YIP-56: Buyback and Build

How exactly would YFI be bought back, and with what frequency?

In a decade we see yfi acting as like bank with regulatory compliance.
With more or less expensive chain

2 Likes

Sushiswap I believe. Frequency should be continuous, so less of an ability to front-run by outsiders

3 Likes
  1. Yes, as an investor you do not have protections here, but you still have face melting up-side. So it worth spending all returns to devs.
  2. It is still a group of people that needs to be incentivized.

By that time most of the long-term devs will also have YFIs, and they too would like to have value accrual/profits to their shares. just like investors.

I don’t think this is very relevant. The current devs are getting under-paid for their work retrospectively, and a bit extra incentives to stay.

Yes, this need to happen at some point, but until then, I don’t see how investors are automatically eligible to those funds.

  1. Token holders (Investors & Devs) will gain massively from value appreciation. This will only happen when the vaults are effective and buybacks are in place.
  2. Token holders (Investors & Devs) will and should receive protocol fees (YFI) later on. Why? because without it, YFI will loose its value and paying Operations will not be even sufficient. Actually paying operations with YFI makes the devs investors too.

I’m an investor and I don’t see myself entitled to anything now. Actually I feel embarrassed because I can’t help Yearn, and instead I’m arguing here. I’m willing to pay every penny to support the devs now, because my long-term gains will be massive.

Ok, I think stakers (investors and devs) could actually help Yearn here. 6+ month lockup can be an incentive to focus on the long-term value, and will actually increase the value of YFI which will help everyone, including the operational payouts from a higher value token.

I’m sorry for quoting you a lot @DCinvestor ! but you do have good view points that I need to clarify on.

4 Likes

Glad to see we’re almost 90% FOR right now.

From an investor’s perspective: For every % of dividend returned, risk of the long-term health of an asset (digital or traditional) actually increases, which is why long-term quant models account for increased risk with value stocks over growth stocks. In crypto, I’d argue it’s the same idea - the more you’re plowing back into the ecosystem early on, the healthier (less risky) the asset should be over time while still increasing potential upside. So, just from a risk-reward perspective I’m all for it. I don’t see any upside to continuing to give back any % to stakers at this stage, though this can change over time…which is why I’m also IN FAVOR of revisiting in six months.

From a developers perspective: At this point, we should be incentivizing development to the greatest-possible extent and retroactively subsidizing contributions where it makes sense to do so. Pay the men and women who built Yearn and we’ll continue to attract top talent.

5 Likes

Agree with your first point about time caps. I’m personally not opposed to that. Also agree we should be as transparent as possible with use of funds, which we have been doing through quarterly reports (which can be corroborated on-chain).

But while I appreciate your concerns over value accrual, I’m not sure what the strong concerns are here with the removal of dividends. Not only will YFI holders still effectively own the bought back YFI, but this change is not eliminating earnings. Earnings will still stay exactly as is and YFI should benefit accordingly. Plus its not like this change will be permanent, its a short-term measure to ensure we have the funds to properly incentivize contributors and can pay for growth initiatives.

For fear over removal of dividends I’d point to the Amazon’s of the world who haven’t paid owners a dime, but whose stock has still been rewarded incredibly. Its all about future cash flows, not a single digit yield you may receive over the next 6-12 months from staking.

Plus I’d also add that there are emerging use cases for YFI (like wYFI) which will also be sources of value accrual beyond vaults. Above all its just important to make sure our house is in order before we start dividending out the spoils.

10 Likes

I think the time cap alone will be a very important check. It’s not hard to imagine what could happen here: this just becomes a slush fund for insiders with minimal accountability (note: absolutely not a judgement on anyone currently involved in any of these decisions or Yearn dev, but thinking more broadly). And the graft / malfeasance may need to be exceptional to motivate someone to launch and succeed a coup vote of no confidence (if we went without time cap). Every dollar (or YFI) in the treasury should be thoughtfully spent to advance Yearn under this proposal, and IMO, we should strengthen accountability to ensure that this happens.

The time cap will help ensure this issue is continually revisited, and the goal should be to think about when (not if) value accrual mechanisms are re-enabled for the YFI token if this proposal passes. This could be a dividend, or it could be something else. Frankly, the space is rife with tokens which don’t have solid value accrual mechanisms, and while some will do well during bull markets, they get slaughtered during bears. A key difference which may emerge in this cycle is creation of more tokens which create direct value accrual to their tokens, and YFI will have to compete with that.

While I recognize the analogy within the argument, I think the comparison to growth stocks is interesting but specious. True, Amazon and other growth stock share holders tolerate no dividends or buybacks, but equities also provide legal claims to assets and business models which tokens do not. We are still too early to really understand what factors driven token valuation; however, even under this proposal, retaining and building the value of YFI is desirable, so it bears giving serious thought to what effect such a move might have on token holders.

As a YFI token holder, I agree that the income I receive from the token is less important to me than capital appreciation, but the mechanism has to be there for income or similar value accrual at some point (or the eventual expectation thereof). I think some projects will learn this the hard way over the next 3 years, and I don’t want Yearn to be one of them.

In principle, we agree that more money should be put towards investing into the protocol. I might be willing to accept the loss of income / value accrual to the token for a time, but if this proposal is made without a time cap and without strengthened processes & transparency for fund disbursement / expenditure, then I plan to vote ‘no.’

12 Likes

Slightly lost here and, before commenting, want to make entirely sure I’m understanding the proposal correctly.

YIP-54 specified that 50% of the treasury would be allocated to Operations. It also permitted the operations fund to buy back YFI.

Would it be correct to reword the first part of this proposal to “Allocate 100% of the Treasury funds to Operations and, for the 50% of these funds previously allocated to staking rewards, guarantee these will be used for buybacks of YFI”?

2 Likes

Agree with this proposal.

YFI buybacks are much better than not competitive stacking rewards, this confirms the already mentioned essay “Stop Burning Tokens – Buyback And Make Instead” (I recommend to read it), as well as empirical observations of other projects where such a system has already been implemented.

Looking good from Risk:Reward perspective.

It’d be great to incentivize Yearn’s ecosystem partners with YFI bought back form the market, and make sure the ecosystem remains cohesive.

1 Like

yes but Bitcoin is not YFI :). Different types of mechanism and business logic.
YFi is for active earning not for paying or holding

Sorry if this has been mentioned elsewhere but we need a way to claim our existing rewards. I’ve been stuck for awhile with " You need to have voted recently in order to claim rewards".

You can claim here. https://ygov.rocks/ . You can confirm this is legit, by checking the links tab on the yearn discord. The voting requirement got removed a few months ago.

4 Likes

This is how I interpreted it as well

This is just flat out wrong. First off, we’re going to be in a multi-year bull market (DeFi isn’t just coming and going–this tech is here to stay), but even putting that aside, the tokens that survive will be those with the highest revenue/earnings. How to allocate those earnings should be best used for growth of earnings, which the market values much more than a dividend. Present earnings + future expected earnings growth = the driver of valuations.

1 Like

I love the extreme definitiveness with which you say this, and the valuation frameworks which you cite as though they are actually recognized in this marketplace.

Anyway, you’ve made your position clear enough.

5 Likes

Sorry, I’m not trying to be obnoxious I just wholeheartedly disagree.

  1. DeFi is going to eat TradFi. Token valuations may come and go, but the value stored in smart contracts on Ethereum is going >>> (over the next few years) proprietary code on traditional bank databases.

  2. Earnings + projects growth of earnings are the most important variables in a valuation of any business, regardless of whether it’s an L2 on Ethereum, a nascent traditional startup, a seasoned traditional startup, or a public company.

We’re on the same team–end of the day, our other teammates will decide. Iron sharpens iron, so grateful for the debate regardless of the outcome. Cheers.

1 Like

When I initially read this proposal I thought hey didn’t we already decide this in YIP 54? As I was reading the proposal my gut was telling me I should be against this (but I was wrong). The proposal redirects from ‘dividends to stakers’ to ‘YFI buybacks for Ops fund’. Here is why I am for this. Note I have one criticism, but not sure a way around it.

  1. Alignment - In actuality I believe the 50/50 split probably provides enough alignment and this is probably a secondary concern. If YFI is managing $1B TVL @ 10% that is $30mm to the ops fund annually. The ability to pay core contributors should be sufficient from a pool half that size. With the extra 50% alignment issues should be completely solved here.
  2. Growth - Right now there a few core contributors who are basically donating their time to get YFI going. Yes they are paid 8k-12k/month, but those are basically living wages and they aren’t accruing any option value in the enterprise. IMO they are working for free. This incremental pool should be used primarily to help fund growth through talent acquisition and retention along with other initiatives (ie: yAcademy to speed up auditing turnaround). Hire/retain talent in specific trade areas the current groups lacks etc. Do they have a good use in mind for the extra funds. I don’t know but we will see. I seriously can’t imagine the devs are saying great let’s take another 50% of the revenue and just split it amongst ourselves in YFI buybacks. Totally out of character. The funds theoretically should be able to be put to better use than dividends at such an early stage.
  3. Criticism - This is just a criticism of the buyback methodology, but when YFI is performing well (high TVL, high rates of return) the price will naturally rise and treasury will be buying back with more fees into an inflated YFI market. You want to be buying lots of YFI when the price is low. Conversely when YFI is doing poorly (TVL low, rate of return low) treasury will have few funds to buy at depressed prices. The buybacks will be pro-cyclical. Maker has the same problem. Not sure how to solve that.
  4. Benefit to all holders - This change brings a benefit to all stakeholders as oppose to just those staking. I actually think thats a slight negative because the tokens stated purpose is governance, but there really isn’t that much governance anyway. Not too hot and bothered by this. Better to allow people to use it as an asset elsewhere.

I think over time we will see how they put the funds to use and what they are planning for it. They put out transparent financial reports and we can all see how it goes. If the funds are not being put to good use then we can revisit. If they are being put to good use then status quo is fine and in the interim YFI will be bought back providing return of value to YFI holders (yes some will leak as YFI recipients need to sell for taxes etc.), but majority should not. Banteg said in chat today it would be the last assets he ever sells.

Do we need a mechanism to revisit in 6 months as @DCinvestor suggests. Probably a good idea although not sure if formalizing it makes a difference since this isn’t on-chain governance. Its effectively just a promise to revisit which is enough for me

Bottom line I’m for.

7 Likes

holders will earn all the produced from the 1% transfer tax

1 Like

Thanks for the confirmation.

If you consider YFI holders as roughly equivalent to shareholders in a company (although @DCinvestor is correct in that shareholders have more rights) then what we’re being asked to vote on here is to forgo dividends (staking rewards) in favour of increased investment (more in the Ops fund).

I’d pose two questions here:

  1. Is this a good idea in the short-term (the growth phase)
  2. Is this a good idea as a ‘permanent’ solution

Regarding (1), I quite simply don’t have enough information in this proposal to make that call. With current TVL c. $350m we’re looking at a $5m annual Ops fund in v2 before this change; return to $1bn locked under v2 and it’s $15m. Can that be sensibly invested? I don’t know – I certainly haven’t seen any information. Could twice that amount be sensibly invested as proposed here? I still don’t know! I’m minded to trust those who run the Ops fund as they have previously delivered – but I’d like to think more detail could be given now, up-front, to assist in decision making. It would be nice to see this proposal framed as an investment request not a tinkering with mechanics.

Regarding the second, I’m firmly with @DCinvestor here. There is potentially a very strong negative signal sent to the market by passing a vote that terminates staking rewards. Yeah yeah, could vote them back in… that’s not how the wider market will see it. We go from YFI being a token with use cases of both Governance and income through staking to one of Governance only.

It’s perfectly sensible to compare this move to a tech company like Amazon that doesn’t pay dividends, except this proposal isn’t equivalent to Amazon’s “let’s not pay a dividend so we can invest more and grow our capital value”, it’s equivalent to Amazon saying that plus “your shares now have no future dividend rights”. A 6 month time limit on this would be a very sensible approach.

Finally, the part of the proposal that proposes buy-back of YFI is, IMO, worthless as it currently stands. So what if tokens are bought back and then used to pay contributors? They’re just being used as a tool to transfer value and could well be sold immediately. As buying pressure on YFI tokens it’s meaningless (low tens of million $ annually as things versus $200m+ daily trading volume… this isn’t going to create price appreciation). There is no real accrual of value to Yearn or YFI holders from this. If lockups were used then this would be more interesting, but still probably meaningless in the overall ‘return’ for YFI holders. It certainly would not negate the removal of Staking rewards.

2 Likes

I don’t think anyone is interpreting as being equivalent to Amazon saying: “plus your shares now have no future dividend rights” besides you & DC. I think it’s a justifiable concern, and definitely one to voice, but in no way what this proposal is saying in any way.

As per your first point–good points to bring up, but getting YFI into those who will drive the most value to YFI holders is the most important element to the allocation. YFI stakers just aren’t anywhere close to our developers right now–the required work to ship versus forum and vote is over 1,000x apart.

1 Like