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yearn budget requests and audits
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Budget Request: Fund another public good liquid locker for veYFI #201

Open TREBUH-Tube opened 2 months ago

TREBUH-Tube commented 2 months ago

Scope

We propose that Yearn funds sdYFI, a boost aggregator protocol for veYFI that is a neutral public good. All fees on veYFI are directed to incentivise liquidity of and maintening the peg of sdYFI v/s YFI, and all fees on Yearn LPs go to reward sdYFI holders. sdYFI was the first locker to support Yearn in the veYFI deployment, and is currently responsible for 30% of YFI locks that happened. There were massive costs involved in the development, audit, deployment, maintenance, and incentivisation of sdYFI/YFI liquidity, that were accepted by the protocol thanks to the assurance given by Yearn contributors that there wouldn't be an incumbent with special support from Yearn, and that the YFI market would be a fair competitive market. This request asks for funding to ensure that the fair competitive environment amongst different YFI lockers is respected, following the funding of 1UP see the funding request.

The funding will be entirely locked and used to support the lockening of YFI.

Plan

Deadline

As soon as the grant has been provided.

People

People working on the project are the active contributors of Stake DAO:

Money

The required amount is equal to the amount funded to 1Up, and will be used, as explained earlier, to be locked as sdYFI and managed in a decentralised manner by the Stake DAO community with the special purpose to foster the development of Yearn, and increase the locking rate of YFI, by voting in the best interest of Yearn (in good intelligence with Yearn team), and supporting the liquidity and peg of sdYFI.

Amount (Total)

50 YFI

Wallet address

0xF930EBBd05eF8b25B1797b9b2109DDC9B0d43063

Reporting

Once

TREBUH-Tube commented 2 months ago

A few clarifications regarding the functionning of sdYFI and why it is a nice service offered to YFI holders.

Stake DAO is a decentralised protocol, with no VC backing. sdYFI is a liquid wrapper of locked YFI. It has a fee that is fully dedicated to incentivising its liquidity against YFI (just like 1up). Yearn boosted LPs on Stake DAO pay a 15% performance fee to sdYFI holders, it's a "boosting fee". sdYFI is a public good in the sense that it is a product that do not charge fees directed to an external party such as a team or a governance token, and leaves all the value to sdYFI holders.

We have spent a lot of money in the development and deployment of this product and keep spending a lot of money in incentives to sdYFI/YFI liquidity providers (so basically to YFI holders). So how does it benefit Stake DAO? Why did we spend all this money? SDT (Stake DAO's governance token), is a utility token, and a new locker adds utility. SDT doesn't vote for YFI gauge votes. But users who stake sdYFI will get a boost on their voting power if they have veSDT. For example, currently, a user that stakes 1 YFI on Stake DAO and have 0 veSDT would have a voting power of 1.12 veYFI. On the other hand, a user with max veSDT boost would have 2.78 veYFI voting power. How is it possible that they can have so much? Because all the voting power of the locker is given to the sdYFI stakers (so sdYFI not staked give their voting power to stakers). There are market conditions in which the voting power of sdYFI stakers is lower than it is today, and even below one, but it will never be below the average voting power that a user would get if he were to lock YFI for years and wait for it to unlock. Therefore, it is always a solution where nothing is taken from YFI stakers. Instead, they receive SDT rewards, boosting fees, and additional voting power most of the time.

So as you see, there is no fee taken from YFI lockers, and no value transfer to SDT. That's why sdYFI corresponds to what seems to be called a public good, probably better than some competitors which have hidden fees and already announced they might launch a token.

Despite being a free product, sdYFI benefits the Stake DAO ecosystem with the vote boosting mechanism. However, it doesn't if we don't have a critical size. We decided to engage the costs that you can imagine to develop a locker on Yearn's atypic version of veTokenomics, and incentivise the locker since its launch, because we got assurance from our discussion with Yearn contributors that there would be a fair competitive market, and that Yearn wouldn't deploy their own locker or support a particular locker. Changing this balance is changing totally the economic balance of the project, and we would need probably to stop maintaining the locker. We really hope that you will understand what it means for us, and that you will also remember that we were the first ones to support veYFI and to take part in making it a successful launch.

0xPickles commented 2 months ago

Status: Not approved 0 in favor, 6 against, 1 abstention

This budget request was not approved. The decision was made unanimously, with one abstention due to a potential conflict of interest.

Although recoginizing and being appreciative of Stakedao's early support of veYFI, the yBudget team was not convinced that the protocol is serving as a public good. Stakedao's choice to support veYFI has been out of interest to bring benefit to their DAO and SDT token holders.

The 1up budget request was approved during a low point in the veYFI ecosystem, characterized by a single liquid locker and a very low total veYFI lock rate. It was passed to explore whether a new locker design could boost the veYFI lock rate and rejuvenate the stagnant environment.

Since then, another locker, Cove, has launched, and there are now three liquid lockers at various maturity stages, promoting healthy competition and seemingly increasing lock rates. This could benefit the YFI and Yearn ecosystem, as well as all participating liquid locker protocols.

The 1up request stipulates that the protocol must operate as a non-profit, with no team allocation in any future token issuance. Currently, there are no plans for a 1up token. This places 1up at a disadvantage compared to for-profit competitors with tokens.

The Stakedao request highlights a crucial and valid point: non-malicious liquid locker protocols should be treated equally within the Yearn ecosystem. As a result, the veYFI yTeam have agreed to take the following steps:

We hope this decision will not discourage the Stakedao team. We aim to maintain and enhance the cooperative spirit between the Yearn and Stakedao communities.