The founder of YFI talks about DeFi governance and currency issuance: I want to encourage creative and smart people to join the community
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom), published with permission.
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom)
Compilation: Leo Young
, published with permission.Lianwen was authorized by Uncommon Core to translate and release the Chinese version. Uncommon Core is a podcast dialogue program co-planned and hosted by Su Zhu, the founder of Singapore-based compliance hedge fund Three Arrows Capital, and Hasu, an independent researcher of cryptocurrency. The views are cutting-edge, exclusive, and in-depth ,listening address
Compilation: Leo Young
part one of this interview
, discussing the original design and possible future of this high-profile DeFi project.
Today, when the price of Yearn Finance tokens surpassed the highest price in Bitcoin history, Lianwente released the second part of the interview, discussing the governance of Yearn Finance and the general governance operation of DeFi.
In an interview at the beginning of August, Andre Cronje pointed out that he hopes to let creative and smart people join the community, governance system, and management strategies through issuing tokens. The value of tokens can attract the best talents in the industry. Soaring will attract users who don’t care about continuous income, don’t provide liquidity, and don’t participate in governance.”
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Andre Cronje, Founder, Yearn Finance
He issued a warning in the interview: "I am concerned about the product. When people talk about my product, they are actually talking about the YFI token; they don't talk about Yearn very much, they think the token itself is the product; there is no such thing as rising or falling in the world." Yes, there will always be an inflection point; price fluctuations, to me, will jeopardize the long-term development of the product.”
Hasu authorized Lianwen to translate and publish the Chinese version of the interview. The following is a summary of the interview:
Core point of view
The non-tamperability of the blockchain has inherent beauty, and the non-tamperability means security
Governance smart contract agent upgrade is a traditional development thinking, the ideal state is the solution after decision-making, written into the smart contract and cannot be tampered with
Currently the machine gun pool is very risky
Liquidity providers need to understand contract risks
The beauty of encrypted assets is that you control your own money, you control your own value assets, and you can see the flow of funds. Responsibility also comes with it, and you have to be responsible for the safety of fund custody
Insufficient protection against scams and funds in the current market
During the market frenzy, everyone is happy, everything looks good, but I think this is a sign that the market is wrong
Hope token incentives distribute tokens to users who care about ongoing yield, popular providers, and governance
Based on rewards and transaction fees, a reasonable valuation of YFI should be $3
There is no such thing as rising but not falling in the world, there will always be an inflection point. I focus on the product, and when people talk about my product, they're actually talking about YFI's token.
YFI token design is to encourage creative smart people to join the community, governance system, management strategy
The ideal is to let the protocol separate from the founder and achieve complete autonomy like Satoshi Nakamoto
Understand Yearn's governance concept and design
Hasu: In the second part of the interview, let's discuss Yearn's community governance and the governance of DeFi projects. I would say that in all DeFi protocols, there is a fundamental opposition between developer control and user governance risk. First, do you agree with this? Secondly, can you talk about the current governance of Yearn?
Andre Cronje: Yes. First of all, I have to add that there are three parties in the community. The first is the developer, the second is the community manager, and the third is the protocol’s liquidity provider (LP) or any party that benefits from the protocol. Let's talk about these three aspects.
The current governance is social governance. Forums are used for discussion, stating the goals of proposals, and the results are often contrary to on-chain voting. So I'm now turning to off-chain solutions, but the discussion will be different. So now it is a forum proposal, a forum vote, and if any party has enough support, then submit the proposal to vote on the chain.
The voting period is three days. If the specified number is reached, then "agree" or "disagree" will be implemented, and the current result can still be changed. I originally thought about writing the token structure into the code, and writing the system parameters into the code, but it has not been done yet, and it is still under discussion. I don't think that's a bad thing. Governance is still in its early stages, and there is still a lot to discuss, so there must be a process. I'll write it into the system now that it's voted through. Ideally, the person who submitted the proposal would write the code, but not everyone who participates in the discussion can write code right now.
So I do what I do best, write code. After that, submit your proposal. If the proposal is agreed, currently it is multi-signature owner to control, I think there will be a better governance voting solution. Then the proposal will be added to the ecology. That is, after everyone decides on the content of the module, the module is added to the system. This goal is for token holders to determine the rules for how the system works. If you want a token distribution plan, you need to design a model, write code, and then lock it into the system. If you want to manage three parties through DAO, then one party will perform system control, one party will manage finances, and the other party will manage other things. I don’t know yet (how to do it). That's about it, and then write the code one by one. But now it’s better to manage off-chain first, then write the off-chain resolution into the system, and finally program the on-chain solution.
Hasu: I think this method can be called off-chain governance compared to Compound that requires formal governance voting on the chain. Vote first, and then write smart contracts to join the system after passing.
Andre Cronje: Yes, Compound is a good example. I do think Compound is one of the best protocols for on-chain governance right now. I think it's cool that you can vote to change the contract even before voting. It's not about voting to write the code process, but "I've written the code, what do you think?" From a developer perspective, I like this design. I don't like proxy upgradable. But I do like having rules that can be changed on-chain before the contract is executed.EIP-2535I used to do this. After three votes, the result was not what I had originally envisioned, and I stopped because it wasted a lot of time and the things I wrote are not currently used. Let community governance develop on its own, without any restrictions at all. This is the current state of YFI. There are a lot of strict rule set changes. I want to achieve a state where it is not proxyable, but after the rules are set, the system is completely immutable, just like Yearn V1. It's also interesting how my attitude has changed over the past three months on this.
When I made the first version of V1, I didn't want the contract to be upgradeable, but later I wanted to make some changes, so I deployed the V2 version. I want everyone to "vote with current assets", that is, if you want to upgrade the V2 version, take out the current assets in the V1 solution and deposit them in the V2 solution. I personally like this liquid asset voting concept. After that, I will carry out informal social governance solutions under the chain, and then write the solution rules, and then there will be large-scale system upgrades. I want to upgrade to the new system, you can vote for it with liquid assets. This is just a personal opinion, and I don't have much say in governance at the moment. I am curious about the development behind it, and I think this kind of "informal governance" is a good way.
Tarun Chitra: Perhaps this is a bit technical, I think the situation of contract full proxy upgrade will change soon. What do you think of other upgrade solutions like diamond storage? Will the next version of Yearn take advantage of the new method, without forcing a major rewrite of the contract, and only require everyone to make minor changes? Regarding governance, do you think that technical aspects need to set rules first, and which ones do you think are reliable? In addition, can you explain to the audience what is the "Agent Upgrade Contract" and related content?
Let me explain first, "Diamond Storage" is a very new thing (Chain News Note: For specific information, please refer to "
”), non-encrypted asset developers have done a lot of development in languages close to the operating system, and Rust and C++ languages will recognize such content like ordinary programs. The more troublesome thing about Solidity is that when you want to upgrade the contract, there are two contract structures for one contract in the agent program upgrade method. The main endpoint used by the user, pointing to another contract, the user can update the main endpoint. So the idea is that every time Compound governance is redeployed, there must be a new comptroller, and then point to the proxy contract, which is the proxy contract when the user uses the Compound application
When governance is upgraded, the contract endpoint points to the new contract. The way governance works is that participants want to make a proposal. If there is 1% COMP, they can write a new comptroller by themselves, set all editing and changing functions, and then deploy it on the Ethereum mainnet, and finally start governance voting. The vote is to decide whether to migrate the previous endpoint of the controller from the previous one to the new one. The problem is, you have to replace everything, governance is voting address changes, and it becomes uncontrollable.
I think Andre might be worried about losing control, right? There is no safety guarantee as it is possible to point to any deployed contract. There are a lot of low-level crazy contract holes out there, let alone others. But there are also many new features such as Solidity 6.4, which look like ordinary programming languages, where you can select certain functions and allocate memory and space. Just like the governance contract theoretically only affects local functions but not the entire contract deployment. I would like to know if you think so many programming language updates will make it easier for you to achieve complete code management?
Andre Cronje: I have to state that this is a personal opinion, and the situation may vary greatly depending on the governance. I think immutability is beautiful. When I first started developing in Solidity, I actually didn't like it the least. If I wanted to make changes, I had to constantly redeploy the contract. It's easiest to do other development, upgrades or patches. Suddenly, the biggest obstacle I encountered in developing smart contracts was that I couldn't update the system. But I went on and really liked immutability.
Once done, it cannot be changed. I would love to be in this state. In fact, agent upgrades have many advantages, some are like memory design, and they can also be used as agents, storing information in different contracts, and then the actual execution is different. So you can switch and point to different contracts. I don't like this solution now, it will be very different in a year. I'm not personally a fan of proxy upgrades, so I think the term "governance" might be a bit inaccurate.
My original idea was that the members participating in governance could be called "solution architects". They would discuss in the forum, establish a structure, and decide what solution to adopt. Once a decision is made, it cannot be tampered with and no further discussion is required. No upgrades, no changes. There may still be small aspects that need to be controlled, such as fees or policy changes, but ideally, I'd like to be completely immutable. Now this is the development focus, like starting a new project, I'm excited, there are a lot of problems to be solved, a lot of ideas to discuss.
As the product takes shape, it will become more stable and become an assembly line operation. You will continue to do maintenance, and then the system will continue to operate. I'm personally in favor of discussing the decision and then finalizing it as immutable. I certainly understand the value of proxy upgrade solutions, but I think that's traditional development thinking. (Blockchain) What attracts me most in this field is immutability, which is the feature I most want to take advantage of. Because immutability means security.
Hasu: I totally agree with that. Both Tarun and I are supporters of immutability. The amount of governance should be reduced because we all feel that governance is an attack factor that should be minimized.
Tarun Chitra: Totally agree. I still have problems with this. I noticed a lot of contract developers started working on governance. I would like to know what scope you do.
Machine gun pools are tempting, but the stakes are high
Hasu: Earlier we actually discussed all the scope of Yearn. On the one hand, there is the non-tamperable part of the system and Yearn V1, but there is also the opposite side, which is the vault. Can you talk a little bit about that yourself and what I mean by risk?
Andre Cronje: First explain the risk factors. The risk is that I have the private key. As the controller, I have the right to upgrade the strategy to any contract, and the strategy is the method by which the controller allocates funds to the smart pool. Therefore, the smart gun pool has funds, and the smart gun pool tells the controller through the agent, the controller upgrades the strategy, and the governance adds the strategy. If the controller points to a new strategy, all they can do is tell the machine gun pool, "There is a good strategy, and you can put your money here." At the same time, I have the address, and if the money comes to me, I can "take the money and disappear."
Hasu: Interrupt and ask the audience, how do you prove that you destroyed the private key?an articleAndre Cronje: I didn't destroy the private key. If this address is set as the destruction address. 0x0 address on Ethereum, of course, it is also possible to obtain the private key of this address, but even if there is a cracking probability, the probability is very small. If you can get that private key, you don't have to worry about exploiting the entire network. I said "destroy" is set at this address. The community decides to execute at that address, which means that the probability of someone obtaining the private key to control the account is extremely low. This is what "destroy" means.
If someone has the private key, it cannot be truly destroyed. You can say that the copy was deleted, but there is no way to prove this. Just like I send tokens through multi-signature, the multi-signature holder has to prove that I have the key, but I can't prove that I don't have any key. It is "unverified, untrustworthy". This is fundamental to the prosperity of this system. This goes back to the immutability mentioned at the beginning.
I want to talk about the article by Hasu (Chain News Note: Refers to Hasu’s previous publication
an article
, pointing out that the YFI V1 version has a single point of risk controlled by Andre Cronje from July 25th to August 6th), I told Hasu at the beginning that the point of view in the article is very opposite, because it did not mention that the V1 system cannot be tampered with, There is no private key or part of my commit. There are many contracts in the system, many interactions, and I sometimes make mistakes. So someone needs to study it and review it from top to bottom. Once a problem is found and a warning is issued, it will be implemented from top to bottom. This is a very safe way. But the general discussion can only point out the risky places. Therefore, the risk of machine gun pool is very high now.
Next, another aspect is also very important. On the one hand, the private key can be used for updating, and on the other hand, it specifies the time period during which the private key can be updated. For example, Compound generally needs more than two days to update, which is good, because LP puts funds into the system during this time. The question is how long it takes. If the COMP token is attacked and everyone decides to vote to upgrade the proxy, that will give the community enough time to alert the community and move funds around. this point is very important.
In addition, Hasu pointed out the problem of the machine gun pool, which is very good, and the controller will not be changed at present. The main reason is that if something goes wrong, I can update it quickly. For example, the first machine gun pool I deployed uses the BPT strategy. BPT strategy price oracles can be manipulated through flash loans. Samszsun found this problem in about half an hour. Because the situation is urgent, I can immediately switch strategies, return funds to the smart gun pool, and protect the solution.
Even now, if a change is required, I can quickly tune the system. But when it comes to risk factors, like I'm compromised, the key is compromised and so on, it's very dangerous, and if something goes wrong, there's no way to fix it.
This is what I tweeted about, safety is about making big tradeoffs. I think Yearn V1 is a security solution, because it cannot be upgraded or changed, but the system will be destroyed. Make a trade-off between the security of the system itself and the risk of the machine gun pool. If I have permission to change, there is a lot of risk, which is why token management is handed over to "time-locked" governance. It takes at least three days for tokens to be locked, and they can only be transferred to different contracts, and there is also a time lock before running. If something happens, it will take at least six days to take effect, which is enough time for users to know. I'm happy with this solution and don't need an update anytime soon. If Samczsun finds a bug, I have three days to update to protect user assets, which is another matter.
If I could update, at least I could notify users and hopefully users can withdraw their funds before something goes wrong. So there is also a trade-off in execution time. This way I can keep the system running, I can develop quickly, I can deploy new policies faster, and I can fix problems. That's what I did in V1 until a dispute arose. As long as the policy can be changed, I can set a "time lock", and I'm partial to this solution. After confirming that there is no problem, you can write code for governance.
This goes back to the discussion of immutability, which I hope is the ultimate solution. Any engineer or developer will tell you that the first prototype they ship is not the final solution. After several iterations, a satisfactory product can be obtained, which is the only way for developers. LPs need to understand these risks as we discuss this.
When it comes to these turning into memes, I'm kind of annoyed. I said "I tested the product, don't use the smart pool without looking at the contract, don't deposit funds if you can't afford to lose", I was looking for help from other people who can check these solutions.
On the other hand, I also like everyone to actively participate in the testnet and take on the responsibility of auditing, which is impossible with my current financial situation. So there is always a limit to starting.
On the other hand, as Hasu mentioned, why isn't there a limit in the solution? Why not set a deposit amount limit so that funds cannot exceed amount Y. There are two reasons why this is not set, the main one being gas fees.
Compare ERC20 tokens and Aave token transfers. In the past, the handling fee was 20 cents, but now ERC20 tokens cost 30 to 50 US dollars, and Aave token transfer fees are higher. Another reason may not be very good to say, that is, the higher the risk, the more cautious everyone is. That is, I deploy a solution, only a few thousand yuan, and no one will carefully check potential loopholes. If it is open source, everyone knows that funds are at risk. It will be checked by someone soon. I found that there are many faster ways to find the problem, to determine whether the solution is safe and can be used.
I feel the situation is changing and I support the appropriation system fund disbursement audit. I hope that the community can vote on the resolution, so that the audit will not be so random. This is probably a good way to go until you have a lot of funds under custody (AUM) and funds locked up (TVL). But everyone should pay attention to the risks in different aspects.
This is also what I often talk about. The beauty of encrypted assets is that you control your own money and value assets yourself, and you can see the flow of funds. Responsibility also comes with it, and you are responsible for the safety of fund custody. Likewise, wherever the money is I should know where it is going. If the money is in the bank you don't know where the money is going. There is also this kind of thinking mode when dealing with encrypted assets, and people don't care much about this kind of power and responsibility. Everyone just thinks where to put their money, and I think it is very dangerous when I see it.
I remember that in January and February, I called some people "encryption police", saying that it was too early for them to call out anti-fraud, but now that they have all experienced market fraud in 2017, I think this situation is reasonable. Now we are at a dangerous moment where no one cares, no one shouts risk, no one guards against it. I'm digressing a bit again, but there's no getting around that, and that's what you call the risk factor.
What do you think of social influencers turning their attention to YFI from sideways to "really fragrant"?
Tarun Chitra: The following question is not related to governance, but I think it also reflects that the current governance tokens and "yield farming" are different from 2017. Some people who call themselves Bitcoiners are now starting to promote the YFI fork, what do you think? Some people who used to pass the safety message and make people feel like they really control their money suddenly switched to promoting 1,000% APR. I think you know who I'm talking about, what do you think of this phenomenon?
Andre Cronje: Don’t worry, I’ve said privately with a few close friends over the past few weeks that the “crypto police” who shouted to be careful about DeFi in January and February are now promoting something that I don’t think is very safe. An appropriate metaphor is, "You either die a hero, or live long enough to become a villain" (Chain Wen Note: A line from the double-faced man in the movie "The Dark Knight"). That's where we are now. I don't want to draw conclusions, but I just want to say that after going through a bear market for more than two years, many people have left, but there are only a handful of people who have been constantly building and innovating.
In the past three months, many people who left at the beginning are now coming back, secretly developing the project, preparing to go live... I think they may have experienced too much struggle in the past few years. Now that the market has finally entered a mania, everyone is happy, everything looks good, but I think this is a sign that the market is wrong. They are immersed in the mania, and they follow a different investment culture.
I would like to say that you once brought up the security issue, I don't know if I should say this issue because my words are a bit harsh. I think the attitudes of some social influencers sway with the preferences of the public. You have a lot of fans and everyone listens to you. Whatever you say now will always be affected by the "cancel culture". I've seen people say you're irresponsible, but now it's a similar situation where accidents are accepted. I have to add that Two-Face Harvey Dent's quote "You either die a hero or live long enough to be a villain" is very apt and says a lot. But now my current attitude towards the community is to try not to disappoint everyone, but I am really worried.
Hasu: Speaking of the context of the community-controlled frenzy, we can include the YFI token offering as well. I want you to talk about the coin issuance process. What is your idea behind creating tokens, how to issue them, and do you have any regrets about the later development?
Andre Cronje: Let me talk about the process of issuing coins first, and then talk about regrets. People complain about "liquidity mining" or "yield farming" because it is purely a distribution process. That's why I don't have any consideration for the token economy. I hope that "social construction" can be used to help build the ultimate non-tamperable solution to solve the current problem of inefficient market capital. I have to get tokens distributed to people like me that incentivize people who use the Yearn system because these people care about sustainable returns, LPs, and governance. I want token holders to have these three qualities. They need to understand how to become an LP and how to use Yearn.
I need to get sustainable income and APR incentives, and users also need to become governance participants. In fact, it is very simple, it is the distribution mechanism for these people. I initially thought that maybe no one would stake these tokens because they have zero value. This is not meme culture, this is the attitude I insist on, because tokens are only about creating solutions. Now there are many problems in token issuance, the biggest problem is that the price is related to the Yearn system, because it will "attract unsuitable user groups". I don't mean to disrespect others. I wrote an article about this issue two years ago.
At the time I was researching the relationship between ETH or BTC production cost and price. I researched factors such as the most commonly used mining equipment at the time, power demand, concentration, country of origin, electricity costs in a given period, and I got a rough idea of how much electricity was needed to run a Bitcoin or Ethereum network in a given period, which is the cost of production. Dividing the cost by the amount of ETH or BTC obtained is the unit production cost, which should be higher than the actual cost. This model actually works quite well in a bear market.
I'm happy with the output, the cost fluctuations are accurate. But there are speculators coming in and not using the tokens where they should be. They want the token to appreciate in value, so they take the token out of circulation. The problem with this is that too many speculators enter the market, along with miners and users. Ethereum users like me pay gas fees for performing computations. But now the asset cost is too expensive and I don't want to pay. If the asset price is lower than the electricity price, miners will give up, I don't want to waste money. If I am a user and the currency price is high, I don't want to use it for payment, because it cannot enter the ecology.
If the currency price is within the range of production cost and price difference, then users are willing to spend , and miners are willing to mine coins . Now there are speculators, who artificially reduce the number of tokens in circulation, causing the price to rise. At this time, users will be reluctant to use it because of the high price, and only miners are producing. Then the value is not reflected and tokens flow to speculators. I think speculators actually bring contradictions.
The same is true for YFI. Soaring prices will attract users who do not have the above three qualities (caring about continuous income, LP and governance). Seeing someone on Twitter say "I don't know what this token is for, I just bought it because of the skyrocketing price", nothing disappoints me more than this. This would defeat the purpose of the token. Tokens are used to encourage users with these three qualities to help design and architect the solutions they want to use.
The reasonable valuation of YFI should be $3
Hasu: Excuse me, I hear you say that the actual value of the YFI token is zero. Zero is just the starting price, you don't understand why anyone would pay for it.
Andre Cronje: So technically, my estimate of the value of the YFI token based on rewards and transaction fees is three dollars. I haven't discussed this with anyone because I don't want to speculate. The YFI token should have practical utility. Unfortunately, after the system distributed tokens for the first time, it was associated with speculation. I have no complaints about the subsequent distribution, it just feels a bit over the top.
Hasu: Interesting. So after you first issue tokens, you have cash flow value. I'll start by saying that obviously any governance is ultimately paid for with cash flows generated within a particular protocol, and new ones will be added. So there will be an actual high discounted cash flow value. If the agreement has a "value moat", it will guard the rent collected from users.
Andre Cronje: Yes, but none of that was shared at the time.
Hasu: Of course users know they can turn governance tokens into future cash flow. These I think as a token developer or anyone can not hide from users.
Andre Cronje: I agree.
Hasu: So you estimate the YFI token is worth $3 based on historical cash flow or projected cash flow.
Andre Cronje: Right.
Hasu: Is it reasonable to distribute YFI to attract so much attention to Yearn, deposit so much cash, and increase cash flow?
Andre Cronje: 100 percent reasonable.
Hasu: This is crazy. Take the traditional stock market as an example, which only distributes equity. Companies that get so much attention go public, and the "self-fulfilling prophecy" drives earnings big. I think it's the same with tokens, 20 times, 2000 times, it's crazy. In your estimation, it's crazy.
Andre Cronje: Right, 6000 times now, right? (Chain news note: This refers to the price of YFI currency when Andre Cronje was interviewed in mid-August. By the time the Chinese version of the interview was published, it had increased by 10,000 times) I have never been happy with such a high price. lie. How nice that everyone is happy and excited about something so cool. It’s just that it attracts a lot of unnecessary people, and I’m still very satisfied with the current distribution method, but there are really powerful “giant whales” whose votes can play a big role, which makes me very worried that retail investors will give up voting . They will think, anyway, my vote will not affect the result, so they don't have to vote. This is a kind of "one vote is useless" thinking.
This also creates new problems. Then again, I love the challenge, the fight, the sidelines. Based on my experience in the "currency circle", the most worrying thing is the price. There will always be inflection points in the world, such as the emergence of new products, or people no longer believe in it, or encounter hackers... I don’t know what it will be, but there will always be an inflection point in value. It is possible that the price will recover soon, but it will always fall, this is the law. I focus on the product, and when people talk about my product, they're actually talking about the YFI token.
You know, they don't talk much about Yearn, they think the token itself is the product. Actually not. I don't like linking the two. People trust Yearn only because the price of YFI tokens has risen. If, as happened to other communities and projects, after the price dropped, it would be stupid to say that Yearn is rubbish and useless at all. Why do people still use it?
For me, price fluctuations will jeopardize the long-term development of the product. Again, this is just a personal opinion. Maybe not actually. I infer this based on what has happened in the industry in the past.
That's why I don't want the token to be associated with the product. To put it bluntly, if it weren't for many people mining, I might be the biggest miner. I get the coins, and I will distribute them in the same way in a few days... and so on, until the capital inflow reaches a level that I am satisfied with, and my share is no longer so important, and I don't need to contribute anymore. It didn't actually develop that way. It would be nice to be able to attract an influential, more experienced and knowledgeable user base.
I think the original Substreight or Andrew's proposal, the current Gauntlet and Delphi and the people who contributed are all excellent. There are also the strategic aspects of Vance of Framework Ventures and so on. So, there are positives as well. I don't want to just say negative things. There are many positives. Overall it's really good. As for what you said you regretted, I don't know what to do.
The ideal state is that "liquidity providers" and "governance participants" are common interests
Hasu: You briefly talked about Bitcoin mining. We can make an interesting analogy. I've written before, simulating how Bitcoin achieves security. We found that security mainly depends on the joining of miners and the size of miners' input. Bitcoin itself is minted and distributed to miners to ensure network security. In this sense, the higher the value of Bitcoin, the more miners join, the more secure the Bitcoin network is. Because Bitcoin users value security so much, it is gaining adoption. I wonder if you also hold a similar view. The higher the price of YFI, the more people participate in governance. Isn't this encouraging users to make the best decisions?
Andre Cronje: I can't comment on this exactly. I agree with the comparison you make. What I think is, let creative smart people join the community, govern the system, manage the strategy. The token has value to attract the best talent in the industry. As you said, value promotion allows them to participate more. If the price of YFI is the same as I estimated, then big companies and big players may not be interested. For them, this investment is not worth it. Now that the price is so high, it may account for a large part of the investment portfolio, and it is in their interest that Yearn succeeds. Just like Bitcoin's "security budget", I think it can also be called "intellectual budget".
Hasu: Like Tarun, I think governance is an attack vector that needs to be addressed in the system. What I mean by this is that the governance can charge fees for managing the agreement. If the governance is not sufficiently incentivized, it may do things that are not in the best interest of the protocol. I think "security budget" or "governance budget" are equally suitable for DeFi projects, just like Bitcoin or Ethereum.
Andre Cronje: Agreed. The budget will incentivize users, and I'll watch for future developments. I would like to mention that the token holders who make the best decisions for Yearn are different from the token holders who make the best decisions for YFI. YFI holders may want transaction fees, such as voting for 50% transaction fees, so that there will be more income and more dividends. That would be bad for LP. A 50% transaction fee may result in a reduction in assets under management.
I'm curious about this, and I'd love to see how it develops. It was originally proposed to mint more YFI, but some people were reluctant because scarcity would increase in value. I didn't like these debates at the time because it was only about the token, not the protocol. Many big players voted against it. For better understanding, they have to make better decisions. On the other hand the particularly cool reason they voted no is that I agree that the intrinsic value of the token is good for the system. Not only will it attract creative and intelligent people, it will also enhance safety. Bribing elections becomes difficult due to high operational costs. I admit it's really cool.
Tarun Chitra: Finally, I would like to talk about traditional market speculation, especially price-to-price discovery. It is important to ensure that users participate in investment. Even when cash flow calculations are difficult, participants express opinions. I know you said initially, hopefully no speculation, mostly user engagement. We've talked about how speculation attracts good ideas, competitors, and replicators to protocols. Copying is the best compliment. I think all products ultimately need to balance real users, LPs, speculators, token holders. What do you think of speculators participating in investment products of decentralized hedge funds/mutual funds? How will the community be balanced in the long run? Do you think YFI token holders will have more say? Or will liquidity providers and YFI token holders become a common interest?
Andre Cronje: I don't know about the speculative balance point. I hope that liquidity providers and governance participants are a community of common interests, which is my ideal state. LPs share common interests with token holders. On the other hand, I also conducted a survey on Twitter to evaluate the balance of interests, and everyone unanimously favored my proxy machine gun pool. There needs to be indicators for evaluating and maintaining the health of the machine gun pool, so that it will not cause liquidation. I ask everyone who should make the decision. The first choice is "Should multiple smart pools have different health indicators? You decide where the liquidity goes."
The second is "As an LP, should LP tokens be used for valuation or governance?" There are three solutions with approximate results. I often struggle with which model to design for LPs and Governance because they are completely different. I can say that it is the best solution if they are the same group. Separately, I do sway as to who makes the decisions in the design. If LPs are at risk, I do want them to make decisions. If it is beneficial to token holders, LPs are not necessarily holders. In order not to be detrimental to LP, I want them all to have decision-making power. This is just a personal opinion, and the final result depends on governance. But I do struggle with this dilemma. I don't have an answer either, I need more data.
Tarun Chitra: Many Layer 1 networks explored public chain design in the previous 8 to 10 years. I don't know if anyone has found a satisfactory answer. I don't know if Hasu agrees. I don't think there is an easy solution, it's always good to try new patterns.
Andre Cronje: In this regard, YFI governance is through collective intelligence. I really can't do it on my own, I see so much discussion, it's really cool. I never thought it would be like this. I'm excited to see a pattern like this form. Many points of view will come up in the discussion, and we may well find solutions that we never had before. I have to admit that I am also just a participant in terms of governance. I know what is technically required, and I don't want to make a decision without a final solution. When it comes to governance and decision-making choices, I am just a bystander.
Hasu: I would like to know what is your development plan for the project? Have you thought about collaborating with other developers? For example forming a team. How do you plan to finance it? What are the options?
Andre Cronje: System rewards are still the easiest. My worry is that the price is too high, the market is too hot, the transaction volume is so high, and the income is so high. If we go back to January to March, there may not be enough funds to run the team. We have to see the future development. A vote is currently underway on whether cap funds will be used for operations. This is what the autonomous team is going to do, and Satoshi is right to do it. Everyone will still regard Yearn as Andre's project. As long as the agreement is still related to me personally, it cannot be developed lazily.
