Brady Dale
Bitcoin may be the original cryptocurrency, but that doesn’t mean leading decentralized finance (DeFi) projects aren’t feeling self-confident enough to distinguish themselves from Satoshi’s vision.
“Let’s not be Bitcoin. This idea of hard caps for start-ups is very romantic but not necessarily the best execution path for maximal value,” a participant in Yearn’s governance forums, yfi_lit, wrote on Jan. 13.
Yfi_lit wrote this in defense of his now-modest proposal to mint a fresh new cache of 1,000 YFI tokens (currently priced at over $30,000), the same token that made the portal to DeFi, Yearn Finance, famous last summer, when 100% of its supply was given to Ethereum users with assets staked in key Yearn Finance vaults.
But the newest proposal has evolved. Now the Yearn community is gauging sentiment for increasing the supply by 22%, of a minting of 6,666 additional YFI (worth something like $200 million, at current prices), a third of which would go to core contributors and the rest would go to the treasury.
The proposal, authored by 11 different people, views “the fair launch as a living concept rather than a single event,” they write.
If sentiment looks good, it will be written up as code and voted on-chain using the governance app, Snapshot.
Not everyone is happy about the new developments, of course. Evoking themes like immutability and fixed monetary policy familiar to many longtime crypto enthusiasts, at least two YFI holders announced on the forum that they could no longer participate in a protocol that wasn’t honoring its understood social contract.
“I have observed the inability for the YFI project to detach itself from lord and saviour Andre [Cronje] and find its own path,” captainobvious wrote under yfi_lit’s post, announcing he’s leaving.
When another user chimed in with the same decision, yfi_lit replied, “Sorry for you to leave, but glad that people with that sort of attitude towards our builders are gone.”
Social contract
And it’s not entirely unfair that some would see a kind of contract. Last year, Cronje put up a proposal himself to never mint any more YFI and it seemed to pass.
Over 90% of tokens voting supported it, but less than 15% of the token supply took part.
But the vote was never acted on. This is a controversial point in the community, but the current argument is that the only vote was a first phase or sentiment-gathering vote. Users never did the follow-up vote on actual code, so it didn’t actually count.
“What we had in September was a classic case of misalignment between stakeholders in the YFI community,” Spencer Noon, now of Variant Fund, told CoinDesk. “Burning the keys would have likely caused the price of YFI to appreciate in the short run, but potentially at the expense of the project’s long-term sustainability.”
Yearn’s governance processes have become more formalized since those early days, but the confusion around this decision persists.
It appears Cronje has had second thoughts.
On Jan. 12, he wrote again on Medium about why building in DeFi sucks. “Don’t give away your tokens,” Cronje wrote. “I still have all the responsibility and expectation, except I have 0 of the reward or upside. Don’t do this, I was an idiot.”
Cronje, it should be noted, is famous for expressing his frustrations without being entirely committed to actions he espoused in a heated moment. He has also always had his eyes on the door, and may ultimately view a compensation scheme as something that would tie him down.
That said, Yearn isn’t just Cronje now. As its team and ambitions grow it continues to look more and more like the protocol that will gobble all of DeFi.
Its existing base of supporters doesn’t want to risk losing the talent that has gotten the platform this far; by and large, it appears that the token supply will expand fairly soon.
“Bitcoin has the same mindset, and they’re getting blown out of the water by Ethereum because of it,” yfi_lit contended.
DeFi is building its own set of OG’s and they seem to be largely circling their wagons around this move. Mariano Conti, the former chief of oracles at MakerDAO and current member of Yearn’s multisig (the closest the protocol has to a board of directors), told CoinDesk over Telegram:
“I’m very much in favor. YFI was the first ‘fair launch’ experiment, and my conclusion is that in the end this model didn’t align properly with an ecosystem of developers and strategy writers, which is the lifeblood of a yield aggregator like Yearn.”
Oh BABY
Last September, Joel Monegro of Placeholder wrote a blog post urging communities to consider a “buyback-and-make” approach to using platform profits, rather than “buyback-and-burn.”
Taking this to heart, the Yearn community moved forward a Yearn Improvement Proposal called Buyback and Build Yearn, or BABY. It passed with 99% support but less than 10% of YFI voting.
BABY would use profits from Yearn to buy YFI on the open market and use it for contributor rewards and other Yearn initiatives (see its third quarter 2020 financial report). Previously, most of the revenue was distributed to YFI holders who staked for governance, but the returns for doing so were fairly low.
Yearn is currently earning around $100,000 per week in fees, and community member Ryan Watkins contended that this could be better reinvested in Yearn itself.
“Yearn has proven its ability to provide real value to YFI holders, distributing protocol revenue as dividends is a suboptimal capital allocation strategy given Yearn’s stage of maturity,” Watkins wrote in October.
However, the sense of the community seems to be that BABY itself is not sufficient to hold onto the core team.
The new proposal suggests BABY will only be able to buy 100-300 YFI per year. Despite the fact that Yearn is rapidly expanding and launching a new version soon, “earnings will likely not be enough to accumulate a sufficient amount of YFI for the Treasury,” the proposal authors contend.
If the 6,666 tokens are minted, a compensation committee will take charge of negotiating deals with specific contributors around their “retention package.”
“In my opinion, this is yet another example of YFI having one of the most robust and prudent communities in all of DeFi,” Noon wrote.
Before a proposal can go to an on-chain vote using Snapshot, it has to run for three days in conversation on the forums. It currently has 133 votes, roughly 75% in support of minting more YFI.
Though some have already begun to doubt the process. “At the end of the day, the devs are going to do what they think is best regardless of community opinion,” Dankmonty wrote as the conversation began. “So just let us know. No need for all this drama.”
