There is a perverse incentive here.
Existing YFI mega-holders have most of the votes and are always going to vote for capped supply.
This is good for them, bad for the ecosystem.
I hope the “mega-holders” are smart enough to know that permanent cap is not good for anyone…at least at this stage in the game. No incentives => no liquidity => lower APR => drop in $YFI price.
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Hopes and prayers aren’t worth as much as YFI votes.
Any future proposal needs to consider the interests of top YFI holders or it will never pass.
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I will try to give my view on whether to mint YFI or not
Before going into that, if anyone have idea about Synthetix now and how it is grown since last year.
Synthetix firstly had fixed supply of 100 million and they introduced minting model to get supply of sUSD into the market. Intially not much interested to do mint from most of community holders of SNX, because there is no proper incentivisation for them to do the task. But the team didn’t give up. And so many discussions happened around discord to increase the supply of SNX to bootstrap the product. Team and community believed that the inflation will outweigh the network effect valuation it brings on table. Now we are seeing the results of this model as perfect mechanism and price of SNX increased significantly from 0.05cents to 3.6$. Now it becomes a perfect example to every other DeFi projects whoever wants to get their project bootstrap by their community. Recent Projects as Examples : Balancer, Curve, mStable, COMP, Kava etc.,.
Not only this, incentivisation for LP also introduced by Synthetix in first for sETH/ETH liquidity to get into the Synthetix ecosystem from Crypto world.
From the above what we can understand is Inflation is necessary to get the attention of crypto community towards to the project. And Network effect valuation will definitely outweigh the inflation if the project has more to offer to its community in the future. This will bring more valuation to YFI price.
I suggest YFI should be having inflationary which in decreasing trend in a curved manner(gradual decrease) instead of step manner(sudden decrease).
4 Likes
the issue here is stil that the amount of value increase needs to offset the dilution that existing YFI whales will experience.
for better or worse unless you consider the whales (or unless YFI holdings are distributed in a way that it is not super-concentrated), the whales’ interests will always come first.
Once the community is aligned to go through the proposal For. Then we should go for best suited emission model. The community is already discussing on emission models which should protect the early YFI minters who takes the risk.
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Made a new thread here on my take of a Inflationary Supply Model, would love feedback
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I think it is not fair to compare this project with Synthetix. They had a token sale with a pre-sale and god knows how many tokens distributed to advisors and such. This means that they had a lot of difficulty trying to sustain the price, specially since they did not really have a product back then. Yearn, started with a working product with great utility and user base. The token distribution was one of the most fair since Bitcoin. To start trying to copy projects that started with very different parameters just because they are mooning is a big mistake in my opinion. There is no rush here. If people dump after the incentives are over it will only improve distribution.
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Having thought things through, I have decided that I will be voting AGAINST / NO on Proposal 0 (i.e. I am voting for no further YFI issuance) for the following reasons:
-
I am in favour of an emission model, particularly that shared by @brisket
Proposal: Adaptive issuance
I am still reading the one proposed by @Daryllautk
Request for Comment : Proposal for YFI Inflation and Supply Mechanics -
However, while I am in favour of a continued emission model, I think there is merit to voting for an emission model once there has been ample time to debate and consider it, rather than to rush it through.
Furthermore, taking a step back, the idea behind implementing (or permanently rejecting) an emission model is based on its potential impact on existing liquidity provision & its ability to competitively incentivize future liquidity provision. The idea (or fear/worry) as it stands is that liquidity provision will dissipate if YFI issuance ceases.
The truth is: We do not know what the impact would be.
However, if YFI issuance ceases, we don’t know if it will be (for example):
i. 30% reduction (dissipation of some TVL market share gained, some stickiness present),
ii .60% reduction (dissipation of all TVL market share gained),
iii. 80% reduction (dissipation in excess - superior offerings by other players in response).
If we refer to the table below, which charts the effective competition for liquidity among the top 6 players, we can see the impact of liquidity competition on market share. We can clearly identify points at which Compound, Balancer and Curve rose in prominence (and in particular, we can see how Compound’s & Maker’s relative market share has been declining).
Therefore, I think:
(1) Having a period of 1-4 weeks with no YFI issuance to understand the “residual stickiness” of liquidity after ceasing issuance of YFI will be helpful. This helps us better assess & compare the cost & potential impact of any future incentives.
(2) Based on the residual stickiness and assuming there is some normalisation of liquidity competition across the ecosystem, a properly designed emission model can be debated, implemented and further adjusted based on observable outcomes.
Therefore, on the basis of the above, I am voting AGAINST / NO on Proposal 0 now, with a view towards the future, where I am looking forward to positively voting for a proposal that has an emission model that takes into account some normalized level of competition in the overall ecosystem.
Closing comments:
I also think that the overall system of distributing rewards (that some may perceive as excessive & unsustainable) leads one to wonder if crypto money printing is worse than Federal Reserve money printing. While one worries about hyperinflation risks in the conventional fiat economy, I wonder if the risks are equally present - or worse - in the crypto economy today. I am seeing an increase in the number of protocols that want to engage in rewards-based liquidity provisioning/lockups seems to growing every day as more & more projects “emulate” yield farming concepts.
I think, end of the day, something has value when people are willing to pay for it. If we live in an “airdrop” style of economy, there will come a point when the amount of reward airdrops will overwhelm the amount of fiat needed to prop up all the reward airdrops. In that case, we will really need to pray for Federal Reserve fiscal stimulus to keep the party going 
In fact, perhaps I would argue that an emission model of YFI should also consider an alternative: A weekly auction of YFI in which the proceeds are used to reward the protocol’s liquidity providers. If people are given the weekly right to purchase YFI, they may accord real value to that YFI - and this acts as a form of price discovery. Under this model, people would buy the YFI because they value its use in governance, they receive a share of the transaction fees in the protocol. This is similar to an equity capital subscription, in which the proceeds are used to further develop the business (in this case, the proceeds are used to fund the rewards). If the business is truly good, we won’t need that much capital. If the business can only survive because of the “rewards juice” being given out - that tells you a lot about the business.
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Thank you for this! I’m 100% in agreement with this post.
The proposal has passed with 7,734,007 votes for and 4,939,315 votes against.
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This is what confuses me - in the post, it says
“Proposal 0” …but in the twitter screen shot it says
“Proposal #1” …so which is it?
In all honesty, I’m not sure what actually passed or not…
We still need to decide on what the issuance looks like. If that is the case, we might as well gather some empirical data like mentioned in this post before we put another proposal up.
Following the title of the Proposals on the gov forum:
First up, would be Prop #0: Vote For has passed
Prop #1 expired, without the 33% quorum being met
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agree with ur comments.
agree with ur comments. love the auction idea,