[Proposal] Bootstrap the minting of new yveCRV

[SEM]

Bootstrap the minting of new yveCRV by creating a (yveCRV, yvBOOST, CRV) Curve Factory Pool with a reward Gauge

Summary

Since Convex launched in May, the voting power of Yearn has dropped significantly to sub 7% and yveCRV dramatically lost its peg, trading at a 60% ‘discount’.

As a significant amount of the Yearn strategies currently uses Curve to generate yield, it is important to sustain a decent amount of voting power (veCRV) for the long-term.

This Proposal aims to restore the yveCRV:CRV peg and even incentivizes people to mint new yveCRV, which would mean Yearn would own a bigger part of the veCRV pie again.

This can be achieved by creating a Curve (yvBOOST, yveCRV, CRV) Factory pool with a CRV Gauge. If Yearn allocates all its current votingpower to this gauge, with the current yveCRV and yvBOOST supply this strategy could yield about 90% APR. This APR itself will incentivize the minting of new yveCRV as it is the highest CRV yield in the DeFi space.

Background

The voting power of Yearn for the Curve Gauge Voting and the Governance voting systems has dropped significantly during the past months. The main reason for this is the rise of Convex Finance, which bootstrapped their so called ‘flywheel’ staking mechanism, which made tons of people lock their CRV tokens perpetually in the Convex Protocol.

The price of yveCRV has significantly lost its peg, and as yveCRV lost its peg, there is no incentive anymore to mint any new yveCRV as people can buy yveCRV on the market at a 60% discount as we speak.

Motivation

As of today (October 12), Yearn owns 7.26% of all the veCRV. Convex currently owns 38.10% of the veCRV supply.

May 1st:
Convex: 0%
Yearn: 9.63%

June 1st:
Convex: 11.45%
Yearn: 9.96%

July 1st:
Convex: 24.68%
Yearn: 9.43%

August 1st:
Convex: 28.20%
Yearn: 8.47%

September 1st:
Convex: 33.77%
Yearn: 7.90%

October 1st:
Convex: 37.16%
Yearn: 7.58%

Today:
Convex: 38.10%
Yearn: 7.26%

The trend is clear. Convex is taking over the pie, where Yearn is losing its part. In just over 4 months, Convex managed to gather a stunning 38% and kicked Yearn off the veCRV throne. If this trend continuous, the voting power of Yearn might drop to insignificant numbers and it might be lost forever.

This trend is problematic, especially if Yearn wants to maintain its powerful status in the broadening DeFi environment where Curve is an essential part of.

Specification

To get out of the current downward spiral I propose to create a Curve Factory pool with the following assets:

• yveCRV (33,33%)
• yvBOOST (33,33%)
• CRV (33,33%)

You might ask yourself, why not just an yveCRV/CRV pool or an yvBOOST/CRV pool? Because this setup allows 66,66% of the CRV gauge rewards to flow to yveCRV and yvBOOST holders, where this else would be 50%. Thus it will also faster create incentives to mint new yveCRV.

• The current yveCRV supply is 13.479M

• 11.482M of this yveCRV is locked in yvBOOST

• The daily CRV emission currently is 633.126K CRV

• Yearns current votingpower is 7.26%

• If the (yveCRV, yvBOOST, CRV) pool is exactly in balance with the current circulating yveCRV supply it could fit: 6.74M yveCRV, 5.97M yvBOOST, 6.74M CRV

• This would equal to a value of 20.22M CRV

• Based on the daily CRV emission and Yearns voting power this could allocate atleast 633126 * 365 * 0,0726 = 16.7M CRV rewards towards this pool. 16.7M/20.22M = 83% APR in Curve rewards if all yveCRV and yvBOOST in circulation would be locked in this Factory pool.

• New yveCRV minting and inflow in this Factory Pool would reduce the APR, but at the same time it would increase the veCRV votingpower of Yearn, which can be used to increase the APR again, during the next Gauge voting rounds.

This YIP proposes to implement the following:

1. Yearn will setup a Curve Factory Pool containing yveCRV, yvBOOST and CRV.
2. Yearn will create a proposal to add a Gauge to this Factory pool.
3. If there are doubts about whether step 2, this Curve Gauge proposal, will pass, Yearn might consider using the Bribe system to stimulate people to vote ‘Yes’.

For:

• yveCRV will likely get back to its peg, and thus incentives arise to mint new yveCRV
• Newly minted yveCRV could increase the relative voting power, which again allows Yearn to increase the Factory Pool APR.
• A future bigger veCRV stake could have a positive impact on the longterm Yearn TVL.

Against:

• Yearn will allocate all its votingpower towards this new Factory pool, atleast for the short-term. It could have a negative impact on the liquidity of the ibEUR, ibGBP, ibCHF, ibJPY, ibKRW pools where Yearn currently allocates liquidity to.

Disclaimer: I’ve been a long-term yveCRV and yvBOOST holder. If this proposal passes it would financially benefit me. Please verify and read everything critically as I might have a biased view.

Poll:

• For
• Against

[cryptouf]

Interesting proposal

@SEM

If there are doubts about whether step 2, this Curve Gauge proposal, will pass, Yearn might consider using the Bribe system to stimulate people to vote ‘Yes’.

Do you have an idea about the Bribe amount we will need ? (other protocols may vote “against us”). May be worth to start thinking about it

[Charlie_eth]

If you are considering bribes, why no use them to bring back peg before asking for a gauge on an unpegged asset?

Peg first, gauge second…

[RedEmerald]

I like this idea a lot.

@charlie_eth, What would bribes for restoring the peg look like if they aren’t on a gauge? All the bribe contract’s I’ve seen are for gauges or votes.

@cryptouf, what if we included the competing protocols in the pool? If we include cvxCRV in this pool, the convex holders might be interested in adding their own bribes, too.

[crypto-ali]

I’m for it but @cryptouf and @Charlie_eth make good points that should be considered.

[Charlie_eth]

I mean bribes are incentives so yeah, bring incentives onto the pool and restore confidence for the derivative before asking the Curve DAO to subsidize the peg.

Yearn will allocate all its votingpower towards this new Factory pool, atleast for the short-term.

yveCRV will likely get back to its peg

This is basically, “let’s try and get peg by getting a curve gauge by attracting a bunch of people who will get stuck in the pool if yvecrv loses peg again”.

Yearn takes performance and management fees, what are those for if not to support key instruments in your ecosystem?

Curve v1 pools are for pegged assets and whilst Curve has been useful in helping volatile stable assets become more stable, yveCRV hasn’t shown of being a pegged assets in a few months.

[RedEmerald]

Okay. That makes a lot of sense.

So you’d prefer something like this?

1. yearn deploys the factory pool
2. yearn deploys the gauge
3. yearn adds their own incentives to the gauge
4. if the peg recovers (or is at least on the way), yearn puts up a vote for CRV rewards on the gauge

If the peg doesn’t recover, maybe a Curve V2 style pool could be better? Is there an ETA on the factory for those?

[SEM]

If you are considering bribes, why no use them to bring back peg before asking for a gauge on an unpegged asset?
Peg first, gauge second…

I agree that Yearn should consider to contribute to these incentives by reiterating the yveCRV & yvBOOST tokenomics. I think this proposal from @wavey will already contribute significantly to the tokenomics and should have a positive effect on getting back to peg.

This is basically, “let’s try and get peg by getting a curve gauge by attracting a bunch of people who will get stuck in the pool if yvecrv loses peg again”.

By saying “atleast for the short-term” I meant to say that Yearn should allocate ALL of it’s voting power to this pool for the short-term. As soon as the strategy works out, new yveCRV got minted, and as soon there is space to lower the incentives for this pool, it could start using a limited part of its voting power for this pool and partly allocates to other pools again like the Iron Bank / Fixed Forex pools.

Yearn doesn’t have any incentives to make this pool lose its peg once it is finally back at peg, as from the moment that the peg is lost again, people will stop minting new yveCRV and we might end up in this same downward spiral again losing relative voting power.

[cryptoyieldinfo]

Some excellent ideas. But agree with Charlie - can we get yearn incentives yearn team to get back to peg?

[michwill]

Definitely support anything which leads to decentralization of veCRV ownership.

Few thoughts.

Indeed, the peg of yveCRV is not great at the moment. It is possible that A should be really low (like 3) initially (to be raised later in governance).

Another idea is to add an extra incentive in gauge (could be YFI, CRV, or really anything - doesn’t matter) with daily topup time, and adjust extra incentives depending on how the peg is going. Unlike weight votes, extra incentives are very short-term, so could be used with higher flexibility.

[BlockEnthusiast]

Regarding Peg.

I’ve long thought a peg maintenance problem is a cashflow problem.
Why can’t we keep peg, because its a one way deposit. There is no counter arb.

A potential peg correcting measure could be to allow deposits for buy outs to create an exit mechanism where a portion of CRV profit is used to to buy out yvBOOST.

This would result in the same amount of CRV staked remaining forever, but an outflow of CRV that would otherwise Yearn’s take of fees. It would allow exits, and create a flow of demand for yvBOOST to counter downward pressure on price. It could greatly reduce the amount of incentives needed to fuel yvBOOST peg and be set up much akin to Alchemix Transmuter, where you can trade 1:1 only from whatever is currently collected in the feepot.

[Jonathan]

I’ve said it countless times before.

If the peg is not fixed, there will be no new locked vecrv. If that happens Yearn suffers.

Fixing the peg should be job 1 at Yearn…

That said yvboost seems to be surging so something may be happening.

[Blackthorne]

Thanks for keeping this open J. Have been hoping to see a comment from a dev here but yeah agree, with the recent price action have been assuming something may be in the works behind the scenes. Any commentary or insight here still appreciated though.

[Jonathan]

I guess I was too hopeful… It seems that the YVBOOST rally was short lived.

While each YBOOST 1.14539 YVECRV it trades at only 47% of the price of CRV, which means the underlying YVECRV is worth only 41% of CRV. While CVXCRV maintains a virtually 100% peg.

You can argue about whether a 100% peg is appropriate, but regardless, that is what Yearn is competing with, and despite YVBOOST compounding it is falling further behind.

I have thought about this a great deal, and perhaps I should write up a proposal for a vote, but IMHO Yearn should emulate the Convex model and increase rewards to YVBOOST holders and increase incentives for liquidity for YVBOOST (or YVECRV). They can do this at Sushi or create a Curve pool (and then with vecrv votes subsidize liquidity incentives in CRV), but they should offer liquidity staking and add incentivizes of YFI tokens. YFI token holders are the ones that are going to lose out if Yearn can not restore faith (and increase new locks) in YVECRV.

I sincerely hope they Yearn takes this seriously, because I fear the window of opportunity is closing.

[SEM]

I guess I was too hopeful… It seems that the YVBOOST rally was short lived.

This clearly has to do with the fact that yvBOOST is trading against ETH while cvxCRV is trading against CRV.

If no trade occurs, the price will follow the price of the liquid asset it is trading against, ETH in this case.

As long as CRV outperforms ETH, yvBOOST will underperform CRV, cvxCRV will follow CRV as all liquidity is in the cvxCRV/CRV pool.

I expect yvBOOST to get back closer to peg on the short-term IF the CRV/ETH ratio will fall again. Especially now yvBOOST started being significant deflationary due to the token buyback and yveCRV redistribution to yvBOOST holders.

I sincerely hope they Yearn takes this seriously, because I fear the window of opportunity is closing.

Totally agree on this, the longer it takes, the harder it gets to get back in the game.

2 Weeks have passed since this proposal and the relative voting power had another significant drop where Convex had a significant increase:

Convex: 40.14% (+2.04% => 5% increase)
Yearn: 6.91% (-0.35% => 5% drop)