Request for Comment : Proposal for YFI Inflation and Supply Mechanics

I agree strongly with @gczy and @Sinsecato and am AGAINST proposal A

This is a very different project to SNX; as the above pair write, the need for inflation does not exist in a vacuum, and likewise the views of Cronje & others on future needs should be relevant - and if they are unclear or unknown, then the default position should be no inflation without reason.

There is no need for inflation for security etc. as with btc, so the comparison there isn’t relevant.

Unlike 99.9% of crypto projects, this product had product market fit before launch. There is no need to bribe users to come. There might be need to bribe them to stay, ofc.

I’ve seen many projects use massive treasuries/inflation for completely pointless goals with little accountability (Block one), to an often criminal (NEM Foundation) extent. SNX is an outlier in that regard.

Finally, the positive feedback loop for liquidity mining will still exist with very low inflation - it is the price in USD that is being paid that matters. The price of the token will naturally be higher due to scarcity, and so the incentive will still be there. High inflation conversely lowers value, so the actual liquidity incentive of high inflation vs low inflation could end up being very similar.

In laymans terms: we can give away 100 a week @ something the market prices at 8000 USD, or we can give away 1000 a week at something the market is now willing to pay only 800 for

I am mildly in favour of Proposal B, but largely ambivalent

The vision of the ‘Whales’ aligns more closely with my own - Andre should be listened to, respected, rewarded
Thanks!

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Background: I was against proposal 0, as I think that a limited and scarce supply is unique to YFI. It’s why YFI can go to infinity.

Now that proposal 0 passed, and we’re on the path of minting more YFI, here’s how I view the proposals:

Proposal A: YFI holders are naturally going to use the y products already because they are the best product in the world. It’s already going to capture the MOST yield possible - that’s the entire design of the product. If that is true, we DONT need to incentivize use any more. AGAINST. More YFI should only be used to build more and better products, so I agree with YFI whale.

Proposal B: YES YES YES. Synthetix did this right, and if we make more YFI it should be timellocked because it prevents selling pressure, while making investors long term focused.

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I built a model here that factors in @yfi_whale’s thoughts. Interested in feedback.

I’m totally against proposal A, inflation is too high and LPs will just farm and instadump since there’s no incentive for them to hold an inflationary asset. Constant selling pressure would lower price potential and rewards of the project. There could even be a negative feedback loop undermining the project, eg: COMP.

I’m for proposal B, locking up rewards incentivizes LPs to pump up the price before tokens are released, making others LPs join the party and rinse and repeat. This could be a potential positive feedback loop for the project.
That said, I choose the models with the least inflation possible (YFI_whale and model A) so we can reward the current token holders that are taking most of the risk and are now contributing to the project and paving the way to its future.

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I just want to point out that there should be more pools in the future that are incentivized with $YFI for the growth of yearn ecosystem.

For example, I believe yswap uniswap tokens will be THE strongest way of growing yearn TVL and ecosystem - even more than ycrv. If yCRV is a better version curve’s default pool, ySwap is that of uniswap v2.

Today if you were to be a liquidity provider of uniswap, you have to deposit both of the tokens and are exposed to both asset prices.

With yswap in the future what happens is that you can deposit aave tokens (e.g. aSNX) or unwrapped tokens (SNX) or Synthetic asset (sXAU) to AMM with single asset exposure. https://medium.com/iearn/yswap-exchange-99bf906311db

You stake aSNX in yswap —> ySwap contract creates or joins a uniswap pool of (aSNX/aUSD). At this time the value of the token is determined by chainlink oracles to mint aUSD. Now the token is UNI-V2 (underlying aSNX/aUSD). Yswap mints and returns aSNXUNI-V2 —> You now have aSNXUNI-V2 that can you redeem to get back aSNX.

aSNXUNI-V2 earns aave lending fees of SNX and gains uniswap trading fees. Optionally, we can add yswap fees that gets distributed to $YFI stakers/burners. This solidifies aave’s and uniswap’s presence within DeFi space. Not only it will be beneficial for the growth of yearn but it will help grow DeFI as a whole.

WIth this in mind, I think its ok if we lower the emission rate. Farming is good but if you really want to make DeFi space larger - so that future farms can be even bigger - we should wait for Andre’s yswap audit and development to be finished.

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Agree 100%. Both on Yswap being a potential big market, and the general idea of keeping our issuance powder dry until we can better gauge how/how much to allocate to various pools/projects.

Originally, isn’t it an incentive by YFI, and isn’t it expected that yswap will acquire users due to its functionality and operational profitability?

This begs the question about an opportunistic emission model. Could one design an emission model that has minimal inflation at certain times and then can be adjusted to pay out YFI tokens to incentivize and promote new products. Yield Farming would become the emission strategy. Different elements of the yEarn ecosystem could have different rewards curves that rely on being set by governance. Then we all go farm the rewards and drive the flywheel.

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I’m no solidity dev but I think one way to approach this, in line with a more general idea of an Issuance Max Cap, is to pre-mint the future issuance and distribute it in lots of 500 or 1000 to addresses owned by a governance contract. Then we could use votes to send them to the appropriate distribution/staking contracts at the appropriate time.

or create a metacurve that burns tokens in that contract over time. So as time goes on there will be less and less tokens to give out.

We think you make a good point about waiting for Andre’s yswap.

We have a good sense of all the upcoming upgrades that Andre has teased. Hopefully voters keep a lot of these things in mind with all the proposals popping up. There’s too many proposals happening right now to keep track of.

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Really interesting take.

I largely agree with your sentiment regarding A in the sense that we do not want to encourage trading. However, incentivizing deep liquidity for YFI is going to be key and I’m afraid without some allocation liquidity could get super scarce super fast

I feel that is ok though. If you can still gain YFI through providing work to the protocol there is no issue in scarce liquidity. As long as YFI tokens are not being locked (which I’m oppose to) some will decide to sell for a profit and those who don’t provide services to the protocol will be able to buy it.

Some organized thoughts of mine here:

I like the format of the proposal but am a little shocked at the amount of critical feedback so far. Has anyone considered that Synthetix’s inflation model works so good for them because their token is used as collateral in the system? More SNX in circulation means more utility for the Synthetix ecosystem, is the same true for YFI?
It’s very naive to assume that whatever model vaguely worked somewhere else can just be applied on top of anything.

I would suggest to focus more on revenue-generating avenues (COMP?) first to increase incentives to hold YFI and would only then think about additional inflation, which should be as inclusive as possible.

This is not meant as any discouragement to @Daryllautk - great work here, keep it up!

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Great point there @HeyChristopher originally wanted to frame thinking towards something more formalised versus the slipshot proposals we’ve been seeing posted up.

But yes it was naive to assume slapping an inflationary model could work in any scenario. Each have their own implications behind them

Glad that the community members like @Substreight has taken charge and made a thread of his own with a much lower inflation schedule of 22% and splitting the rewards to multiple streams with the potential to stream to a future Pool if it makes sense to incentivise future product offerings that would generate revenue.

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I would appreciate further explanations on why deep liquidity for YFI is essential.

Assuming deep liquidity leads to a relatively stabler trading environment of YFI, yet considering that the yearn ecosystem had been developed and engaged with healthily before the launch of YFI, I am having trouble to grasp on how a deeper liquidity of YFI is essential to the ecosystem.

The distribution of YFI should be treated more as a distribution of governing power to contributors of the ecosystem, hence decentralising the ecosystem’s governance, and less as a way to financially incentivise contributing behaviours. Financial attractiveness to engage with the ecosystem should rely more on the ecosystem’s products themselves, and less on the distribution and trading of its governance token.

Hence, a stabler trading environment of YFI carries less significance in the determination of YFI distribution model to me.

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Could not agree with @Globallager more! Very well articulated argument.

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I support the 50k Model by @Substreight :slight_smile:

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I just want to make sure I understand Proposal A
1.5 Bil market cap on YFI tokens
30K per YFI
500,000,000 TVL

& each stakes YFI token yields $448.135 per week?