[Discussion] What to do with EPS airdrop?

Authors

@banteg, @lehnberg

tl;dr

What’s the best way to put the Ellipsis airdrop to use for the benefit of Yearn and its Backscratcher depositors, while maintaining goodwill with the Ellipsis community?

Background

Ellipsis intend to distribute 25% of its supply to veCRV holders over the next year. Through its yveCRV vault (a.k.a Backscratcher), Yearn is one of the largest beneficiaries. Yearn currently holds over 11 million veCRV.

We’ve already made sure we are able to claim the airdrop correctly.

In informal conversations with the Ellipsis team, it has also become clear that “claiming and dumping” EPS might lead to us being removed from future weekly airdrops.

It is in Yearn’s interest to work out a plan to claim the airdrop and put it to use in the Ellipsis protocol in such a way that we earn additional yield from it, while at the same time remaining eligble to claim airdrops in the year to come.

EPS mechanics

Each weekly airdrop is based on veCRV snapshot and is vested for three months. However, it can be withdrawn earlier for a 50% penalty tax. EPS can be put to work in a staking pool (which we did as a test) which earns half the trading fees and the penalty tax from other users’ early unlocks. Currently it earns 4350% EPS + 67% BUSD. Staked EPS is also subject to three month lock with rewards coming unlocked.

Takeaways

  • Withdrawing early can be worth it if it’s staked, as it earns back the penalty by others doing the same. Economically it makes sense at >400% APR, so you get the same amount after 3 months. The needed APR is less if rewards are compounded.
  • By putting the airdropped EPS to use in the Ellipsis protocol, we are good actors and continue to be eligible for future airdrops. The rewards earned from those activities can be re-invested in Yearn.
  • Because the snapshot for the airdrops is taken on a weekly basis, investing these proceeds in staking additional veCRV in yveCRV means that Yearn’s future airdrop rewards compound.

Decision Points

A few starting points for the discussion:

1. Farming strategy

  • Option A: Unlock EPS after 3 months.
  • Option B: Unlock EPS early at 50% penalty and farm with them.

2. Distribution

  • Option A: Add to Yearn’s veCRV, boosting veCRV/yveCRV supply ratio, effectively meaning more rewards for yveCRV holders.
  • Option B: Deposit to yveCRV and distribute to yveCRV holders. This will result in the same increase of veCRV, but won’t make yveCRV vs solo rewards more lucrative.
  • Option C: Donate to yvYFI vault, increasing its share price.
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As a holder of yveCRV, veCRV and YFI I will try to be unbiassed.

Farming guess A or B work similarly. Half half?

Distribution option C will be a failure as yveCRV holders would likely flee to far higher yield veCRV, leading to lower yields across so many yearn vaults.

Regarding distribution A or B:
I guess a bigger question is will yearn start to farm stablecoins and set up new vaults on Ellipsis? If so, will you similarly tokenise veEPS to yveEPS. If so you could make yveEPS as the airdrop to yveCRV holders.

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With regards to Farming, I am okay with either option. For distribution my vote would be option A.

The intent from Ellipsis airdrop is to distribute to those who hold veCRV. Since the Backscratcher vault positions itself in a manner that entices CRV holders to mint yveCRV instead of veCRV, I think that flowing the benefit of the Airdrop through to yveCRV holders is more in keeping with the spirit of Ellipsis’ intent. If Option C is chosen it depreciates the Backscratcher’s position as a better place for CRV holders to deposit their tokens.

8 Likes

For Farming: Both A and B seem like fine options.

For distribution: As a holder of only yveCRV, I would feel like I got the short end of the stick with option C. I see the idea, but it would feel unfair to the yveCRV holders who aren’t in the yvYFI vault. Option A seems like the most gas efficient rewards scheme?

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can you elaborate on that ?? How can you be removed ? Not telling we should claim and dump, but how can they stop our aidrop ? Is it a "DeFI protocol " ?

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In regards to distribution option B, would it be possible to distribute yvecrv to people in the sushi pool? If not it seems that option A would benefit all yvecrv holders in the long run.

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For farming I would go for option B (unlock early + stake/lock). At current rates, the 50% in EPS balance should be earned back in ~4 days.

My preference for the distribution goes to option A. This results in more veCRV locked by Yearn, and thus better yields for most Yearn.Finance users (in all vaults that utilize Curve strategies).
With option C as the runner-up.

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Would be fine with putting EPS to use rather than selling it. Seems like the logic for withdrawing early as long as exceeds APR threshold makes sense.

On distribution, agree with Option A. Depositing user’s veCRV with yearn should earn them the rewards, else users can find other places to put their veCRV.

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A separate merkle tree is produced each week and the code producing the snapshot can be amended.

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Another option to consider is an airdrop, proportional to the amount of CRV tokens an address has contributed to the backscratcher

I don’t see any reason to assume that the airdropped tokens should be owned by Yearn the protocol as opposed to the yveCRV holders who contributed their veCRV to the backscratcher. Yearn itself does own a large portion of our veCRV, so this option would not prevent Yearn from obtaining recurring value via EPS.

This way would ensure that all depositors can decide what to do with their share, maximizing freedom of choice and flexibility. This is in line with Yearn’s values, and seems a promising option.

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now this would be really cool, curious what others think on this option

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As a yveCRV holder in the sushi pool, I prefer Option A for distribution, and I am opposed to Option C. As far as farming, I prefer Option B, but I’m not opposed to A.

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At those rates…I say farming strategy “Option B” will be most beneficial for both us and Ellipsis. Since we can only sell the EPS we farm (and not from the drop) like everyone else, that shouldn’t be an issue for anyone.

For distribution… either A or B. I would be fine with either.

I’m ok with either for farming, but am opposed to Option C for distribution and would rather Option A.

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As yvYFI and veCRV owner, I would like to see the following:

Farming Strategy

Option B since the APY is attractive enough right now to take that 50% penalty and use the remaining 50% to Stake and Lock to farm the resultant EPS and BUSD. For simplicity’s sake, it’s best to continue this approach through the 52-week airdrop timeframe and beyond.

Distribution

Option A with a 70/30 split, if possible. 30% reinvested to EPS and 70% farmed for more veCRV. This would support veCRV, yveCRV holders, and EPS with amplifying and sustainable effects across all parties with most of the benefits flowing to yveCRV as it should be.

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Thanks . But I guess my question was less technical and more philosophical…

How, why and WTF…, a protocol can decide to stop to airdrop to someone if they sell the token ???

It’s fair to discuss with us, and don’t do it if we want to keep a long term collaboration. But DeFi is not about blackmail between protocols…

How about using this opportunity to expand into bsc ecosystem? Curve is basically expanding into bsc and we can too.

Edit : I thought about this a bit more… and the conclusion is… how about letting holders decide what to do with their EPS? Yearn is an aggregator, not an investment consulting firm. We should just focus on “aggregation” part and not decide what to do with people’s money.

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For farming strategy, since it is a weekly airdrop,
Option B for now, and switch to Option A when APR < 400%

For distribution,
I will choose Option A since this will benefit the current yveCRV holders as well as wider Yearn ecosystem.
Don’t like Option C - think it is unfair for yveCRV holders who are not in yvYFI vault

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Farming:
Agree with Option B, until the APY drops near the 400% APY level.

Distribution
Also really like the idea of a yveEPS airdrop! With Farming Option B already in-place for the first airdrop, the $EPS is locked & compounding for 3 months. Would be awesome to see if a vault could be put together for an airdrop when that 3 months expires.

If this is an option at all, then might make sense to start taking a snapshot of yveCRV holders + Sushi LP positions weekly now, then airdrop yveEPS weekly as each 3-month farming lockup expires.

Suggestion:
To compensate the YFI treasury for work to implement & make it win-win for YFI holders as well, the BUSD collected on all 3-month locked+vesting $EPS tokens could be kept by YFI.

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Is it blackmail, or is it them protecting their community?