[Proposal] Change the Incentive Mechanics on the yYFI Vault

Summary:

This proposal intends to increase revenue for the yYFI vault by rewarding those who stay in the vault for longer time periods while disincentivizing those who do not.

This proposal in theory should increase market buying pressure for YFI, and further incentivize users to keep their YFI within the ecosystem.

Abstract:

Currently the yYFI vault farms and sells tokens to purchase more YFI. The yYFI vault is important because it directly drives demand for YFI on the open market

Increase the withdrawal fee for the yYFI vault specifically. This disincentivizes those who don’t stay in the vault long enough while simultaneously rewarding those who do. The fee structure could be time-weighted; meaning as someone holds their YFI in the vault, the fee is reduced as time progresses. If you withdraw after x time (let’s say 60 days), then the fee is waived.

The additional revenue derived from the fee should go directly back into the yYFI vault. This acts like a buyback.

Motivation:

If everyone were to exit at the same time, such as during a market panic or liquidity crisis, the yYFI vault’s revenue would dramatically increase thus causing the buying pressure for YFI to increase in response.

The increased exit fee works counter cyclically with natural market downtrends. It will help counteract downside volatility, which in turn will assist in stabilizing governance. Get people in, keep people in.

Specification:

Implement an additional fee specific to the yYFI vault to increase YFI demand pressure & dampen downside volatility.

For: Increase the withdraw fee for the yYFI vault

Against: Leave the vault as is

9 Likes

I’m really for anything that can substantially improve the long term value of the vaults. The only reason I haven’t used the vaults long term is inconsistency on the APYs, an issue I hope is resolved with the V2 vaults. That being said, this should hopefully result in a noticeable APY improvement and not just higher gas fees, especially should the need to withdraw occur from stagnant yields.

1 Like

This proposal makes logical sense to me. The likely case that people would withdraw is to dump the token.

However, there are other options that need to be placed into consideration. YFI is not usable collateral on several platforms. So holders that are looking to take advantage of these will not have a negative effect on the YFI and actually have a positive intercommunity effect.

1 Like

I am for anything that increases the value of YFI through long-term staking. We do not want to encourage permanent dumping of YFI because it creates a negative feedback loop.

1 Like

To be honest, I’m skeptical this would do much to increase returns on the vault—and it feels a bit like an arbitrary fee without a good reason. I’d be much more in favor of increasing rewards for those who stay in longer, but not placing extra fees on those who don’t.

1 Like

If the stick does not work then maybe the carrot will. I still think that the yYFI vault should be used to maximize ROI by market buying YFI and depositing into Maker and minting DAI to yield farm. This would lock up more and more of the circulating supply which should put a floor on the price to a certain extent since the YFI in the Maker and Yearn vaults is locked up. I think that it is not an insurmountable problem. We just need to think tank this a bit more.

Yup, my understanding is this is likely to be the new strategy for the yYFI vault as soon as Maker officially onboards YFI as collateral.

1 Like

I think there is a better way to incentivize holders to keep their funds in the yYFI vault. Curve’s reward system I find brilliant tbh. At the end of the day, both reward systems benefit long term holding, going for the locked funds might benefit yearn the most though.

This is just a wild thought that spurned from reading “creates a floor”

I get that if tokens are locked up then they can’t be dumped as price starts to fall in a panic sell off. But doesn’t locking up tokens also cut off liquidity for price rises. I guess not, because of basic supply and demand. But I just pictured all the bulls got their coins locked up and the bears are the ones controlling the liquidity.

It’s just a brainstorm.

The more YFI is locked up in Yearn, Aave, Maker, Compound (hopefully in the future) the less circulating supply there is. Suppose 15k YFI is locked up. The more the price rises, the more people want to buy it which limits how much circulating supply there is since fewer people want to sell an appreciating asset. That would mean that the price necessarily has to go up since anyone who wants to buy has to pay a premium since it has become more scarce. Also, the reason the bears can’t “control” the liquidity is because shorting an asset means borrowing it. For example, shorting DAI means borrowing dollars. Hence, shorting means borrowing (i.e. buying) YFI with the hope that it falls in value.