Yearn Proposes “Buyout and Build” Strategy for YFI Holders

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The Yearn.finance community presents a proposal to reform YFI’s current token economy. Commonly referred to as “buy-back and build”, the proposal aims to strengthen the project’s cash flow while generating value for all stakeholders. Its list of authors includes lead developers Yearn, Banteg, Tracheopteryx and Lehnberg, as well as Gabriel Shapiro, partner at BSV Law and occasional contributor to Yearn.

Currently, Yearn.finance uses a staking and dividend model. Holders must place their tokens in the yGov contract and receive a portion of the income generated by its yield strategies. This mechanism is somewhat similar to traditional dividends.

Another method of value capture used by some, like Maker, is to see protocol redemption tokens in the open market and then “burn” or withdraw them. This mechanism creates buying pressure on the price of the token, ideally resulting in a close coupling between the success of the protocol and the price of its token – and finally, the wealth of the stakeholders. This type of strategy has gained considerable importance in the stock and crypto markets in recent years due to its flexibility and tax efficiency for holders.

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The Yearn proposition offers a somewhat different mechanism, inspired by an essay written by Joel Monegro of Placeholder VC. Instead of removing the redeemed tokens from the market, they would be kept in the cash balance to be redistributed for development and community initiatives. Future governance proposals could use Treasury tokens as funding.

The proposal stresses that the purchasing process should be continuous and automated, while avoiding the possibility of exploit mechanisms or other exploitative mechanisms. From a financial standpoint, the proposal attempts to let Treasury YFI reap the benefits of inflation, for example through staking or cash extraction, without increasing its supply by YFI 30,000.

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However, the fact that tokens would eventually come into circulation limits the effectiveness of this value accumulation strategy. This is largely by design – One of the motivations for activating the mechanism is to focus all resources on growing the protocol. According to the authors, Yearn.finance is still too immature to afford to pay dividends to holders.

Other more practical benefits include the ability for all tokens to participate in governance and reap the protocol rewards. Removing the yGov staking contract would also allow building more traditional yield generation vaults involving the YFI token.

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The proposal is still in its early stages. An informal poll shows more than 90% support among community members, but the decision is expected to be formalized via a chain vote.