YFI Mint Controls - Burn the Mint! & Alternatives

General Chat Ideas
1

Drafters

@Skelectric, @HAtTip3675, @dripdrop, @Arcturus, @alizk, @Val

Summary

Establish enhanced controls around the minting of YFI, either through the execution of some variation of a minter-burn or minter-lock, through the implementation of steeper voting requirements for subsequent mints, or through alternate means.

This assumes the YFI-minting YIP 57 passes: the drafters of this proposal are in favor of the mint and want to initiate a discussion around next steps for how to handle the minting keys. The goal of this discussion is to explore possible strategies and attempt to narrow our options down for a signaling poll.

Motivation

With great power comes great responsibility, and the passing of a YFI-minting proposal to fund continued development efforts should also introduce controls around subsequent dilution efforts, which would:

  • Promote diligent management of Yearn’s treasury
  • Encourage sustainability through incentivizing a shift from issuance-based revenue to fee-based revenue
  • Prevent adversarial actors from being able to profit from subversive minting proposals, i.e. by simultaneously shorting YFI and drumming up support for a minting proposal (@alizk)
  • Re-establish a degree of YFI supply predictability/scarcity that has been a draw for a subset of Yearn’s participants

Option 1 - Burn the Minter

Burning the minter is the most frequently requested option, involving setting the minting contract to the 0x0 burn address. Future dilution efforts may introduce significant overhead costs through forks or token migrations, which would act as a disincentive. However, these overhead costs may be relatively insignificant over a sufficiently long time horizon and a token migration could re-enable dilution trivially.

This option can be modified to initiate a countdown after which the YFI minter is burned, requiring a vote to either stop or extend the burn date. This would place the onus on mint-burning detractors to take action (@Arcturus).

Option 2 - Lock the Minter for a Length of Time

Locking the minter for a predetermined length of time is the impermanent variant of burning the minting contract, where advocates of minting more YFI would wait until X amount of time elapses before being able to propose any additional minting. However, similar to option 1, a token migration could re-enable dilution trivially.

Option 3 - Establish Higher Consensus Requirements for Future Minting

By establishing higher consensus requirements (through quorum and voting thresholds), future dilution becomes a political issue rather than a technical one. This would also proactively apply towards any dilution efforts stemming from token migrations. The quorum and voting thresholds would be parameterized with the goal of representing a community-wide consensus regarding the need for additional YFI minting.

Option 0 - No Change

Governance keeps current control of YFI minting keys.

12 Likes
2

I’d choose either option 1 or option 3.

2 Likes
3

It would be good to clarify the status quo. YFI token governance is set to TimelockGovernance which itself doesn’t have minting capabilities, the only thing it can do is to give the token governance to another contract after a 3-day timelock. It’s currently controlled by Yearn multisig.

2 Likes
4

Option 1 is the one for me!

5

I don’t see a significant difference between option 2 and option 0.

I prefer option 1. Especially since the BABY passed on the snapshot vote. Ideally Yearn should have plenty of funds.

1 Like
6

Proposed initiatives (except maybe option 3? Can someone speak to that?) are futile in the case of a token migration, so not much point unless we just want to virtue signal (not necessarily a bad thing, but market sees through eventually). The only material thing here is the vesting schedule. Once the market is convinced the team isn’t racing to dump, this will pump past ATH.

I doubt we need another mint in the future because treasury should have a lot of income from fees and a higher YFI price that they will be using to pay contributors, but I do share the same concern. It doesn’t seem like there is a real way to mitigate it when you consider token migration though.

2 Likes
7

First thanks for your work guys.

Just have few questions:

IF we mint 6666 YFI. and if option 2 wins.
What is your prediction of the locking time ? In other words do we have any rough idea about how long we can imagine having a bright future ? I know it’s hard to know.

But if we use all 2222YFI for past contributors. So 2222YFI for one year.
If those contributors stay, and we have new ones , 4444 YFI will be enough for 3-4 years ? (Of course it also depends if we use those YFI to generate some profits with yield farming, lending …).
This is more a question for the working group in charge of allocation but the Retention package and overall terms will be key. For instance if those 2222YFI are only used to reward work already made, or if it will also be used to keep current contributors in the future.

Still on Option 2: Can this decision be revered in the future if someone make a YFI ? Or is it strict, and it won’t be possible to change it ?

I guess Option 2 and 3 together could be a good idea. If those new minted YFI are “correctly” used and contributors don’t dump it and really want to keep skins in the game, we should have a better repartition and MAYBE less big whales.

2 Likes
8

This is why I personally believe that raising the consensus requirement (option 3) is the only workable solution to a supply cap, since it acknowledges that minting more is a consensus issue rather than a technical one, especially long-term.

3 Likes
9

Agreed. It should really be the only option proposed here since the others can be mitigated relatively easily.

10

Option 3 if it covers not only minting but token migrations as well

5 Likes
11

First I want to say that I am glad to see that the 6.6k mint will be passing. Frankly it is something that needed to happen a long time ago and I think it is going to right some wrongs.

I will start this by saying I believe using the minter should be a last resort function for something that critically needs funding where there is no other method to raise the funds and the need is immediate. Bootstrapping a treasury and compensating Yearn’s ultra talented contributors wholly falls in that category. One of the best ways to keep dilution as a last resort tool is to add friction to it. I believe options 1 and 3 add a high level of friction.

The Best Option
How much friction we create will reflect how serious we consider the use of the minter.

Option 1 is the highest friction option. We know creating an entirely new token, selling that idea to the community, and integrating this new token throughout DeFi would take a serious amount of effort. If we as a community believe that outside of a dire funding shortfall, we should not be using the minter, then this is the option is probably the best choice.

Option 3 would also add a high level of friction but not as much as option 1. This option ensures the minter is always accessible albeit with a higher threshold of approval than any other proposal, thus still signaling the community considers the use of the minter quite serious and wants to use technical hurdles to force deeper conversations and go through a process of winning over of the community for its use. This is the option I personally prefer.

A quorum threshold is important as it prevents “decentralized theatre” by preventing a few stakeholders from rushing through a mint that has serious financial implications to all holders. I believe we should not only be asking for a supermajority of votes to say ‘yes’ to dilution, but we should expect a higher than normal turnout from holders themselves.

Why friction? Why higher voting and quorum thresholds?
Asking a community to dilute themselves for a cause should be something that takes time. Those asking for dilution should be putting in the work to bring “yes” votes over to their cause. Once those asking for dilution believe they have enough support and attempt to pass a formal proposal, there should be zero question that the proposal was passed by the will of the majority of stakeholders.

There should be no illusion that a tiny cabal of stakeholders pushed through a major dilution (the low quorum issue). There should be no chance that a dilution event passes with razor thin margin therefor leaving the question of whether there was an actual majority of stakeholders who supported it (the simple majority issue). There should be no chance that a major dilution event is sped through without a rigorous process (the low friction issue).

Alternative idea: Let’s make minting deterministic
One of the worst things about this most recent minting proposal is that it was not expected. The second worse thing is that it is happening as YFI continues to be one of the worst performing bluechips (and worst performing tokens, period) since the Nov. bear market. I would like to suggest a minting idea that solves those 2 previous pain points by 1) making it deterministic and 2) doing it as the market is outperforming therefor making it a much less painful event.

The first issue of unexpected mints… the market has/will price in sudden new events that affect token economics. For example, bootstrapping a treasury after the fact is worse than a protocol that has set aside a treasury before launch as with the latter the market has already factored in that information ahead of time and price reflects that known information. In an unexpected large mint the market suddenly needs to digest this change, often at the detriment of existing holders. For a long term holder, one of the most important things is to try and reduce/prevent unexpected changes to token economics.

The second issue is diluting during bear markets or general underperformance. Markets will always act more sensitively (and negatively) to these type of events when they happen during bear markets or when the token is significantly underperforming its peers.

These two issues can be solved by create a dilution schedule where ‘x’ tokens are minted as YFI’s market cap crosses certain milestones and/or as YFI outperforms some sort of DeFi benchmark. As an added bonus this also significantly reduces the chances that the minter would need to be used unexpectedly. I would support this type of thing if it had the right parameters and if it was still accompanied by an option 3 type of proposal.

6 Likes
12

Good points. We also have to consider that with the BABY proposal being implemented there is no cash flow for investors’ new investment thesis for YFI, which is not helpful for the mint. Is the value proposition/end game here for YFI investors the likelihood of turning fees on for investors/hodlers in the future once AUM is high enough for scale to be a moat, similar to UNI etc.? I think the team/community should be clear in the direction we are trying to go here

13

Agreed completely…

14

There may not be any explicit cash flow coming in to YFI holders with BABY, but you shouldn’t discount that there is a value accrual mechanism still at play in the form of YFI buy pressure.

Regardless, YFI’s value proposition is a separate discussion imo. The minting proposal already established precedent that tokenomics changes will happen incrementally, or in silo. That would include new YFI value accrual mechanisms.

1 Like
15

Deterministic minting is an interesting concept, are there any working examples of such a mechanism?

I’d be wary of yearn implementing such an experimental feature when it would have dependencies on market-cap/price oracles. It could add an attack vector to the tokenomics and may be difficult to find the right parameters without there already being proven examples.

16

Agree – option 3 works best IMO and would ideally come with associated controls on token migrations. However – I have no idea if it’s technically possible to restrict migrations like this. Could someone with more technical knowledge comment on this, please?

Deterministic minting is an interesting idea, but I suspect the details are too hard to work out – you’d have to scenario plan for so many possible outcomes for the broad market + Yearn’s needs within it to check that what you’re determining up-front doesn’t come unstuck in reality. Feels to me like there is a benefit of keeping brains not algorithms in control of future mints.

1 Like
17

I think I really like number 3 as the best of the option. I’m just going to throw out some levels and see what people think.

Currently, (please correct me if I’m wrong) there is no quorum requirement and >50% to pass.

For Minting related votes should we have a 33% quorum requirement (on tokens eligible to vote ie: staked in governance) and > 66% to pass. What do you think of these levels?

It makes is so you need a significant portion of the eligible tokens speaking on the proposal and a supermajority. For example in the current mint proposal we had 51% voting (quorum) and at of now 83% in favor.

Minting with no quorum and a > 50% vote doesn’t seem like enough protection.

6 Likes
18

This topic was automatically closed 7 days after the last reply. New replies are no longer allowed.