YIP-56: Buyback and Build

Mixed feelings, on one hand this helps yearn devs and operation, on the other, I’m not sure if rewarding and allowing voting for all YFI invested in other protocols is a good thing.

I’ve got a few things I want to say:

  • There’s a problem with the value proposition of buybacks. If YFI is bought back and used in operation at about the same rate(the yUSD has to come from somewhere), it defeats the idea that YFI will appreciate due to the buybacks.
    • If the revenue dwarves the expenses, YFI appreciates. But this creates capital inefficiency for the protocol (Huge reserve that is there just to prop up the price of YFI with no voting privileges).
  • Buybacks that increase YFI prices raises the barrier of entry for future contributors.
    • This can be solved by granting contributors YFI accrued through buybacks, but it means more permission will be needed to enter yearn governance instead (a trade off).
  • Allowing YFI everywhere to vote is problematic. I’ve gone through some of the risks of doing this here.

Personally, I think YFI is struggling between two roles: distribution of executive power and operational fund generator.

Most companies issue stocks as an IOU to stock holders in return for funding their operations, not exactly as a ticket to every executive meeting. YFI is currently trying to do both. However, since yearn didn’t create a reserve of YFI on distribution, and the community is largely against minting more YFI, the ability for YFI to fund operations is abysmal.

The problem I see here is this: YFI is currently giving dividends to holders even though it lacks the ability to raise funds for operations. I think yearn needs to do one of two things.

  1. Make YFI the cashflow generator for operations, holders get dividends in return.
    • This can be done by doing a one-time or periodic minting of YFI solely for funding yearn operations.

OR

  1. Turn off the dividends, make YFI solely a distribution of executive power, and find another way to generate operational funds.
    • This current proposal behaves more like option 2. This leads me to think that future funding shouldn’t rely on YFI and a separate mechanism should be pursued instead (maybe even another token).

I believe a separation of the two roles of YFI would benefit the protocol and avoid frequent conflicts of interests down the road.

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