Keeping Yearn Great - Funds, Incentives & Rewards
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).
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).
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.
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?
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
- 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 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.
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.