YIP-XX Redirect Existing Inflation Rewards to YAM products (Degenerative Finance, Umbrella)
We propose moving the incentives that are currently going to the ETH/YAM sushiswap LPs and using them to incentivize YAM’s core products, notably degenerative.finance. This will allow us to more effectively bootstrap TVL growth for degenerative.finance and Umbrella.
Abstract - What are we proposing?
This Proposal is part of a larger initiative to develop and realign YAM’s economics post-rebase. It is the first step to build out a cohesive ecosystem strategy for the YamDAO and the YAM token.
Currently 12,500 YAM per week are minted and given to users who stake ETH/YAM SLP tokens in our incentivizer. This proposal would redirect those rewards to future yield farming programs on degenerative finance (uGas, uStonks, uVolBTC, and other future synths) and Umbrella. These rewards will allow the Degenerative.finance platform to grow without relying solely on UMA rewards and bootstrapping by the YAM treasury.
There are roughly 1 MM YAM still left to be used as incentives. If the rewards continue to be distributed at their current rate, they will last roughly until the end of 2022. This gives the DAO time to build out products and services around our product ecosystem to create a self sustaining revenue model and become less reliant on inflation rewards for TVL.
The current SLP incentivizer can remain, but instead of claiming sushi rewards for the treasury, they could be passed on to stakers. This would allow SLP holders to continue using their tokens to vote while providing liquidity. Alternately, we could remove the incentivizer and use another method to count YAM in liquidity pools to allow voting.
We intend to start the redirection of the $YAM rewards at conclusion of the current uSTONKS/uGAS special rewards programme (expiring on 29 March). This will ensure we continue to incentivize the current liquidity miners in order to maintain TVL levels.
We suggest the rewards initially be split equally across the 3 Degenerative.finance products that will be live next month. These are:
- uGas - ⅓ (4166 YAM/ week)
- uStonks - ⅓ (4166 YAM/ week)
- uVolBTC - ⅓ (4166 YAM/ week)
These reward amounts will be adjusted monthly per snapshot maintenance votes that are then bundled into the months on-chain votes to roll over treasury liquidity.
Motivation - Why are we proposing it?
The ETH/YAM liquidity pool is the main source of liquidity for the YAM token and we have been very active in making sure that it is deep enough to allow investors to buy YAM with as little slippage as possible. When the rebase was still active, this pool had a second, more important role. It was the pool that all rebase buys came from, and a deeper pool meant less negative price slippage when YAM was sold for ETH on positive rebases. Now that the rebasing mechanism has been removed, this is no longer an issue.
The incentivizer has been a strong source of revenue for the DAO. We have effectively been paying stakers YAM tokens in order to claim their sushi rewards. See the applicable forum vote here. This has allowed the treasury to accumulate over $1MM in sushi, with ⅔ of the rewards yet to be released. Once the vested sushi is released, the treasury will hold over $3MM in sushi tokens at current prices. That will amount to roughly 30% of our treasury size.
While we believe in the sushi token, this seems like a sufficiently large portion of the treasury to be held in any one token. With UMA’s Dapp mining program, we have an opportunity to pivot and earn UMA tokens for the treasury while also bootstrapping YAM’s core products.
Currently, the YAM treasury earns 18% of UMA rewards given out from users minting via our contracts. The more users who mint synths using our contracts, the more rewards we get. The proportion of UMA rewards that go to minters vs. the treasury can be adjusted in the future if we feel that we are giving away too much or not attracting enough liquidity.
Bootstrapping liquidity on Degenerative.finance is a complex issue, and the team is currently working on numerous products to both make the user experience easier and find product market fit. But at the core, synths need liquidity to be useful. The YAM treasury is not large enough to bootstrap on its own. We have a pool of YAM that is currently under-utilized that we can direct toward this problem and build both our treasury and our products.
As we consider this change, we should also keep in mind Umbrella and other future products may benefit from a portion of the YAM incentives. Some rewards that are being diverted to degenerative.finance may be better used to bootstrap Umbrella. This is outside the scope of this proposal and should be discussed as part of the monthly rewards allocation proposals.
Important Fact about the developer mining rewards for degenerative.finance
The total $UMA rewards that flow to degenerative.finance are a function of the degenFi share of all UMA synths (measured in market cap). The number of $UMA rewards is not fixed and starts at 0 $UMA/week.
The rewards structure works like a flywheel that can be put in motion by $YAM rewards:
- Award $YAM rewards to generate high APRs for low TVLs
- Attracts liquidity miners
- Pushes up degenFi share of UMA synth’s market cap. Increasing number of $UMA rewards
- APRs are boosted by $UMA rewards that kick in. Attracting more liquidity miners, increasing TVL
- Flywheel continues to spin
Important side effect: YAM price may benefit from the product adoption, thereby increasing the -value of the weekly rewards. Same for $UMA. APRs will continue to increase.
Specifications - How are we proposing it is accomplished?
- Modify the incentivizer contract to direct YAM rewards to YAM products (degenerative finance & Umbrella).
- Modify the incentivizer contract to pass sushi rewards to stakers. Determine how to deal with future vested sushi rewards for stakers.
- Work with Devs to determine best way to distribute YAM rewards to degenerative.finance users
Poll to Measure Sentiment
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- other (comment below)