The best restaurant businesses buy the land on which they operate. The best DeFi businesses should do the same, accumulating Eth strategically in their treasury, the digital version of real estate.
Background
Eth is going to be the only layer-one. A multi-chain world is really just an Ethereum + rollup world. We know that. It’s still an edge because of the large amount of dumb money in crypto. Let’s use our edge to make our system stronger.
Motivation
Buyback and build is awesome. This proposal is just an extension of that. Why only buy our own equity (YFI) when we can buy back the land too. Eth is operational capital, a store of value, and yield generating.
I think this is smart. It’s good to be diversified in crypto and ETH > dollars.
But right now, buybacks are the only value capturing mechanism for YFI and that wasn’t addressed in this proposal. Any plans there? Personally know some investors who have been waiting for improvements in that regard so they might be disappointed to hear this.
Maybe I’m just being mid IQ and YFI having control over the capital is the method in which it captures value.
Investing in YFI/ETH liquidity would be pretty cool. One side benefit, more YFI liquidity potentially allows for more borrowing power for YFI with lenders, which YFI holders and treasury can use to earn more farming income.
I’m a big fan of this proposal generally, though I do wonder if there’s a broader discussion here around treasury management and what adjacent governance tokens we would perhaps want to own outside of YFI.
Owning more ETH probably makes sense as a hedge against rising L1 costs, but in terms of investment of treasury funds wouldn’t it be more sensible from a risk management perspective to choose something less correlated with YFI?
No I think it’s a reasonable concern. The skills that are needed to be a software developer are a different set from those of capital allocators (I am not saying devs lack these skills mind you).
And if you noticed people expectations have changed and will continue to change. The average person now knows to question how ‘X token accrues value’.
This isn’t really a hedge against rising L1 costs because yearns vaults actually produce eth denominated revenue via the ETH and curve ETH pools, even more so than we need. Only expense is k3pr / eth liquidity and gas costs for executing various treasury transactions. The reason restaurants own the land is to minimize opex / rent and control their location. Since we already are hedged on the revenue side this doesn’t really apply here.
Yearns value accrual proposition has to be towards yfi or we are only allocating 50% of the profits towards YFI. The eth accumulated with the other 50% would be a separate bet on the ETH price. I think it lowers the flywheel effect of people wanting to own yfi. It also subjects the treasury to IL.
For reference, yearn has ~900 ETH in treasury (etherscan). Overall, treasury diversification comes from vaults naturally. If something specific has to be bought there should be good reason to it.
I am against this proposal and think we should be buying back as much YFI as we can. If we move to other chains later or l2s would we buy their tokens as well?
No one said anything about a basket. We buy our equity and we buy our land, that’s all this says. We’re making Eth more valuable by pushing DeFi forward, just as McDonalds or Soho House makes a plot of land more valuable. Why shouldn’t we get the upside of the land too?
Don’t you think that all of our products being built on Ethereum is a good reason to own Eth? We’re driving a ton of value to the Ethereum ecosystem and the Eth token on every vault–most AUM is stored in vaults for other tokens, but benefit Eth.
It’s actually pretty asymmetric–how much our vaults drive Eth forward vs. the amount of Eth we accumulate.
That’s not the main reason why restaurants own the land. Every restaurant that is a large land owner could afford market rent at all times. They buy the land when they believe it’s a good investment, because they are making the land significantly more valuable. That’s exactly what Yearn is doing for the Ethereum ecosystem.
Owning the YFI token gives holders some rights’ to the funds earned by the treasury (i.e. what if everyone voted to distribute treasury holdings to token holders). It doesn’t need to be 50/50. Just strategically. We’re already an asset management company. We can act like it with our treasury too.
We should buy Eth when it’s cheap, just as we should buy YFI when it’s cheap. Apple will buy the land it puts its campus on, if it likes the price…it’ll also buy back Apple stock when it likes the price.
The YFI community’s job is to drive maximal value to YFI holders over the long term. If buying some amount of Eth achieves that, then it’s a good thing.