YIP-56: Buyback and Build

Proposals YIPs
, ,
82

I think lots of great points were made on this thread by a lot of voices who I respect. When I first heard this proposal from @RyanWatkins a while back, I think I had a reflexive response of “hell no” because, duh, why would I want to give up staking dividends? But thinking about it more in the context of growing Yearn, and knowing that Yearn must continue to expand and innovate because yUSD isn’t going to pay 80% APY ever again :disappointed_relieved:, I came around to the idea. To be fair, I think establishing the 6-month review by @DCinvestor is a great idea, and feels similar to the 6-month window of discretion that the multisig was given a while back.

I would also strongly advocate for any YFI designated to contributors to be vested, if not all at least a majority of it. I would be more open to giving YFI with no or shorter vesting to core team members who have been around since the beginning (Andre, Banteg, Klim, Trach and others), whereas newer contributors would require longer lockups. We’re here to build long-term, and I think if we want voters/YFI holders to trust us when we say that, proving that with vesting makes sense. This was mentioned in the proposal, and I understand why it wasn’t included to keep things simple but I think it makes a ton of sense.

For those asking what funds could be used for, just a few things off the top of my head include

  • Paying for audits and bug bounties, shit is insanely expensive
  • In that same vein, jumpstarting yAcademy so that instead of paying auditors, we have our own team that eventually generates income for Yearn
  • Hiring more devs: blockchain devs are in short supply, and as everyone knows, the Yearn team is never short on ideas (see all the various Twitter posts about Andre’s project backlog), we’re just short on manpower to plan/code/test/implement ideas.

At the same time, I think if we do ask for the community to vote yes on this, we also need to commit to continued, if not improved, transparency. These funds previously would have funneled to them, so I hope to work to make it incredibly clear where all of this money is going.

And to finish my post, a couple of random ideas that popped into my head about ways we could modify things:

  • If we did want to move back to paying dividends in the future, what about asking users to lock up their YFI (either as YFI itself or an LP position) for a set amount of time to receive the rewards? For instance, if we did quarterly dividend payouts, we could require quarterly lockups. This could also loop in with previous discussions of vote-locked YFI, aka gYFI (cc @Arcturus and others).
  • Yearn could put the extra funds (Operations fund YFI, or other assets before we use them to buy YFI) into their respective vaults to generate yield, and potentially pay this yield out to stakers as well.
16 Likes
83

This isn’t a matter for interpretation, the specification literally says “All funds that are used for YFI staking rewards are to be used to buy back YFI” and “The YFI bought back flows into the Operations Fund”. As it is currently written this proposal ends staking rewards.

A time limit (ref. @DCinvestor), or some other limit such as a cap on funds flowing into the Ops fund (? $10m cumulative per annum), would change the dynamic (and, more importantly, external narrative) completely.

These are two separate points.

Regarding “getting YFI into those who will drive the most value to YFI holders is the most important element to the allocation”, my point is I don’t have enough information in this proposal to draw a conclusion over whether this is true. I can value the expected loss of staking rewards using a variety of methods; I can’t see enough information as to the likely value increase from increase Ops expenditure as there is little detail. So I don’t know if spending more on people with drive the most value for YFI holders or not.

Regarding “YFI stakers just aren’t anywhere close to our developers right now–the required work to ship versus forum and vote is over 1,000x apart.” I’d argue that post YIP-51/52/54 we’re already a lot closer. These have seen stakers transfer c. two-thirds of returns to developers, strategists and other contributors.

If the ultimate argument is that holders (stakers) aren’t doing anything of real value here then I understand that as a strance… but the logical conclusion of that is to transfer all economic rewards from Yearn to devs and assume tokens are worthless. That is sort of what this proposal achieves as currently written (with no limits), with the slight modification of a new use-case of YFI being used as a value transfer mechanism between fees and devs/contributors. But this mechanism works irregardless of price in the absence of lockups as the token can be bought, transferred and sold by the dev immediately.

These are difficult questions in this new distributed world. Where does value lie? Who should it accrue to? What mechanisms are right to align incentives? etc. etc… My fear is that this proposal goes one step too far in changing the fundamentals of the YFI token without a full exploration of the potential reprecussions.

To finish on a practical note, @dudesahn 's post above contains sensible proposals. 6-month review + vesting for contributions + even more transparency (preferably some around anticipated use of funds in advance of a formal vote) would resolve pretty much all of my concerns. And for aligning YFI holders with the rest of the system, locking YFI to receive rewards is an interesting proposal.

7 Likes
84

To summarize my understanding. This will mimic the yvYFI,except the bought YFI will be given to individuals that build (or support) similar to the grants, instead of simply going to the stakers. (who are doing very little except locking up their YFI, discounting the voting as this will continue and actually be improved upon)

Is there any way that we can determine which places the buyback will occur at. For example, some YFI holders will be supplying to sushi. others bancor, etc. It would be great for the gov to have a way to determine which of these markets will produce the largest benefit (trading fees) to YFI utilizers. Or, even better, have a way to split the buying across the appropriate pools.

@cryptouf has a very good point. about YFI knowing they are getting a “dividend” can this buyback actually compete with whales that dump (for whale reasons)? I highly doubt it.

The current state of the yvYFI does need to be addressed. and I think if the changes are lead with this point, it will help to mitigate the need to adapt and to keep holders in their positions.

@banteg I’d be willing to video up an explanation of “places for YFI”, I’ll take this discussion to the SEntrance

@tracheopteryx I don;t see how granting people straight YFI will be better than yUSD. as people who gain YFI will have no discentive to dump those tokens. If they were granted yvYFI instead they would face a withdraw fee, and potential gains. (not staying someone that went to the time earn a YFI grant would then just turnaround and dump them)

In all, I think support and rewards for Dev is essential, but I thought the new management /performance fee structure was adapted to address this issue already. Was this found wanting? If so, it might be important to add this to the consideration here.

In the past, I was given a grant for my video contributions in yUSD. It came via the yGift which was nice but I would have been happy to get it in YFI, or even better in yvYFI.

If the treasury does continue to grow for some reason and grants do not drain this budget of YFI, new proposed use cases can be voted upon, like staking the YFI in pools, and perhaps the pool share tokens can become the future grants.

4 Likes
85

Where does it say that we won’t vote back a dividend later?

Why can’t we trust the same people who have already done so ridiculously much for us, basically for free?

That’s not the logical conclusion at all. The logical conclusion is: “We token (aka equity) holders in the Yearn.Finance ecosystem are willing to allocate our earnings towards incentives that will drive further growth, such that our future earnings are significantly higher than our present.”

We need to incentivize maximal growth right now. DeFi is at an inflection point. We can lead the wave. The pennies we fight over today will be dollars tomorrow if we execute correctly.

That said, your concerns do make sense, I just have a different point of view, although we’re much closer than we realize, I believe.

1 Like
86

Yes let’s do this,

Let’s keep it vested for newer members so it is a carrot stick in the future. This is a clear “YES” for the following reasons:

  1. YFI/YEARN is in early stage growth. As an investor, I am annoyed to be given a small dividend when we are still so early on the curve as far as growth goes. I do not know exactly where the multi-year vision of growth will lead us, but I want Yearn ecosystem to continue to make inroads into DeFI and serve as a lynchpin for the whole space. The “profits” it makes along the way can be better poured into growing the actual ecosystem/protocol/robustness of the product before giving it back to investors. If I as an early Amazon investor, I would not care about getting a dumb dividend. Go spend my profits on making more profits for all of us in the future. Let’s all get wealthy doing this and just grow the pie as it’s still sooooo early.

6-month review + vesting is what’s key. Let’s retain key talent + make sure the V2 ui/ux’s are better than V1 – V1 had too much of a flavour that was not beginner friendly. Lots of good ideas in this thread and I personally feel better about holding my YFI if I know the actual core protocol is creating more revenue/being built out faster and wider in scope.

6 Likes
87

Mixed feelings, on one hand this helps yearn devs and operation, on the other, I’m not sure if rewarding and allowing voting for all YFI invested in other protocols is a good thing.

I’ve got a few things I want to say:

  • There’s a problem with the value proposition of buybacks. If YFI is bought back and used in operation at about the same rate(the yUSD has to come from somewhere), it defeats the idea that YFI will appreciate due to the buybacks.
    • If the revenue dwarves the expenses, YFI appreciates. But this creates capital inefficiency for the protocol (Huge reserve that is there just to prop up the price of YFI with no voting privileges).
  • Buybacks that increase YFI prices raises the barrier of entry for future contributors.
    • This can be solved by granting contributors YFI accrued through buybacks, but it means more permission will be needed to enter yearn governance instead (a trade off).
  • Allowing YFI everywhere to vote is problematic. I’ve gone through some of the risks of doing this here.

Personally, I think YFI is struggling between two roles: distribution of executive power and operational fund generator.

Most companies issue stocks as an IOU to stock holders in return for funding their operations, not exactly as a ticket to every executive meeting. YFI is currently trying to do both. However, since yearn didn’t create a reserve of YFI on distribution, and the community is largely against minting more YFI, the ability for YFI to fund operations is abysmal.

The problem I see here is this: YFI is currently giving dividends to holders even though it lacks the ability to raise funds for operations. I think yearn needs to do one of two things.

  1. Make YFI the cashflow generator for operations, holders get dividends in return.
    • This can be done by doing a one-time or periodic minting of YFI solely for funding yearn operations.

OR

  1. Turn off the dividends, make YFI solely a distribution of executive power, and find another way to generate operational funds.
    • This current proposal behaves more like option 2. This leads me to think that future funding shouldn’t rely on YFI and a separate mechanism should be pursued instead (maybe even another token).

I believe a separation of the two roles of YFI would benefit the protocol and avoid frequent conflicts of interests down the road.

4 Likes
88

Wholeheartedly agree with this perspective. Let’s do this.

2 Likes
89

Just want to echo the notion of using YFI for “build” smartly. Obviously, a fair amount needs to be provided as liquid to staff who are making contributions to pay bills, etc.

But in situations where it is feasible, we should strive to provide time-locked / vesting rewards to help create incentive alignment for the strengthening Yearn (and YFI) long-term.

If this is not done intelligently, then YFI just becomes a pass-through token which earners are liable to dump for fiat, ETH, etc.

4 Likes
90

@yfi_lit agree, we’re actually very close in our viewpoints (and definitely aligned with our overall aims). I’d just prefer there to be a positive signal in this proposal that we will look at staking rewards (earnings) in the future in the future (e.g. time constraint with the default being a return to the current status quo); you’re happy with the topic being assumed to be still open. It’s just a different viewpoint on what proposals are for / how Governance should work.

Couldn’t agree more. I’d support this proposal with these two items added, plus ideally a little more clarity on anticipate spend of the $10++m per annum in ops fund income it would result in (basically to address @Ceazor 's point of “…I thought the new management /performance fee structure was adapted to address this issue already. Was this found wanting?”).

I think you’re right in your identification of the underlying issue in this and other recent YIPs. As with so many other new distributed organisations, we’re all learning as we go. A more formal separation of these two roles is a very interesting proposal, although I fear the mechanics of undertaking such a split may tear the community apart.

1 Like
91

Is this proposal to be compared to the minting new YFI proposal? It is getting a bit confusing at this point.

92

I would prefer something more like this proposal over the minting proposal in the other thread, but I’m seeing some comments from the devs that are making me think they might like that one better. Not trying to put words in their mouth, I could be wrong, but If they lean towards that being the way to go, I’d honestly be fine with that if its tied to a burn. Ultimately their interests are YFI holders interests, especially if they are heavy YFI holders. Would love to hear a direct statement of their thoughts and preferences though

1 Like
93

If I’m not entitled to anything then why hold other than pure speculation? I want to hold because I’m ensured of getting some of the revenue. If not then I will likely sell and so will many others.

94

Am on the fence. For supporting devs with warchest and aligned incentives but would like to see:

  • vesting
  • burning of keys
  • an alternative incentive for holders
  • 6 month review
  • dynamic allocation ratio, not 100% but maybe start with 80/20 and change according to needs, see below

My primary valuation is similar to the VC reports that were published last year based on P/E. Actual governance means less since we are voting less, due to handing off multisig control. So primary holding is for dividends. Kill dividends, kill the valuation model and incentive for long term holding and price floor. Instead of killing it al together let’s start with 80/20 or 90/10. Why?

Because after v2 what if revenue goes up 10x or 30x? Do we need a $1B warchest in a year? I think this proposal is a short term solution based on current revenue. Instead it should be a dynamic %. Even at 90/10 we can keep our dividend narrative since it is dynamic based on needs just like a real company. If we kill it, it is very hard to reinstate.

Current dev allocation is 50% of revenue and infinite $500k treasury refills, so in theory infinite allocation as needed, yet we haven’t spent every penny? Can’t team refill treasury already as many times as needed as revenues rise and keep upping salaries? Why do we need a policy that would kill a hard price floor and long term holding incentive? Imagine when revenues go up 10x and we have 10% apy…remember the price floor saved us as apy rose when we hit bottom in early Nov. (and if this is only a Gov token, then we should focus much more time developing the gov platform which is maybe not the most important focus now?)

Consider dynamic allocation we can change every 3 or 6 months? Start with 80/20 or 90/10? Almost no diff to funds but a big diff in narrative consequence and long term valuation modeling

4 Likes
95

Two separate proposals. This is the much more moderate version of the minting proposal. I hope that at least this one passes

1 Like
96

Agreed 10000% percent–what type of company ignores the fair requests of amazing executives?

97

Agreed, the only problem with this proposal imo is there is a hole near-term. It will take time for earnings to accrue, so if there is a price-run near-term, the team gets kinda screwed.

That is why I am proposing a community led-effort as a bridge: 10-20 YFI for Dev pool from me

2 Likes
98

If by pure speculation, you mean watching Yearn smart contracts lock up $100bns in capital, then yes, that’s what I’m here for.

I’m not here for pennies. If you are, leave and go buy Goldman Sachs equity–they have a good dividend.

1 Like
99

^This 100%. Plenty of dividend stocks out there if you need one right here right now. Kick the rent-seekers out and keep the future seekers in.

3 Likes
100

Another long tailwind about doing this is all the short term speculators who are playing checkers and not chess will capitulate/sell and ultimately the distribution will shuffle towards those who are more long term thinking. As an investor my #1 driver/thesis for YFI is betting on a big-brain team to grow a protocol that will one day touch hundreds of billions of dollars and generate revenue in doing so because it’s creating value. All I really want to do is align long term incentives to the dev team (meaning they are ALSO holding YFI, ideally vested) then sit back and get out of their way knowing they are smart enough to want to also make themselves rich. If/when they are holding YFI I will sleep soundly knowing they will find ways to drive value to the token long term… because I know they too would have a preference for wealth over non-wealth.

What (some) people do not seem to get is that even if you are only a greedy-self rational actor – okay that’s actually fine because believe it or not long term this is the way. For those on the fence, understand this is so and allow me help you help yourself.

1 Like
101

@kazuya so well said. Thank you.