Option 1 is not the status quo. Businesses of all kinds buy far more than just their own equity. They buy real estate, capital goods, other businesses, etc.
Think you misunderstood what I meant by status quo. I meant that’s currently what Yearn does, i.e. the status quo before making any changes.
We’re building out Ethereum. Why would we bet against ourselves?
Hedging against possible risks isn’t betting against yourself. Wheat farmers trade wheat futures so they can manage their exposure to volatility in price of wheat. Portfolio managers use put options to manage risk on long positions. People buy life insurance to hedge against early death; doesn’t mean they’re betting in favor of that happening.
The goal of buying back YFI isn’t to drive its price up. The goal of both is to manage the Yearn treasury for the Yearn Dao’s long term success.
Not true. The goal of buying YFI is to redistribute earnings to YFI holders. An alternative way to do this would be to drop yield on YFI holders, but buybacks (combined with either burns, or a commitment not to reissue/sell back onto the open market) accomplish the same thing as yield plus reinvestment, because they increase the earnings per token among circulating tokens. They happen to also do it in a gas and tax efficient manner, hence why Yearn is doing this, as per YIP-56.
The YFI buybacks are not an investment for the treasury, they’re a method of distributing earnings. Buying ETH wouldn’t accomplish this goal.
Buyback and burns are not always the most intelligent uses of capital. What if we’re in a 2017-style bullrun and YFI is significantly overvalued! We don’t want to accumulate it on our treasury then; if anything, we should be selling some from our treasury in an instance like that.
It would positively affect the earnings per YFI in that scenario. YFI holders would have rights to a highly valuable and yield-generating asset.
That’s not true. All of the elements you mention play a role, treasury/assets included.
If, in that situation, YFI is valuable solely because it bought Eth, then this proposal will have been wildly successful.
Totally, but early stage startups are different. We’re betting on ourselves to change the world–that’s why we’re here.
Responded above but I don’t think this is accurate. The purpose of buying back is to build a balance sheet of valuable assets, that can be used to continue to grow the protocol. All of the YFI in the treasury should be viewed as assets, not burned tokens.
What if we’re in a 2017-style bullrun and YFI is significantly overvalued! We don’t want to accumulate it on our treasury then; if anything, we should be selling some from our treasury in an instance like that.
I think there’s a misunderstanding here. The bought back YFI is equivalent to burnt, because there’s a guarantee it won’t be sold. The point is not to hold it as an asset, but to decrease the circulating supply of YFI, which increases the earnings / YFI ratio even with constant earnings, thereby increasing the valuation of YFI. These buybacks are not an investment for the treasury, they’re a mechanism for returning value to tokenholders. Executing buybacks at a good price (which requires storing the revenue as stablecoins to allow dip buying) means that effectively more earnings are distributed per YFI.
YFI is valuable solely because it bought Eth, then this proposal will have been wildly successful.
This is basically the Michael Saylor argument: take a mediocre company, pump its treasury full of some other asset that’s performing well, and then enjoy seeing your own share price become a proxy for that other asset. This is exactly why I think this proposal is a terrible idea: if people want to invest in ETH the asset, they buy ETH, not YFI.
Responded above but I don’t think this is accurate. The purpose of buying back is to build a balance sheet of valuable assets, that can be used to continue to grow the protocol. All of the YFI in the treasury should be viewed as assets, not burned tokens.
Given that use of treasury funds is controlled by governance, having them locked up out of circulation and without voting rights is equivalent to having burned the tokens and voting on reissuance if they need to be sold in the future.
The buyback is not equivalent to a burn. The proposal is called Buyback and Build for a reason–not Buyback and Burn. Right now, there’s no need to re-circulate the bought back YFI. At some point in the future, however, say we want to hire a new manager, or incentivize a new liquidity mining program, or acquire a chip factory, we may need to re-issue those tokens.
The buyback is not equivalent to a burn. The proposal is called Buyback and Build for a reason–not Buyback and Burn. Right now, there’s no need to re-circulate the bought back YFI. At some point in the future, however, say we want to hire a new manager, or incentivize a new liquidity mining program, or acquire a chip factory, we may need to re-issue those tokens.
If the bought back YFI is held out of circulation and deprived of voting rights, it’s equivalent to burned. It can be spent if the community authorizes it, but that’s just equivalent to re-minting a burned token.
The point of Buyback and Build was to say that reissuance (i.e. issuing more YFI and selling it to raise capital) will help fuel growth, but that’s not to say that the rate of reissuance should exactly equal the buyback rate at all times. This reissuance (i.e. selling of YFI to raise funds for operations) has the opposite effect of buybacks, diluting existing tokenholders, and reducing earnings per token in the absence of any additional earnings growth, so there would presumably need to be a governance vote to approve such activity (just as companies issuing more stock to raise capital need to get board approval).
This isn’t about short term pumping of bags (I don’t even own much YFI), it’s about creating an investable asset that has long-term growth potential based on predictable protocol revenue. YFI is closer than most things in crypto to being understandable by tradfi investors. If we want the value of this space as a whole to grow and mature into an investable asset class then tokens need to behave in a way that these investors can fathom. Yearn already invests in Ethereum. Buying back ETH wouldn’t change this, but it would reduce the effect of buybacks on valuation metrics like P/S ratios.
I strongly disagree with this, and I do much of the Treasury analysis and management, including servicing our debt obligations and ensuring we have enough cash for operations.
First, we naturally diversify and accumulate ETH via our yVaults, and in fact these are doing quite well so we are earning more ETH than we need to run our operations (gas costs, strategist reimbursements, etc.).
Second, the Balance sheet is extremely overweight volatile assets and very underweight cash, while also having outstanding debt. Purchasing ETH over YFI does not reduce or mitigate this issue, and makes Treasury still susceptible to market conditions and systemic risks in the market. Instead the focus should be ensuring we have enough cash for operations, servicing our debt, and then increasing cash balances so we can be adequately positioned if there is a prolonged downturn in the market.
While this proposal appears to be good on the surface, it is not the best use of funds to benefit Yearn in the medium or long-term. We currently are already accumulating ETH without using additional funds to purchase more, and purchasing ETH over YFI does not remove any volatility risk.
I’m closest to the Balance Sheet, monitor it regularly, and write the quarterly report. There has been mention of licensed accountant recommendations, which I also am. And do not support this proposal.
We should also stop buying back YFI. It doesn’t seem to work.
And a lot of people don’t understand why they should buy and hold YFI, if they can only get 1% APY (current APY for the YFI vault).
Let’s go back to the previous system, where fees generated by the protocol are streamed to YFI Holder.
What is the % of fees uses for BABY and the % used to buy token for the treasury ? Let’s buy ETH with the part dedicated to the treasury and stream the other part to YFI holder.
Why do you want to keep YFI for 1% when you can keep other tokens more double digits APY ?
Very grateful for your work. Not advocating for blanket purchases of Eth. As a ‘professional’ investor, I can definitively tell you that Yearn’s smart contracts are contributing a significant amount of utility (and therefore value) to the entire Ethereum blockchain.
This is not a proposal to hoard for near-term gas. It’s a long-term investment in the platform that we’re building on.
I agree with the old system being more easily understandable by investors, since it is very simple to view the APY. The current system should in theory do the exact same thing, but paying for the developers as well, which is needed.
Maybe it’s possible to add the Buyback amount to the YFI vault APY, to make it easier for investors to see the total APY (vaultAPY + buybackAPY).
If we don’t believe YFI will outperform ETH then I have no idea what we’re doing here…
If we do, we should be buying YFI and not messing around balancing YFI/ETH beyond keeping an adequate treasury ETH reserve for operational reasons – which is appears we are currently doing.
If we want to prepare for a long bear market then diversification of the treasury into stables is a much better bet, but that’s a whole other discussion. And even then I’d argue that the ongoing BABY buy-backs should still be of YFI, not ETH.
I disagree with the proposal and even further proposals from members such as scoopy.
Everyone buys yearn to make money, unless yearn starts to pay a dividend the buyback is the only way people make money (excluding vaults). Cutting this would harm the flywheel which is a gross net positive for not only our wallets but also attracting new talent.
Ethereum is probably going to grow slower in price than yearn, as ethereum is larger and therefore needs more money for the same percent gain.
If yearn were to start buying ethereum why stop there? I would be for a type of decentralised hedge fund which invests in a basket of 10ish tokens voted on by the community, maybe shares in this hedge-fund could be on a different token altogether depending on tokenomics of the situation. Just a thought