YFi burn as currently implemented does not work, and Staking is obviously a better way of distributing the rewards pool than the current burn model. However the current burn model is not the only burn model we could consider. The following is another model for distributing the pool rewards through a Burn model that I think has some merit but would like to get feedback on.
TLDR: Use the Rewards Pool funds (fees generated for system by the protocol) to purchase YFi from the market and burn them.
The system would work something like this:
- Protocol fees are added to the rewards pool over time
- At a set point the fees in the rewards pool would buy YFi from the market
- The YFi bought by the rewards pool would be burned
This system would be somewhat similar to a stock buyback in traditional finance. In current traditional finance these buybacks have earned a bad name due to the moral hazard inherent in the system, but in reality buybacks are really just a more tax efficient method of paying dividends (which are roughly equivalent to Staking).
More tax efficient - Each Fee distribution through Staking can be a taxable event, whereas capital appreciation through outstanding token deflation is not until sold
More direct feedback to YFi price appreciation - Fees are used to buy YFi on the open market, putting incremental upward pressure on price while also reducing supply. Paying out the fees to Stakers takes capital out of the YFi system
Harder to target these fees to governance participants - Reducing YFi supply will raise price for everyone, whereas Staking only distributes rewards to Stakers/Voters. There are ways to mitigate this, for instance the purchases could be made from whichever YFi Pool the Governance Staking comes from so that incremental buying hits that pool first. A hybrid model, where a portion (say 10%) goes to Governance Stakers/Voters and the other 90% is used to buy and burn YFi. Thus there is added incentive to Stake/Vote relative to just holding YFi
I think this idea is worth discussion, and I’m interested on feedback on any of the above points. In particular the technical implementation, while it doesn’t seem overly complex, is outside my are of expertise. Frontrunning the reward buy is something to consider as well.
Same as NASDAQ, share buyback is proven to be the more effective way of raising share price, compared to issuing cash dividend. I think this is a good idea.
I am FOR this idea. Its how MKR works and the code can easily be added. Its basically an auction any time there is 50k of fees. It burns the YFI (decreasing supply) which is good.
I like the idea under 2 conditions
(1) Rewards are used to buy YFI over time instead of 1-2 buckle orders.
(2) YFI are bought via public AMM pools without causing considerable slippage.
I am AGAINST this idea. I don’t think a buy back system is necessary at the moment, but I am open to this in the future. Price appreciation can come from the increase in fees accrued and a stringent inflationary model. I would like to see an emission model running first.
(2) is a great idea – and better than maker. Nice. Yeah it could automatically go to Balancer, buy YFI, and send to incinerator.
Yes that’s how I was envisioning it also. A rewards pool contract could be set up to automatically market buy from our pool of choice, which I imagine would be the governance staking pool.
Again there are potential issues of front running, so adding some randomness to the buying time/condition, or buying more frequently with lower amounts could help to offset this.
Sounds interesting. I would be in favor of a buy and burn model like this. Personally think it will do more for YFI holders than just “dividends”.
Ideally I think we should have both. The best of both worlds in something like a 50/50 ratio. That way we benefit from both value creation mechanisms. Create some anti-fragility in the ways we generate shareholder value and can tick all the boxes people like (DeFi) projects for.
I appreciate the alternative take, but pulling all rewards to incentivised voting is more intuitive and beneficial to the yearn ecosystem in my opinion.
YFI is a governance token after all.
Can someone please explain burning situation, right now if we stake YFI, we get Fee rewards. Are our current YFI being burnt when we’re claiming rewards? It doesn’t seem like the case.
Yes I think this is the perfect model to keep the YFi price rising.
Because for $60k/week income, distributing rewards will only give us $2/week per YFi. For $4k current price of YFi I don’t think that is rewarding.
This looks like a clever model and I am in favor of this.
However, please bear in mind that it also rewards YFI holders proportionally to their holdings without the need for staking YFI, which can be either a good thing or a bad thing depending from which angle you look at it.
My main concern is that – as things stand now – quorum seems impossible to reach, regardless of how good the proposal is.