Original author: Samuel Haig,The Defiant
Original compilation: Felix, PANews
Recently, Yearn Finance, a veteran DeFi revenue aggregator, announced that it has successfully improved its token economic model, adopted a voting locking mechanism, and will use YFI accumulated through repurchases to fund a new reward program. This article will give you a quick overview of the specific changes in the Yearn Finance token economic model.
Stake to receive tokens and voting rights
Yearn said on the X platform that the veYFI flywheel brings higher rewards and benefits to veYFI holders and Vault savers. By locking YFI into veYFI, stakers can earn YFI rewards (in the form of dYFI), which can be redeemed for discounted YFI. In addition, stakers also receive voting rights. Voting power can be used to decide which mining pools receive the largest dYFI reward distribution, and veYFi is now the exclusive voting token for Yearn governance.
YFI stakers can lock their funds for a period of one week to ten years, and the longer the lock, the greater the reward. While funds can be locked for up to 10 years, funds older than 4 years will not convert into more veYFI. If the time is set for more than 4 years, it can be reset to 4 years at any time.
If you want to exit the lock early, you can, but you will be penalized, and the penalty will be distributed to other veYFI holders. The penalty is up to 75% of the locked amount and decays over time, calculated as (remaining time/4 years) * 100%. For now:
If the lock-in period exceeds 3 years, there will be a 75% penalty on withdrawal.
If the lock-in period is 2 years, there will be a 50% penalty on withdrawal
New dYFI Token
dYFI is an ERC-20 token that holders can sell for ETH; they can also pay ETH in exchange for YFI at a discount, and this part of the ETH will be used to support Yearns buyback plan. dYFI tokens are burned when redeemed. The circulating supply of dYFI shall not exceed the number of redeemable YFI.
Stakers can receive 10% of dYFI tokens if they lock their tokens for the minimum period, with the remaining 90% distributed to other veYFI lockers. Users who lock in for at least four years receive 100% of dYFI, while those who lock in for two years receive 50% of dYFI. While the weight decays as the remaining lock duration decreases, the lock can always be extended to the maximum lock duration.
Every two months veYFI holders vote on how protocol proceeds (repurchasing YFI) should be distributed among meters (each meter is associated with a yVault). Vault depositors can then stake their yTokens in the corresponding meter.
Rewards distributed through the voting lock mechanism will not result in an increase in YFI supply. Yearn through its repoplanTo fund dYFI redemptions, the program accumulated approximately 1,300 YFI using profits accumulated in the past by the protocol.
risk
Of course, there are no perfect token economics, and the same is true for YFI. Yearn noted that the vote-lock mechanism could pose the risk of a governance attack, in which one or more participants accumulate a sizable YFI position that could control the protocol’s rewards and decisions.
Additionally, high demand for veYFI may impact YFI’s liquidity on exchanges. YFI currently trades on multiple CEXs and DEXs. As demand for YFI used elsewhere grows, there may be a lack of LP supply for YFI/ETH in liquidity pools and a lack of interest in general YFI market making, causing YFI to become even more illiquid. In this case, additional incentives may be needed to ensure liquidity for YFI trading.
Yearn has struggled to maintain its market share as Layer 2 activity increases. High gas fees on the Ethereum mainnet during the bull market were a driving force behind the popularity of revenue aggregators. YFI currently trades around $5,000, down 95% from its all-time high in May 2021. It remains to be seen whether Yearn can reverse its decline through improvements in token economics in the future.
