Hi all, we would like to introduce ourselves. We are a group of early YFI farmers which currently holds 16% of the vote and are interested in seeing the long term success of the project. We were the ones who swung the vote for Prop 0 to For in the last vote. Internally we were also very split down the middle between For and Against. I was personally in the Against camp myself initially. Ultimately, we debated it out internally and the Fors won and we swung the vote. That being said, given the split both in our group and here in the broader community, we believe it is important to compromise with the Againsts. First, because we do not want to lose them as a part of our community (dissent is healthy and prevents monoculture) and second, because we could be wrong. Therefore, we will be only voting in favor of emissions schedules with very low inflation. We also mistakenly didn’t vote on Prop 1 which failed to pass due to not meeting quorum. Obviously, we would have been Against. In our opinion, Prop 1 should be resubmitted.
Here are some our thoughts regarding this entire experiment and new proposals we would like to see enacted. We will be compiling both the for and against arguments from within our group for each proposal.
Prop 0: Uncap supply from 30k and issue more YFI
For: Keeping farming going will help attract new users from the PR and marketing effect. Small dilution may be worth it. Other projects were able to have price increases even though inflation existed; maybe don’t fix what ain’t broke. Disallowing future farming may cause the community to feel bad in that large early whales will always hold a certain percentage of the float unless they sell and there is no other way to get YFI. If assets are pulled from yCurv or Balancer because farming yield drops, there could be a negative death spiral once assets move and no one finds it interesting anymore.
Against: Capping supply makes it deterministic, thus less risky, thus better for price. Keeping the float small also helps with price appreciation. It also attracts more of the sound money crew. The project is good enough that people would still use it even if not subsidized with YFI. Paying for usage may be bad because fair-weather farmers would flee to the next highest yielding play with a crop rotation the moment that it happens. And we would no longer have to stake a large capital base of collateral in Balancer to maintain voting share which reduces smart contract risk. We can always cap first and then introduce emissions later. (Counterargument: This sets bad precedent.)
Decision: For wins but with extremely reduced emissions schedule as a compromise with the Against camp.
Prop 1: Have burning of YFI to claim underlying fees instead of staking to claim underlying fees
Against: It makes no sense to burn because the price of YFI will always be higher than the claimable fee value. This is because YFI represents current assets in the fee pool plus future expected cashflows. Staking is just obviously better.
Prop Emissions Schedule
Within our group, the range of values we had was between 3000 and 12,000 new YFI issued ever. The emission period we had in mind was 2-3 years. We are also fine with some very small tail emission of at most 1% per year after the initial period (0% is fine too). We will vote against any proposal which is significantly higher than these numbers.
Here is our reasoning. Let’s start by thinking of this entire experiment as a company. The equity cap table represents ownership stake in the company. New equity is often issued as a way to raise capital or create a pool for future employees. The balance sheet of the firm is used for a number of different activities like development, marketing, operations, etc. With every dilution decision we, the community, make, we should consider whether we are getting back more or less value. Good decisions will cause YFI to go up and bad decisions will cause it to go down. For example, if we think of YFI as a farming incentive to attract use to the project, how much does this marketing and user acquisition effort cost and how much value does this bring? How much capital will flee the project after farming yield goes down and farmers rotate their crops and how much of it is sticky because the project itself is still useful once the dusts settles? We believe that yearn has enormous value even without subsidy from additional yield. yearn already optimizes for yield across a number of different projects (Compound, Aave, dYdX, bZx) in addition to getting farming rewards from those projects’ native governance tokens (plus CRV). As such, we do not believe we need to pay out YFI to new users as aggressively as other projects in this marketing and user acquisition exercise. This also rewards early users for taking risk with the project with things were the riskiest.
Some might say that the high inflation SNX model worked so why not just go with that. First, SNX locks their new issuance for a year so the supply effect only happens gradually. Second, yearn and Synthetix are different products. yearn is currently an aggregator (plus new y projects) while Synthetix is a synthetic asset creation and betting platform. SNX has a massive supply sink in that it needs to be staked in massive quantities to create small quantities of new Synths, in other words it functions as platform-wide collateral where the platform requires extreme over-collateralization (and also functions as a claim on future cashflows which is similar to YFI). This is done because the collateral is circular and endogenous rather than exogenous (Maker uses non-MKR assets as collateral to create DAI). This will cause death spiral problems for Synthetix later if they are unable to keep the flywheel going. There’s also more to say about long duration supply sinks here by looking at Steem’s early design but it’s a deep rabbit hole. In any case, yearn does not have a massive supply sink so a high inflation model would absolutely crush the price of YFI. Lastly, given the split on Prop 0, we doubt that a high inflation proposal has any chance of passing anyway. If there is any wisdom in crowds, it is that we should be careful about going too far away from the middle road on such a split issue.
So what should we use these low new emissions for? Our thoughts are roughly this:
1000-1200 YFI to Andre vesting over 2 years (linear seems fine; also fine to have 200-300 unlocked to start and the rest vesting linearly). At current prices this would be roughly $600k-$700k per year for him which would be equivalent to a top tier engineer at a tech company. Easily this could be $5m per year for him if things go well with YFI and even $50m per year for him if things go really well. This seems like adequate compensation to keep him motivated but not give him so much that he can just walk away and dump his holdings for an early retirement.
1000 YFI held by the 6-of-9 multisig signers to be distributed in the future for development grants, security audits, other expenses we may need to incur. Because the project is ultra lean, we don’t think we need a bigger budget than this. We can vote what to do with this piece later.
The remaining 800-10000 for future incentives to be voted on. We can allocate them to existing pools or to new projects. We are flexible here but against further Pool 2 (BPT of 98% DAI - 2% YFI) incentivization. Incentivization of Pool 2 has a dilution effect on all YFI holders for the questionable benefit of providing a bit more liquidity for getting into and out of YFI and LPs there only take price risk on YFI but no risk in the underlying protocol with yCurv. Better for all of us to subsidize yCurv risk rather than DAI risk. Lastly let’s think about these numbers. Do we as a firm who’s total equity value is $35m want to spend $800k to $12m of our collective balance sheet for marketing and user acquisition? What’s the goal here? If we had to pick a number out of the air, lower seems better. Also, there are many ways to do user acquisition. We can also just airdrop YFI to holders of Aave and Compound so their users know there is a better meta option for them than using either of the two separately. They can now get the best of both worlds. Why hold cUSDC or aUSDC when you can hold yUSDC?
So in summary, 3000-12000 new YFI issued over 2-3 years plus an optional 1% inflation per year afterwards. 1000-1200 (Founder / Core Developer Allocation), 1000 (Non-Marketing Expense Allocation), 800-10000 (Marketing Expense Allocation).
FAQ About Us
Are you VCs?
No, none of us are VCs. Most VCs don’t understand this stuff yet.
Why not discuss things out in the open rather than in private?
First, we are trying to be more transparent and out in the open. Second, it was more time efficient to come to consensus internally. In our group, all of our members respect each others’ opinions and we reach compromise easily. In the broader community we have seen the debate between the Fors and Againsts on Prop 0 where the each side was vehemently trying to save the other side from themselves. Sometimes having too many cooks in the kitchen makes it loud and noisy, drowning out logic and reason.
Why form a voting block?
First, it’s easier to manage operationally. Second, it’s what we agreed to in the beginning.
How many members do you have?
More than 1; less than 100.
How can we trust you?
We hope to prove to all of you over time that we have the best interests of the project in mind. We are all financially in this together and we stand to lose a great deal if we make bad decisions with our vote.
Why are you long-term invested in YFI?
yearn is a quality of project that only comes maybe once every 1 to 2 years in crypto. Our vision is that eventually yStables will be used as the de facto settlement asset for all financial activity in crypto if not the world. Here’s an analogy. USDC is like keeping USD under your mattress. cUSDC is like putting your USD in a savings account at a bank. yUSDC is like putting your USD with a robo-advisor who then puts your USD in the highest savings account it can find and automatically rotates it to the best interest-bearing savings account across all the banks while charging you nothing. Currently, in the crypto space, stablecoins are used for transfers, margining, borrow/lending. They are used across DeFi and CeFi (exchanges and OTC). Anything USDT can do, yUSDT can do better. Why not trade FTX perps with yUSDT margin? Already FTX takes cUSDT as collateral. Why even have a BTC-USDT pair on Binance when you could have BTC-yUSDT? All that USDT OTC flow from China could be yUSDT. Lastly, why even borrow or lend DAI when you can borrow or lend yDAI (just think about that one). The implications are huge. One last thing, YFI is severely undervalued relative to circulating and total cap of other comparables (https://twitter.com/CryptoHyena/status/1285842532459585537/photo/1) and also relative to underlying cashflow (EBIT/rev) multiples.
yfi_whale - Member 02