The excess collateral can go back to holders through a buyback shares function that anyone can call to burn their tokens for an equal value of extra collateral. The “buyback swap” function always keeps weight accruing to the governance token any time there is excess fees/collateral/value in the system.
AMM game theory tests different collateralization ratios, incentivizes recollateralizing through arbitrage swaps, and redistributes excess value back to holders through a buyback swap. The protocol starts at a 100% collateral ratio at the genesis and might or might not ever get purely algorithmic. The novel insight uses market forces to see how much of a stablecoin can be algorithmically stabilized with its seigniorage token to keep a tight band around $1 like fiatcoins. Purely algorithmic/rebase designs like Basis, ESD, and Seigniorage Shares have wildly fluctuating prices as much as ±40% around $1 that take days/weeks to stabilize before going through another cycle. This is counterproductive and assumes the market wants/needs a stablecoin with 0% collateralization. . Instead, it measures its preference. It finds the actual collateral ratio, which holds a stablecoin tightly around $1, periodically testing small differences in the balance when the price slightly rises/drops. AMM concepts to make a real-time fractional-algorithmic stablecoin that is as fast at price recovery as Uniswap is at keeping trading pools correctly priced. As this system gets more efficient and the system’s velocity increases, collateral pools can include other assets instead of stable coins like volatile crypto.
Count not agree more with your positions and suggestions. ~20% dilution is irrelevant to those of us holding for the long term.
Dev vesting schedule is most important. Drnick is also right that thoughtful processes are also key to avoid any unnecessary and distracting legal entanglements.
Best take I’ve read on the subject…by far. Thanks for that.
Thank you for the great post. It really adds some perspective on the investment side. It is important to point out that we don’t know the effect of minting more tokens. It could turn out to have little or no effect. Or it could be a deal breaker — lots of people (myself included) were drawn into YFI explicitly due to the strict supply and fair distribution.
I am still onboard for a a mint, but after reading your comments – agree we should probably burn the minting keys – or at least time lock them for 1-2 years. We will always keep going back to the well, if it is available. The long term strategy must be paid for operationally, not through capital issuance. I think we may need a bit of runway for these first few years, but the goal needs to be a sustainable cash-flow positive strategy.
I couldn’t disagree with you more. See below:
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In terms of saying holders provide no value and only devs provide value, while I agree that holders do provide value you significantly underestimate the value that each brings to the table. With no devs the project is worth 0. If all the devs decided to leave to another project tomorrow how much value does being a holder bring to the table at that point?
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You say that token supply needs to meet its objectives. There is an actual marketplace for dev talent. If you want the best you have to compensate at that market level. Just paying devs USD out of protocol rewards is materially below market and would incentivize devs to leave and then YFI = 0. Devs only earn a 1x multiple on earnings vs a P/E multiple when owning equity. You should know that. The current supply does not meet the current objectives because devs interests are not aligned with the success of YFI. This mint basically illustrates the problems with a fair launch and shows it is not an ideal model since it creates a significant misalignment with developers. Frankly if there was no fair launch and a 20% treasury/dev fund was kept at launch I doubt we would even be having this conversation nor would you have any concerns.
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In terms of saying its human nature to keep printing, governance should be structured so that any mints actually creates long term value for token holders. We will be having a subsequent discussion about that and hope to implement a process that aligns with that objective (ie: burning keys etc). Note all the mint+burn folks on this thread. They worry about the same risk and we should appropriately decide how to mitigate that risk.
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There will be vesting associated with the YFI compensation to developers and spends of the treasury funds should be decided by governance.
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What does yearn stand for. I think it stands for a protocol trying to build scalable secure returns for its users. Fair launch and supply cap are just memes and if they stand in the way of building the product they should be revisited as appropriate.
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Slippery slope is a horrible argument because each action should be judged on its merits. Here it is warranted based on the analysis in the YIP. Any future action should be weighed based on the pro/cons of whether they provide long term value to the protocol’s users (and hence YFI as a value capture mechanism.)
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It seems you just favor hard-capped tokenomics. I think we are too early to determine that is the optimal tokenomics under all circumstances. Maybe hard-capped makes sense in some circumstances and not in others. I don’t think we really know yet. I think in this case, this is a one-off change to rectify an error that creates a significant developer mis-alignment that could threaten the protocol. I am happy to make a one-off change here (effectively a re-do on the initial distribution) to fix that misalignment.
Think you may have misunderstood or I may not have communicated clearly enough…
1&2) Not at all underestimating the value devs bring. In fact, I state… “So why not pay them everything they deserve in buyback YFI from earned profits?” Have been incessantly reading about holders being valueless rent-seekers, and this misguided thinking needed to be addressed. It’s not a matter of debating dev value or equity compensation…it is how we are arriving at that compensation that is at issue.
3&6) Not talking about slippery slope, which implies inevitable subsequent actions based on previous actions. We are talking about much more powerful human nature and if it can be done…it likely will. What operations calls options, the market calls inflation…how’s that working out around the world right now…?
4–We shall see.
5–Memes are crypto-twitter marketing games. Supply caps are hard economics solving for fiat system failures…not something to be dismissed out of hand. If you have any doubt, re-read the Bitcoin Whitepaper and look at the 10-year charts.
7–I am in favor of what works…have had success with myriad models, including inflationary. I am not in favor of the easy way out, especially after setting certain expectations and hiding behind valueless memes.
Bottom line is yearn is trying to gain a competitive advantage by leveraging “valueless” YFI towards team-allocation tokenomics, in an effort to accelerate it’s operations and better compensate contributors. This is a seismic shift and should be called out as such.
I think for YFI buybacks remember that as YFI starts to earn revenue YFI price will adjust upwards to reflect the increased earnings (at least theoretically). So you will only be able to buyback 1 / market P/E of YFI each year. That leaves a significant uncertainty as to dev exposure in YFI terms, but a certainty in USD terms hence the problem. If you could work at a competing protocol that gives you some % of the token in comp (vesting) vs one that makes you earn it from protocol rewards where would you work? Based on the other protocols out there and what is being offered this is absolutely needed and is based on actual marketplace rates. Yearn has already lost a few devs to competitors so this is not a theoretical exercise.
IMO inflation/supply increase is not always a bad thing, but we are rightful to be skeptical. I think we are conditioned to think that way because the circumstances we see this are governments where they put those funds to use in unproductive purposes. The incentive structure of those organization don’t incentivize good economic stewardship. For example if the US gov’t minted 10B and used it to develop scalable commercial fusion power and was successful that would probably be a good use of printing $ (probably would have been better to borrow, but that a cap allocation question), but they would never do that. They would prefer to spend $10B to dig holes in the ground and fill them in repeatedly. Corporations on the other hand ‘mint’ all the time and have to weigh the pros and cons of each mint and have a governance structure that allows those decisions to be reached. I hope for yearn to achieve such a governance structure.
Appreciate you calling it out as it is a change (and totally fair to do so), but I believe it is a necessary one. Without this change yearn would not have the right incentive structure to achieve its goals. Let’s not die on hill of the fair launch fixed supply cap. Let’s solve this problem and give the team the tools it needs to succeed. If we fail on product (which I don’t think we will) then that’s ok. If we fail because the devs didn’t have the tools/alignment to succeed that is shame on us (governance).
In fairness, YFI is an open source platform with none of the typical legal protections enjoyed by traditional startups. There are unique risks with open source dev. for which devs should be fairly compensated.
Hard agree with this.
Let’s focus on one thing at a time. Get this passed, mint 22%, which will last for a long time. Just get this thing over with ASAP!
In the meantime, the team gives a promise that it will not even propose another mint before all of the 22% is exhausted.
Also, at the same time, observe what happens with yfii, whose mint key has been burned, to see in practice whether burning the mint key is beneficial or not for a project.
C’mon guys, just get this over with asap, so everyone can get on with the project development! Everybody will be happy.
Why not just tell us the cashflow you need to not be starving. Golden handcuffs are not the answer. Use a mechanism like juice.work.
After much discussion and tons of feedback, we decided to keep this proposal mostly as is and leave it to the community to decide.
We added two points of clarification:
We believe it is better to leave the related topics raised here for separate granular discussions. Some contributors agreed, they created a thread to discuss how to handle the minting keys: YFI Mint Controls - Burn the Mint! & Alternatives — any number of proposals may come from this discussion and lead to binding votes.
Thank you all for the extraordinary level of participation.
I don’t like it, so I voted against. It doesn’t even specify what type of vesting we’re talking about. I want it to be for 5 years, equal amounts per year, and this too:
- We should be able to lock the vested funds of any dev. Otherwise they have the option to stop contributing relative to the share of tokens that they would receive in the future. No one should be getting a guaranteed yearly drop. After all, TVL has been going down, especially relative to our competitors, and we’ve missed many big farming opportunities out there. We’ve already been rewarding with salaries for some contributors, a better fee structure for strategists, “Buyback and Build Yearn”, and more.
Once appointed, the working group’s tasks will be to:
- Finalize compensation packages
- Finalize vesting terms
- Identify eligible recipients
- Prepare a Compensation plan for the Multi-sig to review
So the devs now want us to vote on this $200M dilution without any details on the vesting package. What the fuck? What are the vesting details?
Well, we already know that the devs own collectively 500 $YFI, because that’s how many YES votes the proposal received so far.
We don’t want to disclose vesting yet because we haven’t had time to figure it out yet.
We don’t want to make a top-down decision. We need to talk to each member of the team and get their feedback, then look through options in the working group. We will end at a totally reasonable vesting plan. We talked about stuff like 3 or 4 year vesting with a 6 month or 1 year cliff. We considered just adding that, but some on the team wanted to discuss it further. Nothing is going to vest immediately, relax.
Appointed working group decides vesting? Why are the same people who will be getting their compensation/vesting decided on in charge of making these appointments to the working group? Obvious conflict of interest that cannot be ignored. Seems to be no checks/balances here.
You need to put that nothing will vest within 6 months-1 year in the proposal. If you guys have no plans for immediate vesting, this shouldn’t be an issue.
The multisig is empowered as per YIP-41 to make operations decisions like hiring and compensation. Only 2 of the 9 signers are paid by yearn and on the core team. But generally yearn works in a pretty fluid way with the people actually doing the work making the decisions. This is an effective self-management technique used in emerging forms of organization like yearn but a little different than the standard hierarchical stuff we’re most familiar with.
In the case of the compensation working group, I’m leading the effort to assemble it along with the ops team who does the actual work of figuring out compensation stuff for yearn. Like most companies or organizations, we have a team of people who decide compensation. Normally we’d just make these kinds of decisions in the ops team and ask the multisig to approve them (they can veto and not sign).
But since this is a pretty big deal and lots of money, we want help. That’s why we’re doing the working group. We haven’t figured out the exact details for that group, but we’re thinking something like 13 members. Like 3 VCs (experts in compensation design), the 4 people on the ops team who know our team the best and do the compensation work, a couple other team members to get more diverse input, and then 4 community members. Not sure the best way to pick the community members yet. If you have ideas please suggest them.
Once the snapshot vote starts it cannot be changed, so this is the final proposal for voting. If you don’t agree with it you have some options. You can vote no. Or you can also create a counter or related proposal. At yearn the ultimate decider is governance. This is not theater, you really do decide. I’m not sure why anyone would go through the stress of these last weeks if this part didn’t actually matter. But anyway, if you want to set vesting terms do a proposal. Look at the minting keys proposal as an example.
Thanks for explaining. Yeah, I think you guys should’ve included something about no immediate vesting. That was a highly contentious (and simple) point in this thread, and it’s suspiciously convenient that it was left out of the proposal entirely. Why would you guys submit this without clarifying that?
It seems team wants the $70MM now, and questions asked later. Not appropriate when we are talking about $70MM. Needs restriction on vesting for at least 6 months.