Proposal: Rethinking Capital Allocation

Proposals Vaults
42

So I have pondered this thread and would like to pivot my position slightly.
I am still in favour, but I no longer think we should stop rewards.

The primary reason for this is simply that by stopping rewards, we violate the intention of this very proposal… That is to say that there are community members that ARE contributing both directly and indirectly AND who are NOT recognised AND therefore not compensated. And may never be…

Now, I happen to have talked to a few and in some ways I count myself amongst them. Yes, I have received a grant, but the grant was never my motivation and at the risk of sounding ungrateful, the grants don’t go very far. (I am very grateful and thankful btw) So why then am I here?

Besides the fact that I have great admiration for Andrea and team and I see great value in the future of the project, the selfish reason I am here and continue to contribute without the expectation of any further or future formal remuneration IS because of the rewards.

Sure, right now the rewards don’t go very far either, but the fact they continue makes them FAR more valuable than the ‘hope’ of a grant of any kind.

At the end of the day, I believe we are al here because we value the automation. We do NOT want any other human to have the power to decide IF a contribution was good enough to be rewarded or not. I want the system we are building to be Trustless.

Edit: Or as trustless as is possible.

Now, I know there are flaws in the above, hence my ‘slight’ pivot.

This conversation: Proposal: Revamping Fees calls out that Yearn is currently undervaluing itself by undervaluing its ability to charge higher performance fees.

In the above linked thread, I shared the following:

I also stated that I thought a 10% performance fee would be reasonable.
A proposed breakdown as follows:

  • 10% of performance fee (1%) to go to recover gas and other day to day expenses.*
  • 90% of performance fee (9%) to go to the treasure, where these funds will be split:
    – 45% of treasury share to go to YFI holders,
    – 45% of treasury share to go to Purchase of YFI on open market**
    – 10% of treasury share to go to Strategists***

*It is know that the existing 0.5% fee does not cover all expenses, the above doubles this amount in an attempt to amend this problem.
**YFI purchased on open market may then be used as suggested in this proposal.
***This is in line with the voted 90:10 share between YFI holders and Strategists.

5 Likes
43

This is genius. Allows us to reward users with equity down the line without inflation. We need this fellas/gals

44

Acquisitions/ investments are interesting

45

We need marketers / business development as a role also. At some point, hopefully soon, Yearn could become an option for traditional finance, at least a small percentage of a funds’ capital could be allocated to Yearn. But, that bridge between Yearn and traditional finance first needs to built and nurtured.

Not sure of timing, but it’s an important role I believe and will help Yearn grow beyond just crypto users.

1 Like
46

I strongly disagree with this proposal. The purpose of the YFI token is to govern the protocol, and for doing so YFI holders are eligible for protocol earnings. This is proposing to remove all benefits or incentives to hold the token, in a promise that whatever is done with earnings will be more beneficial than the current model.

It is also stated that, “distributing protocol revenue as dividends is a suboptimal capital allocation”. There is no evidence that it is a suboptimal strategy, no evidence the proposed strategy - which is vague I shall add - would be a better strategy. It is based on total speculation and conjecture. Show me the data that backs up this assertion, which is the core of the argument of why this proposal is needed or would add value.

Second, as DC Investor indicated:

"Also, here are my thoughts on each of the stakeholder groups you’ve identified:

  • Strategy Writers - are these folks not paid already based on utilization of strategies?
  • Protocol Politicians (Proposal Writers) - is there not a bounty modest bounty for proposing successful proposals already?
  • Developers - these folks are already paid a salary. I would support improving this with a defined and timel-locked YFI bonus.
  • Content Creators - I could see some value in expanding grants to this group, but it must be done with real purpose, and should be things the comms folks on the payroll are not already being paid to do
  • Liquidity Providers (Vault Depositors) - Depositors already earn a return for depositing into Yearn products. This doesn’t need to be in YFI, and if it were, it would be a trivial, pro-rated amount from the governance fees"

Almost all stakeholders/contributors are currently being compensated in one way or another, including depositors. Additionally, the size of development contributors and maintainers has actually increased in the last 30 days, I believe there is now 10 full-time devs doing development work or oversight for the vaults. Contributors are continuing to be onboarded and helping to grow the ecosystem. Your argument that we need more funds, or to divert funds for growth, is weak based on this data.

Once v2 Vaults are fully launched (2 were already launched), the strategist fees and compensation will be more easily distributed to Controllers. This will enhance the current compensation structure, and more likely than not increase competition amongst themselves in order to get the most fees.

I have to call this proposal out for what it is. It is a veiled attempt to get individuals with little to no YFI, or later acquirers more YFI. At the expense of diverting earnings for current stakeholders.

Few people are closer to revenue/profitability than I am, and Yearn has actually made ~$1.5 - $2m in profit in the month of September alone. It is a flawed metric to merely look at what flows to governance staking as revenue. A portion of these earnings go to the Multi-sig to be used for the exact things you are proposing.

I’ve seen all proposals since inception, and this in my opinion is by far the most damaging and drastic proposal to date. People and the community should take a real long hard look at this proposal. I’ve been in the crypto and DeFi game for a while, and I believe with high certainty that this proposal would have a dramatic, negative effect to YFI token price, which will trigger a negative feedback loop towards developer enthusiasm and reception among the wider community.

15 Likes
47

Sounds like great way to make the token truly valueless.
VOTE NO!

8 Likes
48

Removing rewards for yfi stakers to govern the protocol could potentially hurt the yfi token/project.

5 Likes
49

Disagree, as it is this seems like a bad idea.

  1. YFI staked in Governance will drop off considerably. Governance participation will drop off, stakers will move YFI to AAVE, or yield farms, leaving YFI treasury open to capture or the protocol vulnerable to governance attacks.

  2. There has been no clear plan, budget or controls with regards to treasury & grants thus far. I don’t think we can honestly say that treasury has been spent well. An open ended agreement for all protocol earnings to treasury may lead to expenditure in ways that YFI holders may not necessarily agree on if they had the opportunity to vote. This will cause community schisms and possibly a lot of supporters leaving the project.

I’d argue it would be better for governance rewards to be issued in bought back YFI, but a portion can be voted by holders each month back into treasury.

Also, any treasury grants/bonuses absolutely need to be vested. I’d normally say 2 years, but since this is DeFi, perhaps 1 year cliff should be ok. I don’t know why we aren’t doing this yet. What happens when someone recieves the YFI? They will likely sell it, and this means that value is simply being transferred from YFI holders to someone with little to no YFI. If this vote passes as is, I will likely sell all my YFI.

6 Likes
51

Really not a fan of this. I think longer term something like this is reasonable but the protocol and community are too young at this point to pull it off in my opinion.

I think a huge value prop of these yield aggregator coins long term is the constant income from profit sharing. We are seeing this experimented with in YFI, FARM, PICKLE and others. Even now, as DeFi is barely adopted, we are seeing nice returns to token holders. This incentivizes people to hold for reasons outside of speculation and participate in governance. That is important long term and if stripped away could be extremely detrimental.

I feel this proposal is written for a centralized entity and really ignores a lot of complications that come with organizing a decentralized product like Yearn. I’m all for making sure work is properly funded but we are nowhere near having the organizational structure and ops built out to handle this.

If decentralized governance has taught us anything, the complications come from managing and organizing the money, not finding it. Because of this, long term, I think we should be striving for LESS governance intervention, not more.

I vote no, pretty strongly.

12 Likes
52

The topic of implementing a new performance fee keeps popping up in this and other topics, with contemplated fees being anywhere from 10% to as high as 20%.

I am not fundamentally opposed to changing the fee structure, but when making decisions on how fees will be imposed on deposits, those decisions should be made based upon the anticipated realities of a mature yield aggregation ecosystem.

I humbly submit that a 10% performance fee for vaults is insanely high based on the likely returns yield aggregators will produce in the not so distant future. A 10% fee would seriously reduce returns, especially if APYs settle into the sub 10% range over the long term. It would also leave open a huge door for competitors to undercut Yearn.

I understood the original vision of Yearn to be the providing of reasonable returns (in the context of crypto) in a manner that entails very little risk of loss of principle that can be scaled to massive levels. If Yearn can ramp up the scale of funds under management, there likely would be no need to impose a performance fee of any type, at least not until Yearn has firmly cemented itself as the leading yield aggregator. The imposition of a performance fee at this time anywhere close to 10% signals to me that the project is giving up on the massive scaling vision for Yearn.

I know there have been issues with scaling up strategies to accommodate very large amounts of funds. If those challenges prove to be insurmountable, then I would be open to revisiting the imposition of a more aggressive performance fee, but I think it remains a little early to give up on this aspect of the project.

1 Like
53

I think performance fees would be on a profit level, in other words if APYs are 14% to depositors, it would be 10% (1.4% of the yield) of that, not 10% total.

1 Like
54

Harvest Finance negotiated a strategic investment of PERP tokens with a 50% discount to NAV. In exchange, Harvest will employ at least one yield farming strategy using PERP protocol. BarnBridge said they will be releasing a yearn strategy Q1 2021. I would like to see Yearn make symbiotic relationships that are mutually beneficial.

3 Likes
55

Yeah, of course they would be based on yield, and such a fee would have a huge effect on yield.

56

Check this out:

1 Like
57

Banteg has said he wants a 2% fee on AUM and 10% performance fee. This is millions of dollars per year regardless of ROI.

1 Like
59

tl;dr
Yes — I want yearn to buy back some YFI.
Yes — I want to be able to reward contributors with YFI.
Yes — I want to continue distributing rewards to token-holders in a way that the majority of them are satisfied by.
Yes — there are great ideas in this proposal and the comments.
No — this proposal is not actionable yet nor grounded in actual numbers or on-the-ground operations insights.

I think there are a lot of good ideas in this proposal and in the comments, though I am strongly against approving this proposal as it is now. I would love to see more work done and can imagine a version of this I do support.

I am in favor of a mechanism allowing yearn to reward contributors with vesting YFI as another tool in our toolbox in addition to yUSD grants. But not at the expense of rewards distributions.

There are a lot of numbers flying around, and strong opinions on how we should do operations. This is all great ideation but ungrounded and not actionable. I’m sure there are other business owners here—would you make critical financial decisions without doing financials with budgeting and projections first?

To decide on changing numbers first we need to know the actual numbers. @franklin and @milkyklim are working on full financials now. After that to decide on something like redirecting funds I’d need to see projections: how much YFI does reducing rewards by 1% get us? 2%? Etc. And not back of the napkin numbers, a proper analysis. How much YFI do we think we actually need to compensate contributors? If people really believe in this proposal, take those projections and run some snapshot signaling votes (granular ones with multiple options, not just yes/no) to get a feel for what the yearn network wants. Then let’s put a complete plan together.

And for operations, any decisions there should be grounded in the actual reality of current operations and evolve from actual tensions not speculation. I would kindly suggest that before anyone lean into big opinions on yearn ops, they speak with the people actually doing them. I am easy to get in touch with! And although certain things may work in silicon valley, that doesn’t mean they will work here—nor does it mean we would want them to. Personally I’m not interested in working for an Amazon or Apple, so if yearn starts to become more corporate with a c-level and bureaucracy etc I’d probably split along with many other contributors I’d guess.

The reality is no one knows what real decentralized operations should be like. It’s new, immature (good!), evolving, experimental. We cannot shoehorn Yearn into some centralized model and expect it to work. But I don’t want to be too harsh on what’s come before, let’s learn from everywhere and everyone, and I love to see all the big brains chopping it up in this thread <3

9 Likes
60

I agree its right to re-invest profits now rather than pay dividends but there needs to be specifics where there profits would be spent. At least in the current state someone can look at the YFI token and see they’ll get around 10% yield for holding it. That’s a simple concept that most people understand and one of the only reasons not to dump YFI when the price has been crashing like as of late. I don’t think there should be a change without a specific proposal to outline where those funds will be put to use and proof of concept they’ll provide a return.

61

Hello, this is my first post, my first vote and I’m in love with this platform and it’s transparency. Thank you everyone that make YFI work.

Voted against.

While I agree the platform needs to spend funds on marketing and business development I don’t agree to just simply cutting the rewards to stakers.

I bought some YFI, then more, then some more, If it keeps droping I’ll buy even more. My goal: locking them and receive rent for years, while learning by participating in governance.

Buyback to increase token value might make sense for those that want to sell. It makes no sense for users like me that just want to stake to have a voice and get paid for it. For me price of the token is not that important, the amount of fees that it generates is and there’s where the non-speculative value resides.

And I don’t think YFI should be used as means of payment, people will have to sell to get paid - if you want to have a second treasury do it with a stable coin and fill it with a percentage of fees coming from all products without killing the rewards completely.

6 Likes
62

Hi Everyone, I’m fairly new to the community so I apologize if any of my thoughts are off base. I’m definitely apart of the bandwagon phase to the DeFi movement, but I think that the next few steps are vital to solidifying consumer confidence in the market place. There are alot of influences on the DeFi marketplace, but I think there are a few huge opportunity for the YFI coin to be traded as a business security rather than crypto-asset

Couple Assumptions to my following observations

  1. The underlying motivations behind the DeFi movement have not been co-opted by speculative trading, true involvement in this product is invested in long term, week after week yield.
  2. No matter how you got to YFI, there is a mutual objective to retain as much value, and gain as much additional profit to the current assets that you have.

I think that the best possible solution requires balancing the portfolio, stabilize the stock while retaining the ability to provide dividend for owners. This could be product of interest or bonding strategies, but ultimately the more stable the YFI coin is, the more natural demand will produced in the marketplace. however the real motivation behind getting the coin to influence the direction of of assets staked in the portfolio - if you have no other assets staked becomes seemingly overpriced, or maybe a bad trade. However, the ability to receive dividend based on total coin ownership, not market value creates a market insensitive to drive the stock up.

A) Leverage a strategy to buy back the FYI token on path of lease resistance from the market trading until price level stabilizes at total lifetime median - at this point there needs to be some sort of balancing mechanism.

B) Dont completely eliminate, in fact incentivize year ownership for specific vault access, and rewards that enable stakers to compound/reinvest initial stake - this would enable

  1. Experimental vaults remain to those who are truly invested into the platform - there by the long term success of the product is core to the governance, voting patterns, and direction of investments.
  2. There is an incentive to stake your coin if you’re a holder as opposed to sell it, and from a market perspective, you want to get the coin because of potential returns.

Either way, the long term success of the token is going to require some type of active managment strategy.

Anyway, those are my thoughts.

Best

64

Here’s a really simple eli5 of why this is bad in its current form

The headline action is stop paying rewards to yfi governance stakers immediately

Ok so now I have a token that resembles Andres true vision. A valueless gov token. We can vote with it, that’s it. Normies will ask wheres my money? None? Ok dump. From the normie perspetive, its going to be better to sell yfi and put that funds back into BTC which looks like its about to commence its next moon mission

This will result in normie dilution and the yfi ends up in the hands of whales and VCs etc who can afford to hold yfi without earning $ in the short term. So now the once fair launch evenly distributed darling of defi launches becomes centralised and slowly morphs over time into TradFi

Meanwhile at at yearn HQ, we have yfi in treasury that is losing its value because of the normie dump. How will you pay for Devs etc when yfi is losing value? And why would a DeFi dev wanna work for peanuts at a project that is slowly morphing into TradFi.

This is a lose lose situation imo.

What ever happens yfi gov rewards needs to stay as is.

2 Likes