To be honest, the YFI ecosystem is quite complex at the moment: Tokens within contracts within contracts to yield tokens to put in contracts to vote and get tokens… or something.
I think it would help if someone could draw a clear picture on how things are intertwined and which levers we can pull.
Then we need to agree on targets (liquidity, adoption, volume, fees,…) and identify which levers help to achieve these. YFI is one powerful lever but only one type of incentivization. Maybe not the ideal one?
I tend towards “against” until we had time for more discussion, but I am happy if someone convinces me to vote “for”.
Of course there will be, you just make another proposal that says you agree proposal 0 is null and void.
vote for needs to be clearer IMO.
If vote for maybe it should be heavily favoring early stress testers something like after the initial 30k distributed in week 1 after that follow something super conservative like a BTC model, but with halving every 52 weeks (1 yr).
So its almost like initial users “premined” YFI in the first week.
YFI distribution could be something like this:
week 1: 30k YFI
week 2: 50 YFI
week 3: 50 YFI
week 52: 50 YFI
week 53: 25 YFI
week 104: 25 YFI
week 105: 12.5 YFI
IMO the meme value of perfectly fair distribution+ hard cap is enormous and should not be given up easily (I voted no). It is very unlikely that someone else with Andre’s competencies repeat what he did with YFI. Could we implement a system that automatically burn portions of tokens that are not either:
-in a liquidity pool
This is equivalent to issuance through staking, has taxes advantages and does not break the meme.
This does not solve the liquidity mining incentives but does encourage liquidity/participation a la SNX. If we want to give other liquidity incentives I think the best is to redirect portion of the non-pool related fees collected towards the pools.
Yeah, that is exactly what I’m going to do: Proposal 0: YFI Supply
Timelock is sublime.
I agree completely with brisket, we can find other ways to incentive LPs. I think 30k cap on YFI is a great idea, and doesn’t dilute the market with a plethora of tokens. Too many other DEFI projects are currently over minting their governance tokens, and no matter what all of these other projects their incentives are going to dry up as well. Yearn has some of the best APY rates, and I’m not worried that people won’t provide liquidity. I love the fact that this project is truly decentralized, and I think the community can work together to come up with some creative and cool ideas to incentive LPs if that’s what are goal is. But definitely capping the amount of YFI for right now, is a must in my eyes.
What do you mean by increase hard cap modestly and dilute cap 100x? Don’t those 2 points contradict themselves?
I think hard cap and emission rates are two separate concepts
To increase hard cap modestly, while still adequately rewarding liquidity providers.
Seems like the end result could be aligned.
At the beginning of this process, I was personally FOR proposal 0. My rationale was basically what has already been stated:
- Stopping LP incentives will lead to reduced AUM, reduced fees and ultimately less value for the protocol.
- With so many yEarn products yet to launch, not having the opportunity to offer LP incentives for them would be a handicap for those products as it would be much harder to get people to try them. This would ultimately lead to less value for the protocol.
On the other hand, the arguments AGAINST proposal 0 are strong as well:
- This is not a final decision on issuance. Some people are voting against to have more time to think about the issue at hand and potentially propose something more robust regarding issuance in the future (with an issuance supply, etc).
- Even though some liquidity (most?) will leave the y Pool, some will stay. Before YFI mining was even a thing, the pool had 9M in liquidity. So, independent from LP incentives, the protocol has value. The critical thing to consider here would be how to maximize the protocol value into the future. Are we going to be able to sustainably increase (or even maintain) AUM and get people to try the different products without liquidity mining?
- Something else to consider: The potentially new proposal to increase supply in the future (and begin minting YFI again) could reward LPs that stayed in the y Pool retroactively. In this way, maybe we could avoid a liquidity exodus?
- New issuance proposal could consider such things as a Dev Fund (to be able to sustainably develop the protocol in the future), an Andre Fund and other considerations that would ultimately lead to a more sustainable protocol…
The existing level of YFI issuance is producing an excessive level of liquidity competition among protocols, and the high transaction costs & poor user experience (congested networks) results in a worse outcome for the entire ecosystem. Going to zero YFI issuance will lead to YFI finding a floor value - but at the same time, yield-sensitive liquidity providers will shift capital to the “next best thing”.
There is a possible middle ground:
- Variable weekly issuance of YFI based on target yield.
- This issuance could be higher or lower depending on where the target yield sits relative to the market-wide yield (the opportunity cost of capital).
Issuance would be a function of target APR, VWAP of YFI in previous week, and weighted TVL in previous week.
In steady state, when target APR approximates market-wide APR, there will be less wasteful switching activity. Better experience for all will result.
Something to consider?
No, they don’t.
- Increasing the hard cap increases total possible tokens in existence.
- Diluting the cap 100x keeps the distribution the same (everyone holds the same proportion of tokens relative to total), effectively lowers the price of the token 100x.
I am for capping YFI at 30,000. We’ve all seen how COMP, BAL, and other yield farming defi projects continue to bleed because of the ridiculous amount of supply dilution. Not only that but the APR will continue dropping as YFI bleeds and the emission rate gets reduced. Eventually, other yield farming opportunities will arise and many yield farmers will jump ship. I also understand that the current TVL is completely attributed to yield farming. Once the TVL drops, YFI will lose its value either way.
We must figure out a way to continue maintaining an incentive for liquidity providers, but we also need a novel approach that differs from the current yield farming providers. What if we introduce a second token, called pYFI, that is minted and distributed to liquidity providers? Obviously pYFI would need some sort of mechanism to derive value. A possible solution could be to allocate 20% of the platform fees to pYFI holders. YFI stakers will still get 80% of the platform fees without getting diluted. This is just one possibility of value derivation for the second token, I’m sure there are better alternatives too.
Another example could be to make pYFI similar to what CHI is for 1inch exchange.
The novel approach is to cap the token but wrap it with a new token?
Yield farmers will not jump ship if YFI continues to provide sufficient incentive. YFI emission is what has drawn the large liquidity pools and high fees thus far. Good distribution without VC preseed is itself the novel approach which drastically differentiates YFI from COMP, BAL.
A thoughtful emission schedule and governance process that inherently build value into YFI is the way forward. We cannot sufficiently subsidize the loss of YFI alpha with yCRV fees.
Or maybe we can implement that tax that brisket mentioned. The taxed YFI goes to a pool and pYFI holders can redeem their pYFI for a portion of the YFI in the pool. We could even introduce a 1% transaction fee on YFI itself. That fee would also go to the pool for pYFI holders. (I understand this could be negative for YFI’s liquidity and also make problems for having YFI in balancer, just an idea).
Minting based on target yield would lead to a vicious cycle - if price crashes, emission would speed up dramatically, which further lowers the price.
What happens if there are 2 competing governance proposals with different outcomes?
For: Some further YFI issuance to be determined.
Against: No further YFI issuance.
Alternative Proposal e.g. Proposal 9
For: Adaptive/variable YFI issuance based on proposed formula (specific).
Against: No further YFI issuance.
For Proposal 0, “Against” passes.
For Proposal 9, “For” passes.
This would lead to conflicting outcomes.
Is there some mechanism to:
(1) Prevent competing proposals (at the same time) that can produce conflicting outcomes?
(2) Stagger governance proposal introductions e.g. on weekly vote basis? E.g. Opens and closes at fixed time weekly?
NO on 0; YFI will be the only protocol in the world with no emissions – we can create incentives for ourselves (proof: see last week) for future growth, we don’t need to keep issuing tokens.
Heres one way: YFI isn’t “burned” to collect fees, the YFI is placed back into the airdrop system for new users. Fixed supply, always issuing.