Yearn

Authors: 15 members of the Compensation group inc @0xJiji

Note: This is a truncated version

Background and Motivation sections are not included here. To read the proposal in its entirety, please refer to the post in Yearn Governance: https://gov.yearn.finance/t/proposal-streamlining-contributor-compensation/12247

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Summary

Builds on top of the recently adopted YFI Tokenomics program to simplify Yearn contributor compensation through the introduction of a yDiscount program. Migrates and retires the previous contributor vesting and strategist compensation schemes.

Abstract

If adopted, this proposal seeks to streamline future Yearn contributor compensation through the following steps:

1. Establish that contributors moving forward should all be primarily compensated using the same baseline mechanism, consisting of payouts in stables.
2. As an extension to the baseline mechanism, introduce a new method of rewarding Yearn contributors with YFI tokens, yDiscount, where:
   • Contributors will be able to purchase discounted YFI up to their current monthly compensation level.
   • All the purchased YFI gets locked into veYFI immediately.
   • The discount ranges from 10-60% of current market price, determined by the duration of each contributor’s veYFI lock.
3. Retire the use of YFI vesting contracts, and migrate existing contracts to the new mechanism, giving those with remaining vests two options to choose from, either:
   • Lock their entire remaining vesting YFI amount into veYFI for an equal or greater duration; or
   • Release them from their vesting contracts, taking a haircut on the YFI they receive, determined by the remaining duration of their vesting package.
4. Retire Strategist performance fee sharing, and “buy out” existing Strategies in production from this system:
   • Each affected strategist receive a payout based on their net earnings from Strategies.
   • The payout is a multiple of their average historical monthly net earnings, paid out as locked veYFI.
   • The multiple ranges from 3-18 and is determined by the duration of their veYFI lock.
   • Strategist total compensation (including migration) is expected to be be more or less on the same level as before.
5. Instruct yBudget to set funds aside for a dedicated team budget for Strategists, to be used at their discretion, including to help onboard and retain new team members.

Specification

0. The below goes into effect with veYFI

• This entire proposal is blocked by the introduction of veYFI, as outlined in YIP-65 (phase 2 and onwards).
• None of these changes go into effect before veYFI has been released to production.
• Once veYFI has been released, these changes may be implemented at the discretion of Yearn’s community of contributors.

1. Contributor compensation is streamlined to one single process that is equal to all

• All frequent and regularly contributing members are paid the same way.
• Compensation is in stablecoins, or equivalent.
• Spending on compensation remains at the discretion of yBudget/Treasury as per Governance 2.0.
• Individual contributor compensation remains at the discretion of yPeople as per Governance 2.0.
• This excludes occasional part-time grants and funding via Coordinape, which have their own separate procesess.

2. Contributors are rewarded with YFI tokens through yDiscount

• All contributors being compensated as per the previous point have the option to purchase YFI through a new yDiscount program.
• Contributors can purchase YFI at discounts to current YFI market price, subject to their current veYFI lock. The longer the ve-YFI lock, the greater the discount.
• YFI purchased through this program are immediately locked into veYFI according to the duration of their lock.
• Contributors are only eligible to purchase YFI up to 100% of the compensation amount they received that month, once the discount has been factored in.
• Once feasible, the intention is to have these operations occuring on chain each month with contributors directly interacting with smart contracts. Until then, manual off-chain calculations are used.
• Contributors are only allowed to participate with one ethereum wallet address in the program, which can only have one single ve-YFI lock at any time.
• Changing a participating wallet address is only permitted in exceptional circumstances and requires yPeople approval.
• The YFI minted with YIP-57 is used to finance this program, and once this has been depleted, yBudget will allocate YFI from treasury buybacks.
• Funds received from contributors participating in yDiscount is used for more YFI buybacks.
• yBudget has the power to pause the yDiscount program at their discretion.

ve-lock Discount

# yfi_discount: discount (%) of purchased YFI
# ve_lock: current weeks locked in veYFI
yfi_discount = 0.00245 * ve_lock + 0.0902

So if the coming veYFI implementation is with the following parameters:

min_lock_duration = 1 month, or 4 weeks
max_lock_duration = 4 years, or 208 weeks

Then the discount table would look as follows:

% of max lock	duration	ve_lock	yfi_discount
1.92%	1 month	4	10%
11.5%	6 months	24	14.9%
25%	1 year	52	21.8%
50%	2 years	104	34.5%
100%	4 years	208	60%

YFI for purchase

# yfi_allowed: total YFI allowed to purchase this month
# comp: contributor compensation in stables this month
# yfi_price: current YFI price in stables
yfi_allowed = comp / (1 - yfi_discount) * yfi_price

Example

Alice is a contributor earning 3,000 DAI this month. The current price of YFI is 100,000 DAI. She has just extended her ve-lock to be 48% of max, or 99.84 weeks of 208 max possible (ve_lock=99.84). She therefore is entitled to purchase YFI at 33.4% discount (yfi_discount=0.334).

At the current price, factoring in the discount, Alice is entitled to purchase up to 0.04504504 YFI this way.

Alice decides to spend 1500 DAI to purchase 0.02252252 YFI this month, which immediately becomes locked into veYFI according to her existing lock.

3. Retire & Migrate YFI vesting contracts

1. Vesting contracts are no longer offered to contributors by default, and are only to be used in exceptional circumstances. Instead, yDiscount is the default method of YFI compensation.
2. Existing YFI vesting contract are migrated and closed down, with recipients having the choice of one of two options:

   1. Full migration into veYFI. If the contributor sets a veYFI lock that is equal or longer than their existing vesting package, 100% of their remaining vest is locked into veYFI.

      Example: Bob has 1.5 years remaining to vest 9.731 YFI. Bob creates a veYFI lock of 2 years. The full 9.731 YFI is locked on his behalf into his veYFI lock.

   2. Exit vesting package with a haircut. For every 1 week remaining of a vesting package, the recipient takes a 0.25% haircut, and is paid out the remaining in unlocked YFI that they can do whatever they please with.

      Example: Carol has 98.321 weeks left to vest 18.821 YFI. She takes a 24.58% haircut (98.321 x 0.25) and is paid out 14.19 YFI.

4. Retire Strategist performance fee sharing and buy out existing Strategies

1. Strategy authors are no longer offered the 10% performance fee share for new strategies that get deployed to Production, instead Treasury receives the full 2% management fee and 20% performance fee.

2. Strategists are compensated the same way as any other contributor: stablecoins + yOption system.

3. Strategies already in Production and earning 10% performance fee are “bought out” using the following scheme:

   • Earn x times previously averaged monthly earnings from the strategy, paid out as veYFI, where x depends on the veYFI lock:

     # buy_out: total amount of YFI to be locked in the strategist's veYFI
     # net_earnings: strategist's average monthly earnings the past 6 months
     # x: multiple, depending on strategist's excisting veYFI lock
     # YFI_price: current YFI price in stables
     buy_out = (net_earnings * x) / yfi_price
     

     % of max lock	duration	ve_lock	x
     < 12.5%	no lock or < 6 months	< 26	3
     12.5%	6 months	26	6
     25%	1 year	52	9
     50%	2 years	104	12
     100%	4 years	208	18

     In other words, if a Strategist creates a veYFI lock for four years, they receive 18 months of their averaged earnings paid out as veYFI locked for four years.

   • Average monthly earnings is calculated as an average of the past six months, and is done with the help of each individual strategist, where net earnings is calculated. Net earnings would include earnings from other strategies, committees, or strategists, and exclude payments made to committees, or strategists.

   Example: David is a strategist with 2 strategies in Production and is also member of a committee. He donates 5% of his earnings to the Strategist Multisig. Looking back over the last 6 months, David’s net earnings was on average $45,500/month. David creates a veYFI lock of 2 years. YFI/USD is $35,000. David receives 15.6 veYFI that are locked for 2 years.

5. Establish a dedicated team budget for Strategists

1. As a replacement for the donations to the Strategist Multisig, yBudget are instructed to set funds aside for a dedicated team budget for Strategists.
2. This can go to the existing Strategist Multisig wallet, no changes to signers are required.
3. Funds are to be used at the discretion of the Strategists, including to help onboard and retain new team members, but also any other activity that is not in conflict with Yearn spending policies.

References

1. https://gov.yearn.finance/t/yip-65-evolving-yfi-tokenomics/11994#future-possibilities-11
2. https://coordinape.com/
3. https://gov.yearn.finance/t/yip-52-make-strategist-skin-in-game-partner-for-make-benefit-of-glorious-brain-of-yearn/7856
4. https://gov.yearn.finance/t/yip-54-formalize-operations-funding/7956
5. https://gov.yearn.finance/t/yip-57-funding-yearns-future/9319
6. https://gov.yearn.finance/t/yearn-retention-packages/9698
7. https://gov.yearn.finance/t/yip-61-governance-2-0/10460