Best Governance Practice? Understand the operating mechanism of YFI in one article
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Product-market fit
Community Involvement
In their blog post, they describe what they believe are three key elements that make a project successful:
Community Involvement
Fully decentralized (community ownership)
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What is Yearn.Finance or YFI?
Yearn.finance used to be called iearn.finance. It is an automated DeFi yield aggregator. Before the launch of YFI last Saturday, the asset management scale was about 8 million US dollars, and the comprehensive yield was about 10.5%. It works primarily through automatic deposits of stablecoins and liquidity mining through multiple protocols such as AAVE, Compound, and dYdX. Yearn.financial is a newly launched product that also brings a new set of income tools, such as ytrade, yliquidate, yleverage, ypool and smart contract credit entrusted loans.
Fair boot?
Andre Cronje, the lead developer behind it, decided that he would create a YFI token and hand over control/governance of the entire yearn.finance tool suite. While he has the power to give himself a pre-mine or founder reward, he chooses not to set aside any tokens for himself.
In this way, YFI has the best supply distribution ever in the DeFi community, everyone who earns tokens takes the same risk, and all information will be freely available to everyone. This fair rollout is reminiscent of the early days of Bitcoin mining, as no one had a first mover advantage - not even founder Andre, and the only way to get it was through yield mining. Just like the early Bitcoin miners, the early YFI miners themselves chose to be the most suitable participants for DeFi, ensuring the enthusiasm and participation of the community. …
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How to earn income?
In short, you have to provide liquidity to the ecosystem. The initial supply of 30,000 YFI is equally distributed among 3 pools with different mechanisms, and the goals of each pool are also different.
Mobility Incentives. By providing liquidity of 98% of DAI and 2% of YFI on Balancer, liquidity providers can earn part of the 10,000 YFI according to their share in the pool within a week.
Governance participation. By providing 98% yCRV and 2% YFI liquidity on Balancer, and then betting on Balancer tokens (BPT), you can not only earn part of the 10,000 YFI according to your share in the pool within a week, but also According to the amount of pledged BPT, the voting rights are distributed in proportion. Voting rights are also a prerequisite for participating in the fee reward pool, which will issue agreement fees to qualified YFI stakers in the reward contract.
Yearn's meteoric growth in usage, with AUM soaring to well over $400 million in less than a week, speaks volumes for the fact that it has achieved product-market fit, as according to Defipulse.com, it will be in It ranks around fifth in TVL (Total Value Locked) of the entire DeFi ecosystem. The question, however, remains how sticky these capitals will be, as they may just be chasing yield for now. Importantly, for this rate of return to be real, the token YFI itself must have lasting value.
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Fair value?
With the recent crazy launch of governance tokens like Compound, Balancer, BZRX and now YFI, the question on everyone’s mind is, how do you value governance?"Some people have made the point that the value of a project should be greater than or equal to its Total Value Locked (TVL), because as you can imagine, if it were cheaper than that, it would pose a significant security risk to the protocol, since someone could Conduct malicious governance attacks on it. Additionally, governance tokens can vote at any time to receive future cashflow/revenue generated by the company, if appropriate, presumably giving the token a premium."It’s worth noting, though, that Yearn’s total value locked actually overlaps with other underlying protocols like AAVE or Curve. A dollar in Yearn is also a dollar in Aave and Curve. so watching
Total value locked in DeFi
When waiting for indicators, you should pay attention to this point.
With the launch of YFI, it also brought several important proposals, each of which needs to be voted by those who participate in the third pool.
if"in favor of"in favor of
if"be opposed to"Winning, Proposition 2 will be submitted to determine the weekly allocation.
if
be opposed to
Winning, no more tokens will be distributed.
If Proposal 0 is not passed, no new YFI will ever be issued, and the total supply will always be limited to 30,000. Although this is good for realizing the scarcity of tokens and rewarding early miners, it is not good for new entrants There is no benefit, so it will eventually hinder the growth of YFI. In addition, existing liquidity providers will no longer have any incentive to continue providing liquidity, which will lead to a decrease in TVL."While the need to maintain an inflationary model is clear, everyone is considering which model to implement. Since Synthetix had already tried their inflation plan with great success, there was a proposal to implement it for YFI as well. This proposal has received tremendous support and has become the basis for discussion of inflation by community members such as DeltaTiger (who designed the original Synthetix inflation) and Substreight (who pioneered the simulation of a new inflation scheme with a lower issuance and long tail Inflation is 1% and incorporates input from community members). The next step is to decide which pool to incentivize. In the proposed scheme, replacing the exchange pool with an 80%YFI/20%yCRV pool can satisfy Andre’s three concerns: motivating users, increasing liquidity, and making governance more YFI-centered center."support"In addition to the proposal being discussed, there is another mechanism of the original governance design that people want to change, and that is that the current design of the yEarn governance mechanism is mostly biased towards large stablecoin holders, rather than YFI holders , and YFI holders are the ones with the most long-term interests in the protocol. The original design was to use BPT from the 98% yCRV / 2% YFI pool, which created an imbalance in voting weight, which, as Andrew Kang said in his proposal, allowed
support
, with a vote rate of 99.63%. (at the time of writing)
However, this is not the only event related to governance. A few days after the launch of $YFI, when the TVL reached more than 100 million US dollars, someone realized that Andre had the ability to mint tokens at any time. He originally planned to hand over this ability to the community in the future. But he didn't expect to use this ability so soon. However, considering the concerns of the community, he handed over the control of the governance contract to the community. Among the nine community members, some are well-known figures in DeFi, such as Calvin Liu from Compound and Curve, but the rest are from a Community members who have participated in YFI since the beginning. This means that in the short term, no new YFI will be issued as there are no miners and the timelock cannot be set for at least 3 days. The owner of the multisig can set up the miners, but the rest of the governance decisions will still follow the status quo, which is to make proposals and vote on the chain.
YFI has proved that as long as the agreement can bring value to users, the market will help to verify the product. It proves that you don't need to come up with a complicated vesting plan to attract holders, but to build a passionate community through fair distribution, and the group of members inside is also fully familiar with the protocol, just like when Bitcoin was launched like that. This is the only recent project where the team was assigned 0 tokens and had no protocol control whatsoever, and Andre not only relinquished control of the governance contract, but completely removed himself from the miners, handing over this responsibility to 9 multisig holders.
risk
The best-performing projects in the crypto space tend to have the strongest communities, typical examples being Chainlink and Synthetix. Community members can often drive discussion, development, and eventual adoption, as well as help generate momentum for network effects. While it’s too early to tell, by handing over control of the entire protocol to YFI holders, it ignited a fire in this community."Prod "secondary title
risk
Obviously, the benefits of liquidity mining are so great, and Andre
Production/mainnet testing is well known, so one has to ask what the risks are.
2) Monetary policy risk, if the governance layer adopts an unfavorable inflation schedule, it may lead to the outflow of platform liquidity, which will undoubtedly have a chain reaction on the entire ecosystem.
Summarize
3) Human risk. With no team tokens or any rewards paid to Andre, he may eventually decide to stop developing the protocol, which will cause the entire YFI ecosystem to lose the "Satoshi of YFI"."secondary title"Summarize
