In v2, the fees are collected in form of vault shares, so the treasury naturally diversifies to the most popular and the best performing vaults. I collated the current assets in ychad.eth and treasury.ychad.eth:
$181.5m of YFI
$10.7m of USD (although we have $11.7m borrowed, so net stablecoin exposure is negative)
$3.01m of ETH
$1.34m of CRV (pending donation to the backscratcher)
$507k of EUR
$324k of LINK
$301k of BTC
As for expenses, Yearn needs all of ETH, YFI and USD for recurring expenses, such as paying for gas, salaries and security. The treasury may seem overweight YFI, but itâs pretty committed to not selling it.
How do you conclude that buying eth will drive maximal value? I think buying back yfi drives maximal value as all value accrual goes into yfi instead of only half?
Iâm really not trying to be a hard-ass here, Iâm just saying that YFI holders hold YFI for the YFI, and not for the ETH.
Max YFI value is achieved by buying back max YFI, everything else just dilutes.
I know that thatâs a pretty absolutist statement, but the majority of YFI holders should be able to manage their portfolio aside from YFI to gain ETH exposure if they so chose.
Makes all the sense in the world for the treasury to be significantly overweight YFI. The question of determining how much Eth to accumulate (even if that numberâs 0) is tricky. We could put bounds on it, but it really just depends on relative pricing, which comes down to your/other smart peopleâs expectations of future price.
Imo, the Buyback and Build flow should essentially be able to go into YFI or ETH (or YFI/ETH SLP). YFI for obvious reasons. Eth because everything the community has built has benefited Eth. Only allocating the flow to YFI makes sense when YFI is this cheap, but what if Eth is relatively cheaper? Buying Eth in the treasury would then benefit YFI holders more than buying YFI with it.
Buying back YFI is a treasury management decision. YFI has been significantly undervalued at every point weâve bought it, but that may not always be the case. If YFI is significantly overvalued (which could easily happen in the midst of a 2017-like bull run), the treasury should sell some, to raise funds to build out other lines.
Accumulating YFI instead of ETH or other assets, for buyback and build, is a treasury management decision based on relative pricing.
I think if yfi was overvalued we would probably hold stables until yfi was cheap again. Since most of our expenses are stable denominated. The buybacks arenât automated. They are done discretionarily to avoid overpaying
Yes, thatâs a reasonable concern. I am against this proposal unless this is recommended by a reputable and licensed accountant.
Companies that donât pay dividends do buy backs to drive the price of their stock up. Thatâs how they increase shareholder value. YFI should operate in the same manner.
The McDonaldâs argument is a bit weak because ETH purchases from Yearnâs treasury will be too small to drive the price of ETH up. The Yearn treasury could spend half of its profits on ETH purchases without having an impact on ETH price. By contrast, spending all profits on YFI purchases will definitely drive the price of YFI up. What made sense for McDonalds, may not make sense for YFI. Letâs hire an accountant to advise on this.
Lastly, the Yearn treasury can always sell some of its YFI holdings to purchase ETH as needed.
In my mind the buyback is really a buyback and burn except we keep it in the treasury to use as a capital asset. Itâs not really designed to leave again IMO. Buy LPing you potentially push YFI back in the market so there is never certainty on circulating supply. The goal of the treasury is match inflows and outflows, maintain a buffer of those outflows and accrue the excess to the token. We happen to use the token to generate excess revenue as a capital asset.
This is wrong. Good companies do buy backs when their stock is undervalued. They also accumulate other assets that they also believe are undervalued.
The goal of buying back Eth isnât to drive its price up. The goal of buying back YFI isnât to drive its price up. The goal of both is to manage the Yearn treasury for the Yearn Daoâs long term success.
Buyback and burns can be a poor allocation of capital (what if the asset youâre buying back and burning is overpriced!). Repackaging the concept probably lends the same result. I hope the YFI weâve accumulated is used to incentivize the growth the Yearn protocol. All assets that we accumulate in the treasury should have a purpose other than to pump the prices of those assets.
I am for accumulating ETH for all the reasons mentioned above.
But I would like to see more thought put into when ETH purchases are made vs YFI.
Like, are we talking about a fixed ratio? Or opportunistic purchases based on someoneâs instinct? Or based on some kind of absolute or relative metrics?
I LOVE the big, public repurchases of YFI into selloffs and would not want the ETH purchases to dilute that.
It is hard to consider the ETH question without thinking about the tradeoffs in YFI buys so I think that needs to be explicitly addressed here or in a subsequent YIP.
EDIT: perhaps a better analogy to âowning the landâ would be pre-purchasing supplies. Clearly Yearn will spend a lot on gas in the next decade. And if you think gas will be higher 10 years from now it is prudent to start stockpiling.
Great points. I think it just comes down to which is relatively cheaper. If we think that YFI is cheaper than Eth, more into YFI. If vice-versa, then vice-versa.
Eth is a crazy asset b/c itâs the land and the oil (aka supplies, as youâve mentioned)
In my opinion this only makes sense if it can directly be used to create markedly expanded value (ratcheting up the income-treasury moat). Scoopyâs YFI/ETH LP idea has such potential (including with the added logic that impermanent loss is moot since both assets would be held anyway). Iâd love to see a v2 YFI/ETH vault that anyone (not only the treasury) could deposit into, with funds distributed across DEXs (and across chains) to maximize return. Another layer of earnings for the protocol, then, from non-treasury deposits.
As a yearn user and YFI holder, the buybacks are a big reason I feel comfortable investing in the token and this cuts it in half. The analogy to a restaurant owning land breaks down because weâll always use gas no matter how much ETH is held.
If YFI is particularly expensive compared to ETH or USD, it sounds like that is already addressed through discretion in the buybacks.
Edit: If there were a specific target where we could say holding X amount of ETH is expected to cover future gas fees through interest, that would be more compelling.
The only reason to buyback ETH instead of YFI is if we think ETH will be increasing more in value compared to YFI, or if we need it to hedge future gas costs.
I do not think itâs a good idea to buyback ETH because this will give signals of YFI not believing in its own project more than ETH price go up. Most buyers of YFI probably also want a 100% exposure to YFI protocol and not a mix of ETH/YFI, if they prefer to have that let them buy ETH themselves.
If YFI would increase a lot above the fundamentals in the future, while ETH is still cheap it might be okay to store value in ETH until we think YFI is a more acceptable price, this would be only reason to buy ETH instead of YFI IMO.
YFI holders want the value of their YFI to be as high as possible. Thatâs the goal of this proposal-- adding Eth as an option for investments of profits does that imo. You nail it in the last paragraph.
By making token investment decisions (such as buying ETH instead of giving capital back to token holders by buying back YFI), youâre implicitly communicating that you know better than your token holders how to allocate capital.
If there ever was an optimal ratio of ETH/YFI, 50/50 wouldnât be it. At the very least it would be vol-weighted ratio or marketcap weighted ratio, etc.
If you want to invest in ETH to hedge the gas costs, then there are more specialized investments to make than just ETH to more effectively do just this.
If the goal of Yearn is to maximize token holder value (which Iâm unsure if it actually is or not), then invest in whatever mix of assets you think will perform best, donât limit yourself to YFI and ETH. Just keep my first point in mind. The investment planning process may also take resources away from working on the protocol itself, you may want to stay lean and focused as an organization.
