Proposal: Rethinking Capital Allocation

Really not a fan of this. I think longer term something like this is reasonable but the protocol and community are too young at this point to pull it off in my opinion.

I think a huge value prop of these yield aggregator coins long term is the constant income from profit sharing. We are seeing this experimented with in YFI, FARM, PICKLE and others. Even now, as DeFi is barely adopted, we are seeing nice returns to token holders. This incentivizes people to hold for reasons outside of speculation and participate in governance. That is important long term and if stripped away could be extremely detrimental.

I feel this proposal is written for a centralized entity and really ignores a lot of complications that come with organizing a decentralized product like Yearn. I’m all for making sure work is properly funded but we are nowhere near having the organizational structure and ops built out to handle this.

If decentralized governance has taught us anything, the complications come from managing and organizing the money, not finding it. Because of this, long term, I think we should be striving for LESS governance intervention, not more.

I vote no, pretty strongly.

12 Likes

The topic of implementing a new performance fee keeps popping up in this and other topics, with contemplated fees being anywhere from 10% to as high as 20%.

I am not fundamentally opposed to changing the fee structure, but when making decisions on how fees will be imposed on deposits, those decisions should be made based upon the anticipated realities of a mature yield aggregation ecosystem.

I humbly submit that a 10% performance fee for vaults is insanely high based on the likely returns yield aggregators will produce in the not so distant future. A 10% fee would seriously reduce returns, especially if APYs settle into the sub 10% range over the long term. It would also leave open a huge door for competitors to undercut Yearn.

I understood the original vision of Yearn to be the providing of reasonable returns (in the context of crypto) in a manner that entails very little risk of loss of principle that can be scaled to massive levels. If Yearn can ramp up the scale of funds under management, there likely would be no need to impose a performance fee of any type, at least not until Yearn has firmly cemented itself as the leading yield aggregator. The imposition of a performance fee at this time anywhere close to 10% signals to me that the project is giving up on the massive scaling vision for Yearn.

I know there have been issues with scaling up strategies to accommodate very large amounts of funds. If those challenges prove to be insurmountable, then I would be open to revisiting the imposition of a more aggressive performance fee, but I think it remains a little early to give up on this aspect of the project.

1 Like

I think performance fees would be on a profit level, in other words if APYs are 14% to depositors, it would be 10% (1.4% of the yield) of that, not 10% total.

1 Like

Harvest Finance negotiated a strategic investment of PERP tokens with a 50% discount to NAV. In exchange, Harvest will employ at least one yield farming strategy using PERP protocol. BarnBridge said they will be releasing a yearn strategy Q1 2021. I would like to see Yearn make symbiotic relationships that are mutually beneficial.

3 Likes

Yeah, of course they would be based on yield, and such a fee would have a huge effect on yield.

Check this out:

1 Like

Banteg has said he wants a 2% fee on AUM and 10% performance fee. This is millions of dollars per year regardless of ROI.

1 Like

tl;dr
Yes — I want yearn to buy back some YFI.
Yes — I want to be able to reward contributors with YFI.
Yes — I want to continue distributing rewards to token-holders in a way that the majority of them are satisfied by.
Yes — there are great ideas in this proposal and the comments.
No — this proposal is not actionable yet nor grounded in actual numbers or on-the-ground operations insights.


I think there are a lot of good ideas in this proposal and in the comments, though I am strongly against approving this proposal as it is now. I would love to see more work done and can imagine a version of this I do support.

I am in favor of a mechanism allowing yearn to reward contributors with vesting YFI as another tool in our toolbox in addition to yUSD grants. But not at the expense of rewards distributions.

There are a lot of numbers flying around, and strong opinions on how we should do operations. This is all great ideation but ungrounded and not actionable. I’m sure there are other business owners here—would you make critical financial decisions without doing financials with budgeting and projections first?

To decide on changing numbers first we need to know the actual numbers. @franklin and @milkyklim are working on full financials now. After that to decide on something like redirecting funds I’d need to see projections: how much YFI does reducing rewards by 1% get us? 2%? Etc. And not back of the napkin numbers, a proper analysis. How much YFI do we think we actually need to compensate contributors? If people really believe in this proposal, take those projections and run some snapshot signaling votes (granular ones with multiple options, not just yes/no) to get a feel for what the yearn network wants. Then let’s put a complete plan together.

And for operations, any decisions there should be grounded in the actual reality of current operations and evolve from actual tensions not speculation. I would kindly suggest that before anyone lean into big opinions on yearn ops, they speak with the people actually doing them. I am easy to get in touch with! And although certain things may work in silicon valley, that doesn’t mean they will work here—nor does it mean we would want them to. Personally I’m not interested in working for an Amazon or Apple, so if yearn starts to become more corporate with a c-level and bureaucracy etc I’d probably split along with many other contributors I’d guess.

The reality is no one knows what real decentralized operations should be like. It’s new, immature (good!), evolving, experimental. We cannot shoehorn Yearn into some centralized model and expect it to work. But I don’t want to be too harsh on what’s come before, let’s learn from everywhere and everyone, and I love to see all the big brains chopping it up in this thread <3

9 Likes

I agree its right to re-invest profits now rather than pay dividends but there needs to be specifics where there profits would be spent. At least in the current state someone can look at the YFI token and see they’ll get around 10% yield for holding it. That’s a simple concept that most people understand and one of the only reasons not to dump YFI when the price has been crashing like as of late. I don’t think there should be a change without a specific proposal to outline where those funds will be put to use and proof of concept they’ll provide a return.

Hello, this is my first post, my first vote and I’m in love with this platform and it’s transparency. Thank you everyone that make YFI work.

Voted against.

While I agree the platform needs to spend funds on marketing and business development I don’t agree to just simply cutting the rewards to stakers.

I bought some YFI, then more, then some more, If it keeps droping I’ll buy even more. My goal: locking them and receive rent for years, while learning by participating in governance.

Buyback to increase token value might make sense for those that want to sell. It makes no sense for users like me that just want to stake to have a voice and get paid for it. For me price of the token is not that important, the amount of fees that it generates is and there’s where the non-speculative value resides.

And I don’t think YFI should be used as means of payment, people will have to sell to get paid - if you want to have a second treasury do it with a stable coin and fill it with a percentage of fees coming from all products without killing the rewards completely.

6 Likes

Hi Everyone, I’m fairly new to the community so I apologize if any of my thoughts are off base. I’m definitely apart of the bandwagon phase to the DeFi movement, but I think that the next few steps are vital to solidifying consumer confidence in the market place. There are alot of influences on the DeFi marketplace, but I think there are a few huge opportunity for the YFI coin to be traded as a business security rather than crypto-asset

Couple Assumptions to my following observations

  1. The underlying motivations behind the DeFi movement have not been co-opted by speculative trading, true involvement in this product is invested in long term, week after week yield.
  2. No matter how you got to YFI, there is a mutual objective to retain as much value, and gain as much additional profit to the current assets that you have.

I think that the best possible solution requires balancing the portfolio, stabilize the stock while retaining the ability to provide dividend for owners. This could be product of interest or bonding strategies, but ultimately the more stable the YFI coin is, the more natural demand will produced in the marketplace. however the real motivation behind getting the coin to influence the direction of of assets staked in the portfolio - if you have no other assets staked becomes seemingly overpriced, or maybe a bad trade. However, the ability to receive dividend based on total coin ownership, not market value creates a market insensitive to drive the stock up.

A) Leverage a strategy to buy back the FYI token on path of lease resistance from the market trading until price level stabilizes at total lifetime median - at this point there needs to be some sort of balancing mechanism.

B) Dont completely eliminate, in fact incentivize year ownership for specific vault access, and rewards that enable stakers to compound/reinvest initial stake - this would enable

  1. Experimental vaults remain to those who are truly invested into the platform - there by the long term success of the product is core to the governance, voting patterns, and direction of investments.
  2. There is an incentive to stake your coin if you’re a holder as opposed to sell it, and from a market perspective, you want to get the coin because of potential returns.

Either way, the long term success of the token is going to require some type of active managment strategy.

Anyway, those are my thoughts.

Best

Here’s a really simple eli5 of why this is bad in its current form

The headline action is stop paying rewards to yfi governance stakers immediately

Ok so now I have a token that resembles Andres true vision. A valueless gov token. We can vote with it, that’s it. Normies will ask wheres my money? None? Ok dump. From the normie perspetive, its going to be better to sell yfi and put that funds back into BTC which looks like its about to commence its next moon mission

This will result in normie dilution and the yfi ends up in the hands of whales and VCs etc who can afford to hold yfi without earning $ in the short term. So now the once fair launch evenly distributed darling of defi launches becomes centralised and slowly morphs over time into TradFi

Meanwhile at at yearn HQ, we have yfi in treasury that is losing its value because of the normie dump. How will you pay for Devs etc when yfi is losing value? And why would a DeFi dev wanna work for peanuts at a project that is slowly morphing into TradFi.

This is a lose lose situation imo.

What ever happens yfi gov rewards needs to stay as is.

2 Likes

Yes could be a interesting idea but be careful in not destroying what was succesfully builded and achieved on Yearn.Finance.
it,s financially important for Yearn.Finance that YFI continues to bring back a 10 percent or more yields to holders because what will be the reason to keep holding YFI token?if there isn,t any financial benefits
Crypto people will just dump YFI even at a lost and go back to BTC a more trusted investment
it,s a must that YFI keeps a financial value for the long term success of Yearn.Finance.and that the value YFI grows as Yearn.Finance expand
Yearn.Finance still has the leadership in DeFi with the biggest brand but there is and will be a lot of competition out there with are a lot new DeFi projects
It,s better to concentrate on bringing back value to Yearn.Finance with the TVL total value locked being a key metric and treat YFI holders as YFI investors.Yes Investors!

3 Likes

The main problem regarding capital allocation is who define the right allocation and how to evaluate and manage every single allocations.

Together with @rzurrer we elaborated a plan for a decentralized capital and self-directed cooperative pool based on a meritocratic reputation-weighted peer-review for sharing in rewards among workers.

It works as coordination mechanism of nested DAOs that participate in a series of Multi-sigs based on the Aragon DAO framework allowing capital to be pooled and intelligently balanced across a range of different strategies.

We can use the same model with Yearn with YFI Gov as Top Dao (page 11) and a series of sub-Dao specialized in specific topics: yield farming strategies, development, marketing, and those proposed by @RyanWatkins.

For each of these, teams with relevant experience on the subject can request and obtain a mandate from the Top-Dao where the invested capital and the time period are defined.

The mechanisms that incentivize the actors to a continuous mutual review and drastically discourage behaviors that are harmful to the system have also been studied.

Find the white paper of what is described here:

We have also developed a very extensive compliance document to make everything compliant with the regulator if the governance of YFI wishes to proceed in this direction, starting from Switzerland.

Feel free to contact us for further details, we will be happy to receive any kind of feedback and to support Yearn in the implementation of this structure.

5 Likes

This is a terrible idea and obviously most of the people for this stand to get paid. There is a clear conflict of interest. This just opens up for corruption and mishandling of funds, and it hurts the decentralized nature of the project.

3 Likes

Just the fact that there is this much disagreement makes this a no-go for me. No reason to push something like this forward in current form with this much push back. Great way to potentially fracture the community early on.

I would love to see this re-submitted with formal budget / reward expectations and a definitive timeline where this would expire. We already have money being pulled from treasury to pay for expenditures, I see this proposal as essentially increasing that number to 100%, without any clear plans on how to allocate those funds.

I am all for avoiding slippery slopes and this feels like one.

5 Likes

This has a potential negative feedback loop; it is totally possible that incentivising change can result in a skew towards an ecosystem that is too unstable and a volatile growth curve.

Just because a proposal is passed doesn’t mean that it is necessarily best for the community. It is possible for groupthink to occur and unnecessary change can lead to many opportunity costs.

2 Likes

You’re viewing this as a bureaucratic company (which you have every right to do), but if you put on the start-up hat, this proposal makes a lot of sense.

Just depends which hat we want to wear.

YFI holders will be the ones who vote on how to spend the YFI treasury–we’re still receiving the dividends, just pooling our resources together instead of pocketing them separately.

Together, we are one.