YIP-65: Evolving YFI Tokenomics

A synthesis of the most popular tokenomics ideas, while leaving the door open for future innovation. Love it - 100% yes.

4 Likes

maybe thats something gov can vote on. set a floor amount of ETH/BTC/stables for treasury to be holding before we pay out to xYFI or veYFI. We currently have around $30m but if gov votes for it to be more than that then rewards can be paused til treasury is full.

4 Likes

veCRV’s non-transferability is bypassed via wrapped derivatives. Won’t veYFI be immediately affected the same way after release? There has to be a better way to implement the timelock.

1 Like

The behavior you claim it limits it will actually only contribute to in this case because only wealthier holders have the long time preference to remain illiquid.

Using the ve-mechanism ends up creating multiple classes of YFI holders, which is that really supporting Yearn’s inclusive nature?

Yearn can accomplish something similar with likely better economics using a simpler structure. Instead of using fees to buy Yearn at any price and then partitioning distribution among classes, it would create Uniswap range orders below the market price. Shorter term holders will sell bringing the price of YFI down and the range order would take those tokens out of circulation rewarding longer term holders. It would do this even more so because it’s buyback yield will be higher than a mechanism which buys at any price.

5 Likes

As it currently stands, the YIPs process is unclear: must we submit via the proper github repo or is forum discussion and snapshot voting sufficient? I only ask as so that it is clear the proper steps/workflow for this stipulation.

This actually will create a more lucrative instrument than YFI itself. Now the inevitable “…but what about past contributors…” question, ser.

I would like to see existing ecosystem partners more active, as it looks from the outside its seems entirely superficial.

mmmmmmmmmmmmmmmmmmmmmmm

2 Likes

Honestly, in my opinion, while I agree with some of your points, I also think the DAO hoarding tokens in the Treasury is redundant and pointless if we do not drive more value into the hands of active YFI token holders.

The DAO is in a healthy position, and would be even healthier if we tripled TVL and YFI was trading at $70-100k right? The superpower we have is fair and even distribution of the value capture, and this has to be represented by the token value (which it currently is not, and has been discussed at length in other posts).

I am mindful of a bear market…but some evidence would suggest we are already in a bear market since the summer - and look at our healthy balance sheet.

We can’t predict the market, and we certainly cannot predict how the composable, multi-chain DeFi ecosystem plays out and how all our partners interact with us. We have to focus on what we see and hear right now - and right now. I for one do not anticipate a return to a multi-year bear market - too much has changed - we are in the post-Dotcom bubble period and I feel have crossed the S-curve.

What YFI needs now is be taken seriously as a productive asset that rewards participation and engagement, integration and also rewards the input of Big Brains that write the strategies we all benefit from.

We are Great White Sharks in DeFi and I think we should not be afraid of the market - sharks need to swim forward or they die.

5 Likes

The key aspect, imo, of the veTKN model that makes it powerful can be seen in curve, Iron Bank (CREAM), and Fixed Forex and that is two fold. First is the payout in stables that don’t force lockers to choose to dump or not, and these stables being ibTKNs so claimers need not rush to claim.

I would consider how to include both or at least the ibTKN factor.

1 Like

Thank you for your feedback.

I don’t follow–Why would only wealthy holders have the preference not to sell their YFI? You can be cash-poor, and still take a long time preference on your YFI holdings, as long as that doesn’t end up being in direct conflict with basic needs such as food and having a roof over your head.

Either way, the bullet you quoted refers to an outcome where vault gauges requires you to actually use the product (use yearn vaults) in order to earn YFI rewards, rather than just staking your YFI to earn more YFI (which in a way is just those who already have YFI getting more YFI). The former aligns better with what the protocol ought to be rewarding, imo.

If by “multiple classes” you mean two: those who time-lock and commit to holding for a set duration, and those who do not, retaining the option to sell at any given time, then yes that’s right: We propose to reward the former group rather than the latter as their views align better with the long term interests of the protocol. How is this in conflict with being inclusive?

I understand this as an idea for how the Treasury best could buy back YFI from the open market. Sounds like something worth while to consider. This is however off-topic to the proposal in this thread, which is about what to do with the YFI once it has been bought back, no matter the method used.

3 Likes

My hunch is that for people where YFI makes up a larger percentage of their net worth they will like to access appreciated value to finally pay for life decisions deferred such as the purchase of a house, where as wealthier holders either have already made those decisions or have a broader asset base to choose from.

If I understand correctly there are more than two as you can lock for different durations and receive a different proportion of protocol cash flows. Token holders that lock for 4 years will receive different amount of cash flows than token holders that lock for 2 years.

4 years is a fairly long time in crypto given the pace of innovation. At some point there maybe projects that locked YFI holder will want to fund and where the yield of an appreciated YFI is not as attractive at that moment. They will be forced to sell at a discount to market price and when YFI looks attractive again they will require a stepper discount than would normally be required to compensate for the lock up risk. Ultimately the convoluted nature of multiple classes and lock ups will create a higher cost of capital for YFI.

Studies have been done (Ibbotson) on the liquidity premium, if you take away liquidity you should expect a higher cost of capital.

1 Like

If your hunch is correct, it sounds to me like those holders would naturally lock YFI up for shorter duration, and retain some of their optionality. There’s also nothing that prevents wrapped derivatives of veYFI (such as a cvxYFI for instance) from being created that would allow lockers to enter/exit easily, or even be used as collateral in lending protocols, accessing portions of the value without having to liquidate positions.

Thing is, nobody is forcing YFI holders to lock up for the max duration. We’re just designing a system that intentionally rewards those who do so the most. In other words, in compensation for taking the risk you outline, holders get outsized rewards compared to those who do not.

Holders have to weigh their personal circumstances and preferences, and choose the option that’s right for them.

There’s no such thing as a free lunch in this system. To earn rewards, you pay with optionality. This is a good thing I think.

1 Like

The creation of veYFI would effectively be the equivalent of sYFI (staked YFI) with a more complicated structure to get access to the same cash flows.

If at any point in those 4 years token holders disagree with the direction that Yearn is taking they are being punished for exit. I think such actions will result in a higher cost of capital for Yearn.

Of course this is all academic, it would be useful if somehow these two models could run be run along side each other to see which produces better outcomes. Perhaps a temporary ve-mechansim and sYFI, for say 3-6 months at which point the results of both will be compared.

1 Like

I can’t do anything with my yfi because of gas fees though.

2 Likes

I do not quite see how paying out most revenue to YFI token holders equates to driving more value into their hands. As I see it, distributing this revenue dilutes our project to some extent (we do not increase the amount of reserves held by the protocol and therefore do not increase the amount of value one token represents. Our growth would merely be in terms of TVL). While some costs could certainly be very useful and benefit the protocol more than the costs, I do not currently believe distributing most of our revenue is one of them. Instead, I would rather see these funds in the treasury (and/or spent on development).

In theory, if most of the revenue were to be distributed, this should not actually increase the token value as mentioned earlier. What should increase the token value is spending our revenue on buybacks of YFI tokens. However, it is not necessary for us to then distribute all these tokens to holders as this would partially off-set the buying in the first place by people who decide to sell their newly distributed tokens. Therefore I do think it would be in our best interest to keep most of these assets (whether it be in YFI or other tokens) in our treasury for now. This would actually increase the value in the hands of YFI token holders rather than dilute the token.

I believe this would actually be the most offensive position we could take, as we further grow the amount of assets to deploy in battle and reinvest our revenue. In a later stage, we could still move into a more defensive position by distributing more and more revenue.

To emphasise: I think it would be beneficial to, as you said it, make YFI a productive asset (through the veYFI system) to some extent. I just do not think it would make sense to distribute the majority of our revenue currently. This is not an all-or-nothing decision and I think we should discuss the in-betweens.

5 Likes

While I do think a ve-style system with gauges is a worthwhile final goal and am greatly in favor of the core of the proposal from @0xJiji et al, I’d like to know more about the “bear market buffer”.

  • Do we have any modeling to suggest that $30m is a “sufficient” buffer?
  • How long will this last us?
  • What will it be able to cover?
  • How much of it is in stables vs volatile assets that would likely depreciate during a bear market?

I would simply like to have a bit more data on this before we commit. Or does yearn budget/treasury team still have discretion under this proposal to modify the amount diverted to buybacks each month based on desire to further grow this buffer, or cover increased operational costs?

I think this also lines up with some of the questions from @syno as well.

4 Likes

Should we have a minimum lock for all xYFI distributions? This would encourage voting as why not while your YFI is locked up and prevent instadumping. It also gives optionality to YFI gov to pause maturation if it’s earned but not yet unlocked, for emergencies. AAVE’s 10 day wind down for withdrawals for example.

This proposal is currently in the voting phase. Cast your vote on Snapshot.

https://snapshot.org/#/ybaby.eth/proposal/0x8f7417fa5565d9f46e16618503e8808c36d51b2a9e8217a68c632d7c090d69d9

I think I follow your train of thought. So you think we are better off reflecting value in YFI through a direct link the size of the Treasury - rather than a share of the revenue destined for the Treasury?

For my simple brain it sort of seems a bit like an Amazon vs Microsoft decision. Do we re-invest all earnings into the Treasury, and use every available resource to grow the size of the business and the business balance sheet. Or do we pay a healthy and consistent “yividend” to YFI holders. Both are fairly proven ways of improving value.

One thing I am wondering is to me it feels like we are already the Amazon approach, and so prospective future YFI owners likely already see this as the way of valuing YFI. That YFI is valued according to the health of the protocol, TVL, Treasury, cash on hand etc etc. I wonder whether we are less attractive to the other type of investor, like the Warren Buffett type who wants to “own” a piece of a great business that pays them a consistent dividend year on year.

Do shut ourselves off to a different type of investor if YFI doesn’t earn a share of the business’ profit?

I glad we both agree on veYFI - this I think ticks all the boxes.

2 Likes

Whack. Everything already been done by others.

Yes, they do. Nothing in this proposal limits the scope or powers of the yBudget team.

1 Like

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