Umbrella Token Discussion
There’s been various conversations occurring regarding if/how to implement a token along with the Umbrella protocol. Below I do my best to flesh out the relevant considerations in the decision and propose a few different paths forward. This is just a starting point to the discussion and an initial signaling, I expect additional considerations to be presented in the comments and potential changes to the eventual final vote.
The two major factors in the token decision are value accrual and token role.
In terms of value accrual, I’m mainly talking about where speculative value flows, not strictly fees or revenue. An Umbrella token would naturally receive a significant portion of the speculative value of the protocol. Naturally the YAM treasury would receive a portion of the total supply, and therefore the treasury would be exposed to that value, but it is unclear exactly how YAM price would be affected.
Recent events with YFI mergers may offer some indication, where the “acquired” token often saw the most value accrual. Because the treasury would receive a portion of funds, there would likely be some accrual to YAM price.
On the other hand, if there were no token associated with Umbrella, the only place for speculative value to accrue is in YAM itself –– this would also be justified given that Yam is acting as an arbiter and pool creator, receiving fees for doing so.
The second major factor is the role that a token would play in the system. It is a governance minimized protocol, meaning there’d be no governance associated with it. There could be a fee built in, but for a token to justify a fee it needs to do some work. It could create a governor contract and eventually act as a pool creator and arbiter in place of YAM, however, which would be an efficient way to limit governance overhead for YAM holders. There could be additional functionalities of the token eventually, such as Maker/Aave-style backstop.
Here’s a couple avenues to go down:
No token. Just let the value flow to YAM - YAM holders directly benefit through appreciation.
Token at launch. Yam issues an Umbrella token at launch and provides liquidity mining rewards to distribute, plus airdrop to existing YAM holders and the treasury. This could likely impact development timing.
Future token. Once protocol is up and running smoothly, the existing Yam core contributors issue a token to past users, create liquidity incentives, airdrop to Yam holders, airdrop to treasury, and reserve allocation for a management team.
Community token. Community member issues a Umbrella token, following a similar issuance pattern above.
I’m personally in favor of options 3 and 4. These allow for YAM to initially receive the full price appreciation warranted by its product and fees it can generate in the future. As the concept is proven out, a token can be created to spinoff some of the governance and development overhead.
Obviously, Option 3 is the safest and most straightforward. It would allow us to plan ahead and find talent to run the new protocol.
Option 4 is a little out there, but I think it incentivizes the kind of self-starters necessary to lead a protocol to success. Obviously it would require coordination and vetting, but would also be a great way to attract talent and market Yam as a community oriented protocol and play into the Yam Factory concept. Ultimately, this is one of the things we want Yam to be: a studio in which the community can find support and assistance in building DeFi products and infrastructure.
- No token
- Token at Launch
- Token in Future (Existing Core)
- Token in Future (Community Driven)