Like YFI, we need to build products on top of the protocol that generate value for token holders. We can start planning, designing, and even developing these products while we wait for v3. There is no reason why the clock should not start now. I have some ideas that we can start iterating on to be prepared for a successful v3 launch.
A lending/borrowing platform (think Aave). Code can easily be forked from existing protocols that use this mechanism. A small part of the spread can go towards the treasury. But the application needs to have a unique value proposition. The way to separate ourselves from Aave is to add even more assets than they offer and add future ones quicker. This comes with added risk, so we can set risk parameters for newer coins to have capital limits (as Maker does) until the asset is deemed safer in which case we would raise those limits.
Vault yield farming. We can undercut yEarn’s 0.5% withdrawal fee and 5% performance fee. This may lead to a race to the bottom but protocols will converge on this anyways and it would be a strong selling point. An additional value proposition can be to offer more high-risk yield farming opportunities. We can use our lending/borrowing platform to use assets as collateral for farming that yEarn does not offer. For example, we have a YAMv3 vault that uses our lending/borrowing platform to take out a loan on YAMv3, and uses that loan for high-yield farming. We can also create more complex strategies that divide up the investment capital into multiple farming platforms. This begins to create an ecosystem around the YAM protocol with lending/borrowing + vaults.
An elected investment council. This council would use excess funds to invest in ERC20 tokens. I like the YFI model, where the first $500k goes to an ecosystem/development fund, but any excess capital can get put into an investment DAO. This council would have a dedicated discussion channel within the YAM discord, so we can view the discussion/level of activity around each council member. No other users would be able to chat in there so the discussions would stay pure within the council. These elected members would serve terms and be able to be voted out at any time. There can be parameters set for how large of an allocation can be put into any one token. There can also be guidelines for what types of assets the investment fund is targeting. This fund could invest in tokens or use funds to generate yield. Down the line we could even offer salaries for the position from the ecosystem/development fund that are paid weekly (if it grows to a size where that makes sense).
Smart contract auditing. We can develop a team of smart contract auditors that audit new projects in exchange for initial tokens. This may have already been brought up, but there is strong demand for this product with so many new fair-launch projects starting to go live. It can be structured two ways. The auditors receive a portion of those tokens received for auditing. Or, the auditors start by doing it for free and then get paid salaries out of the ecosystem/development fund (once it grows to a size where that makes sense). You could even back-pay them for the free work they did. Or you can do a combination of the two by starting out giving them a portion of initial tokens, and then when the project is large enough just put them on salary.
This project has the potential to create an autonomous organization that generates value for the community and token holders, while generating an income for those who contribute to its growth. But we need to start working on it now to generate interest for the project which will generate a sizeable early treasury to make these things happen.
Other product ideas are welcome. I really think we need to have these plans/code ready to go early on in the launch of v3. Let’s get the wheels on these things turning.
I think it would be interesting in create an Aave-like borrowing and lending platform for the smart contract insurance market. If someone wanted to buy an ERC20 token but it is only a few hours old, there would be premium demand for seeking market takers willing to insure against smart contract failures. This would have a win/win 2-fold effect.
Market takers (ones that supply insurance) will become in-house auditors doing their own due diligence on the contract to search for any issues before determining whether it is safe to provide insurance to buyers. They would clearly specify what the insurance covers and does not cover in a document, providing specific examples of multiple outcomes. They would have their liquidity locked up in an escrow for the length of the contract.
Market makers (one that purchase insurance) will be the ones benefiting from being early into a protocol a few hours old, and will enjoy high percentage gains to offset the high premium percentages paid. They would be bound by the agreements of the document that the market maker has created and have their premium locked up in an escrow for the length of the contract.
Should a protocol blow up and have financial consequences for the market maker, the maker and taker would both have the option to mutually settle the transfer of liquidity as agreed in the contract. Should the taker dispute the payout of their liquidity to the maker, the case is then settled in Kleros court where the case is decided by a jury. When the jury completes its decision, it will release all the funds to which ever party that won the case along with a fee to which ever party that lost.
So yeah, this would be a Nexus Mutual insurance market but with more trust, flexibility, and decentralization. It would have Aave-like mechanics of having market makers and takers participate freely with their own rates and custom documents specifying the payout rules. It would have the freedom of Uniswap where any token can have its own smart contract insurance if there are any makers or takers who decide to participate in it. It would have all disagreements settled in Kleros court, where game theory keeps Nash Equilibrium enforced with almost zero possibility of corruption or bribery (Nexus Mutual requires everyone to KYC to participate in a case!) And Yam will be the house, taking a 0.02% fee of all premiums purchased and add that into the treasury.
The following options of a smart contract insurance market place can be explored:
The protocol will waive the 0.02% fee if escrows, fees, and/or liquidity is settled in Yams.
The protocol would have takers use a predefined check box that specifies what their rules are.
A subscription program for market takers who interact with the Yam protocol frequently. Like a subscription program that costs 30 yams each month that will waive all fees.
I like this idea as the smart contract insurance of today does not include new tokens quick enough to be added when they are demanded most - a few hours or even minutes after a launch. The best part is that the Yam Treasury has no liquidity stake in the insurance pool, which shifts the risk to the taker to do their own due diligence on what rates should be optimal for each protocol.
I like this idea. It seems like the general theme we are both thinking is to cover newer, high-risk assets either via lending/borrowing, vaults, smart contract auditing, or insurance coverage. This is a good niche which has not yet been targeted by a big player.
The issue I see with your suggestion is the lack of automation. Manually setting rates and custom documentation describing the terms of each policy sounds intensive. Nexus Mutual adjusts the cover price automatically based on the amount of NXM staked on that specific policy. While I think that is an innovative design, there are also pitfalls of that which I do not like. Someone could calculate that a fair premium is 20%, so they stake enough NXM to set the rate to 20%. But then uneducated insurers flood into the pool and move the rate down to 3%. As we’ve seen, during hype periods people make uninformed decisions and don’t assess risk properly. This puts insurers at risk of becoming -EV quickly. If the breakeven value of the insurance policy is 15%, but the bonding curve sets it to 3% due to overzealous insurers, the insurers are losing money long term.
So maybe having specialized people setting manual rates isn’t a bad idea, if they can move quickly. These opportunities come and go fast, so they will need to assess and submit proposals over a short timeframe.
If we had a template for policy coverage terms that could be an efficient way of speeding up that part of the process as well.
These are excellent ideas and I love where the thoughts are headed. Much of the above is in the BIG IDEA category, which I think is the right way to go.
The key question at hand in my mind: what does the treasury uniquely enable?
As I laid out in my piece here, the easiest ways to operationalize the treasury are through the decentralized fund model and the financial protocol model. YFI is essentially taking the fund model –– mobilizing treasury funds to seek yield, often market neutral or long, in creative ways. I personally am not inclined to compete with YFI… The possibilities along that route though are continually growing, where protocol potential perhaps is shrinking.
One of the major things I’ll say, however, is that the industry is in a state of massive flux. I don’t think it’s 100% necessary to find THE idea in these two weeks. The view outside the DeFi window is going to be very different in 1 month, 2 months, 3 months time. But we do want to ideate like the above, though not leak too much alpha to competitors. A delicate balance.
Rest assured, I believe the wheels of many minds are turning on these issues, even if it is not showing up on the forum.
I support this outlook, and I am thrilled that as a community, as the chaos of initial migration governance starts to fade, we’re starting to transition to longer-term ideas and development. As you said, the DeFi space is in flux right now and even more so than usual. But crypto in general is just very volatile in terms of both monetary value and also in terms of idea structure. That’s one of the beauties of it - there’s room at the table for the cautionary conservative financial types and also room for the experimental risk takers as well.
One thing you said is something I feel very strongly about:
Just replace the word “treasury” with “YAM”.
To me, this should be the heart of our strategy as a community. Yes, there is low hanging fruit out there in terms of asset models and revenue streams that we could pursue, but my feeling is that by and large, those will remain low hanging fruit for at least the mid-term. And because of that, there’s nothing stopping any other meme-coin or random yield farming project fork from doing the same thing. There’s no inherent value proposition there. So in my opinion, the best big picture approach for us is to lean heavily into developing financial tools, systems, and dapps that can only be accomplished with YAM and protocols like ours. If you can remove YAM from the equation and it will still operate just fine, then we haven’t accomplished our goal of establishing true utility and value for the protocol.
Consolidating a few of the ideas I’ve seen on the forum so far (and a few additional spitballed ideas I’m adding now) which appeal most to me:
Unique call options and futures which take advantage of YAMs elastic tokenomics in a way that tokens with a locked-supply can’t: Yam Call Options (YAMCO)
Automated yield management strategies a la yEarn Vaults that make unique use of YAM’s elastic tokenomics to diversify portfolios during periods of positive rebasing. Not just a clone of a yEarn Vaults. We’ll never be able to do that better than they can.
The use of the YAM treasury as a maker of last resort which will slowly accumulate value over time, slowly raising the floor value of YAM as it does so.
The use of the YAM treasury as a YAM-driven DeFi incubator of sorts with a percentage of all resulting revenue either returned back to the treasury or paid out to YAM token holders as a dividend.
Thank you for your considerations guys. I’m glad we are having this conversation around the treasury and using the positive rebasing as a means to build a portfolio of assets under governance…
i agree with you both. the treasury built on rebasing is unique about YAM. since I learned about the project the #1 attraction to me was the automated 10% buy back of yCRV. specifically the concept of interest bearing assets being that reserve, to me that interest is already a revenue stream and the future of crypto.
Although we should consider smart contract risk and offer a basket of base moneys like ETH or any other Layer1 native currencies that YAM might live on in the future as a gas fee insurance and hedge.
I have 2 protocol/product level ideas we could consider as a base value proposition for YAM holders. i think they are fundamentally simple so here it goes:
using the Rebasing to add to low liquidity assets trading pairs.
i think being a stable-ish trading pair can drive demand for YAM. but i could always be wrong about this. YAM/crYYCRV??? it would be nice to have a way to trade these kinds of pairs. To address your piece at Part #2. Native financial protocol liquidity i think we really should focus n diversifying the treasury itself and leverage existing lending markets in the short term, i don’t think we should worry about lending out YAM… yet… but rather accumulating and maybe even proving liquidity to interest bearing assets that are already out there.
Second is about the treasury. should there be a small buy back into the YAM fund?
Regarding the 10% purchase of yCRV during every rebase… i was thinking we could add a buy back layer to this strategy… buy back YAM when its ~ -50% down or more, back into the treasury with 0.5% out of that previous 10% sold into yCRV.
…I’m not sure if this is these are even good ideas… but i think it would be wise to use the rebases to automate buying interest bearing assets and use treasury funds to buy back % of market share of YAM supply when its on sale.
this is a pretty interesting idea. it would incentivize existing YAM holders to mint these low liquidity assets, and then drive demand to buy then sell YAM to those minters, which would generate fees. Basically helping YAM become a liquidity booster… hmm hmm. i’m not sure exactly what the best execution of that would be, but the idea of YAM as a gateway to low liquidity assets is interesting.
I’ll be interested to see what the AMPL team is doing with their custom balancer pool coming out soon. they keep touting this as well as their ElasticAMM to be impermanent loss proof, this could help all thos illiquid assets. all of this could rival what YFI is doing with their stable credit AMM. the synergies are aligning quite nicely… in my head haha. damn guess I gotta learn how to build now!
heres a piece from Balancer labs talking about Interest Bearing stablecoin pools.