to vote for the change of two multisig signers. Therefore, if we consider that the only use-case of the token is an almost non-existent governance it becomes clear that people may not feel to have the right incentives to buy YFI.

Woofy has electrified the market, but just for a couple of days. The NFT drop was a very beautiful move for people who felt bound to the project, but did not have an impact on the value of the token.

Also in looking to the many reactions to the post, my feeling is that people are waiting for something to come. The easiest way would be to distribute part of the revenues or part of the bought YFI to tokenholders/stakers. But this would be exactly the path followed by others. I would strenghten the narrative of YFI as a pure “classic” protocol, always open to innovation but proud of its unique features and perhaps reconsider the governance model and create more interactions with the tokenholders or with YFI stakers.

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After a decade in TradFi, it’s honestly refreshing to debate something that’s not “another dividend machine for accredited investors”. We finally have the real “finance for the people”. I say we give it to them.

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All based on my own opinion.

A token split should be a definite. Unit bias is real. When Woofy first dropped, there was a short term spike in activity. Not saying the split should be 1 million to 1, but may 10,000 to 1?

I also think utilizing the veCRV model would work well and drive more value to vaults as well as YFI token. Maybe the reward could be a particular vault akin to iceCREAM that provides ycrvIB.

BABY shouldn’t end and any tokenomics changes shouldn’t affect the programs that are driving the TVL. And without having the data to provide, since im too lazy to pull it all, maybe some of the BABY funding could be diverted to the new tokenomic projects. Like some other sites have done, take a portion of the proceeds to myYFI (working title), and the rest stays in BABY.

Let’s start with some requirements that I believe are fundamentals with this revamped tokenomics:

  1. The protocol should self-sustain and the treasury should be net-positive
  2. When possible, inflation/dilution should be avoided

That being said, let’s see what we can build with the new DeFi legos that emerged since last time YFI tokenomics were reviewed:

The idea here is actually simple, use Olympus PRO (before discarding this post as bullshit just follow along and hear me out):
The base idea is to use the fees coming from the vaults and from the POL (protocol owned liquidity) in the form of YFI/ETH to buyback YFI and redistribute it to contributors and stakers.

For those of you not familiar with Olympus PRO here are the docs: Introduction - Olympus Pro

The idea is to sell discounted YFI in the form of bonds on Olympus PRO for YFI/ETH LPs, in this way the treasury will control it’s own liquidity providing a number of benefits like ensured liquidity when mostly needed (black swan event), no need to incentivise LP as the protocol itself own them and lastly LP fees. These fees accrue in the LP tokens and will grow the value of the LP in the long run, thus growing the $ value of the treasury.
Moreover this LPs could be used in different yield farming strategies based on votes of the YFI stakers bringing into the treasury even more value in the form of usual LP fees and farming reward. These reward could be used for the YFI buyback or could also be kept in the treasury if the stakers vote on this.

Next point are the fees generated from the vaults:
These fees will be used to buyback YFI from liquidity on AMMs and given that the protocol owns a big part of this liquidity this will translate not only in a higher YFI $ value but also in more fees for the protocol itself, thus growing the treasury even more.

Alright, so what about this YFI we just bought back and now sit in the treasury?
A portion should be used to reward YFI contributors (writers, strategist, analysts and whatsoever), another portion should be offered as bond on Olympus PRO for even more YFI/ETH LPs and lastly a portion should go to the YFI stakers. My proposition here is 50% to Stakers and then the remaining 50% split between bonds and contributors but I don’t have the skills to optimize this distribution and I am open to suggestions from the gigabrains in the forum.

So now let’s talk about YFI stakers:
The stakers should provide backstopping service in case of black swan event and this risk will entitle them to the aforementioned YFI reward. I have yet to decide what sort of staking mechanism is best here but I tend to agree with @fubuloubu proposal with a sort of veCRV system explained here:

I really like the idea of the “Holy Trinity” with reward, risk and actual control on strategies that this solution provide.
Naturally, the longer the lock the bigger are the reward in order to give major protocol control to the true believers.

So, let’s imagine this works out and the YFI holders decide to approve this tokenomics, where the hell do we find the initial YFI to offer as bonds on Olympus PRO?
This is a big point and I am not skilled enough to have a strong conviction here but if there are not enough YFI in the treasury right now (in whatever form, probably they are staked as yYFI) we should mint some.
Now, how much should we mint?
To answer this we should probably ask ourselves, how much liquidity do we (as YFI treasury) want to start with in this new tokenomics cycle?
On Olympus, bonds are usually sold with a little discount (usually around 5%) and vested linearly over 5 days to avoid insta-dumping. In our case let’s say I have 100$ in LP and I want to exchange them for YFI: I sell 100$ and get back roughly 105$ in YFI vested over 5 days.
Why giving this example? Because we have to understand that if we want to start with 50% of the LPs in the YFI treasury we should print roughly the same value (actually 5% more) in YFI at the current market value. This roughly translate to a one-time minting of, I don’t know, 50% more YFI probably to offer as bonds in order to acquire this target initial liquidity. Again, I am probably dumb as fuck and wouldn’t be able to run the correct simulation to fully understand the impact of this action so I came up with a different approach:
Why not use all the fees generated from the vaults for a specified period of time to buyback YFI and give them as bonds? During this period both the contributors and the YFI holders would get nothing but this should probably be the most useful sacrifice for the true long term thinkers.
Now, how to allocate an optimal value to this “period of time”? Again We should vote on this and I have two solutions:

  1. A fixed time, let’s say a month
  2. A targeted LP value in the treasury with an upper time bound

Using the #2 option seems like the best idea, in this case a vote should be cast to decide how much of this initial LP value we want in the treasury and for how much time we would be ok to forfeit the fees generated form the vaults.
I feel like even targeting ,let’s say, 50% of the LPs on the market right now we could easily reach these numbers way before the one month deadline given the market conditions right now but it’s just my assumption and is not backed by any number.

We could also do a mix of everything and print some YFI but not too much to offer initial bonds and drive demands and then offer the bought-back YFI as bonds using option #2.

YFI TOKEN REVAMP.drawio(1)
Here a quickly drawn graph for the aforementioned tokenomic.

This is just a draft and might be a bit confusing for the ones not truly up to date with the latest DeFi trend and I am sorry if I didn’t manage to make it clear.
I remain fully open to feedback and suggestion and would truly love to see the gigabrains here take some time to read and think about this.

Thank for reading, stay safe and farm those yield

Continued here

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veCRV is actually a great idea to hedge regulatory risk. think I just put it together. distribute all decision making on vault strategy allocation and risk/reward balancing to community. avoid any nagging question as to whether yearn could be deemed a fund subject to onerous regulation applicable to centralized TradFi funds.

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No need to split YFI. WOOFY is ready-made. It is cheap, traders welcomed.

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I would be in favor of a 1:10,000,000 split so that 1 $YFI (at $32k) equals $0.0032.

That gives us first the “1 cent” meme, then the “1 dollar” meme.

I second so many of your thoughts, from the value of scarcity to having no incentives to participate in governance or hold the token at all in the current state. Scarcity already got a big hit after the 30k supply was ditched and now we have people like @yfi_believer that say we need even MORE minting and capital to grow. Back in the day, there was 6666 YFI minted for the treasury which is around 200m USD today. How this needs to be increased again after a few months is beyond me.

You grow a protocol by giving more appealing features to users, period. And you get better governance by rewarding people for participation - yes in form of cashflows, because that aligns interests.

veCRV model as suggested by many seems like a good way and combining this with cashflows bound to backstopping risk appears to be a neat gimmick to get around some legal issues regarding dividends. We can also look at AAVE staking as a well-accepted example.

Let´s be real guys, if tokenomics are not in support of financially incentivizing governance, there is no reason to have a governance token in the first place. Vault developers could just work together anyways - it´s just that they don´t because yearn wouldn´t exist in its current form without the YFI token. A token which always provided some financial incentives. Think about it.

@Tiarizzi93 I love your suggestion to use Olympus Pro to get some permanent liquidity going. Incentivizing YFI/ETH liquidity via protocol revenue makes sense. We could also incentivize some permanent TVL in Vaults but this must be financed by the vault fees.

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Yeah, I was thinking the same this night, we should incentivise some permanent liquidity. To be honest once the YFI bonds is proven effective we could make it purchasable through yVault tokens, imagine bonding YFI for let’s say yDAI, yUSDC or yUSDT.
Doing this the treasury could easily self-sustain (in the long run, not out of the box) and pay out contributors in a mix of YFI and stablecoins and not only YFI probably reducing the sell pressure if those contributors want to cash out some. This could free some YFI from the buyback mechanism that can easily be redistributed to stakers (higher APY) of offered through bonding (higher Protocol Controlled Value).
Through bonding the treasury can achieve so much freedom, versatility and independence from external market forces that, in my opinion, it would be unwise not to try this out and see if it break things or not.

P.S. Please consider leaving a like to my comment to signal your support for my idea and give it a little spotlight, thanks

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yea i’ve also been wondering if yearn will be eventually compelled to implement a veYFI-like model at some point to push allocation/rebalancing/etc to a much broader participant base. it sounds somewhat difficult, but perhaps this is a good opportunity to start with a small test and get the infrastructure in place.

Here is a post from multicoin capital for this exact issue. Summary taken from the post:

Summary
The best way to justify value capture for DeFi tokens is to have some sort of risk in the system that needs to be managed.
Taken to its logical extreme, this framework suggests that some DeFi tokens—most notably UNI, SUSHI, and YFI—should consider building out new features and functions such that their respective ecosystems have some risk to manage. As the amount of aggregate risk in those ecosystems grows, they become increasingly difficult to fork.

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DeFi investors praise the veCRV model as the golden standard to align emissions, governance and fees distribution.
I think this is just a naive (and dangerous) assumption backed by no evidence.
If anything, there’s anecdotal evidence that veCRV (and liquidity mining in general) leads to price suppression, with $CRV boasting the lowest market capitalization amongst the DEX big three ($UNI - $SUSHI - $CRV) despite being both the go-to exchange for stablecoins (with no real competition) and the DeFi protocol with the highest TVL (per DefiLlama).

If the community decides to pursue the veCRV path, please, let’s start a yTeam that can produce evidence, charts and predicted scenarios before pushing it to production.

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If we accept this is true, you are still assuming existing resources are sufficient to do this, no?

And I´m totally aligned with that. I´m not saying YFI should be the parasite token that just extracts, but it must receive a function to generate some form of revenue off the volume that goes through yearn. At least if we want to keep YFI a desireable asset above 0 USD. Actually I haven´t seen any post directly opposing this idea. :slight_smile:

I don´t know - what´s the state of the treasury? If you tell me that we already burned through almost 600m USD worth of tokens at time of minting which are still worth around 200m then I say we have a serious budgeting problem… I just know that hundreds of millions of dollars can buy you a small army worth of top notch developers and years of marketing. So yeah, it should be enough.
Not even to mention the additional protocol revenue to treasury…

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