YFI Proposal: Rethinking Capital Allocation

Since August 1st Yearn has generated over $2 million in fees. Currently those fees accrue to Yearn’s treasury with YFI stakers having the ability to claim those rewards on a periodic basis. However, while 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.

If the community were to enact this proposed YIP, we would use system income to buy back YFI to then use to reward different stakeholders for providing value to the Yearn ecosystem, instead of just distributing income to YFI stakers. The idea here is two fold:

1. Stop distributing yCrv/yUSD to stakers immediately
2. Use Yearn’s system income to reinvest in growth

YFI is ultimately valued based on its future cash flows discounted to the present. Thus, the goal of Yearn’s capital allocation strategy should be to allocate its capital in ways that maximizes its future cash flow. Reinvesting in growth is the best way to achieve this rather than distributing income to YFI stakers now.

Having the flexibility to redistribute YFI to those providing value to the Yearn ecosystem, could meaningfully improve the attractiveness of contributing to Yearn, by providing them with upside exposure to YFI. If we find we don’t need as much YFI to distribute to contributors, we can always just distribute it as dividends later anyways. Remember YFI stakers will always govern the treasury now and into the future, so just because we pause distributions to YFI stakers now does not mean we will pause them forever.

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