SUMMARY:
One of the keys to ShapeShift DAO’s long-term success lies in its ability to create unique products that empower users to do more with their crypto. The DeFi world offers myriad ways to do just that, via novel lending and borrowing protocols that leverage their permissionless nature to plug directly into other DeFi protocols–the classic Money Lego paradigm.
FOXy has been our first foray into the world of ShapeShift DeFi creations–and it’s been a solid success thus far. 50M FOX have been locked in the contract, which represents a substantial liquidity sink of roughly 13% of the token’s circulating supply.
FOXy also produces regular revenue and buybacks of FOX for the DAO, simplifying FOX staking for users (and the DAO treasury), saving on gas costs of harvesting yield, all while the users still have their FOXy available to them to do whatever they wish across DeFi. Some early examples of this are using FOXy as collateral on Rari (while still earning yield and the weekly rebases) or LPing the FOXy onto elastic swap to earn further yield on one’s yield bearing asset without giving up the underlying yield that FOXy is entitled to.
This early success begs the question: what else could be done with this mechanism? Yieldies offer a compelling answer: generalize the concept behind FOXy to include a wide variety of tokens. This is powerful stuff; the generalization of FOXy would arguably give rise to an entirely new financial primitive!
Here’s how it would work, at a high level. Let’s use the example of ETH and ETHy, since Ether is a logical choice for an early use of this technology.
1.) Users deposit their ETH in the ETHy contract.
2.) That ETH in turn is deposited into DeFi platforms in an effort to generate yield.
3.) The yield that’s generated is exchanged back into ETH, which in turn is distributed to ETHy stakers via the contract’s rebasing function. (As a reminder, rebasing allows a token’s balance to steadily increase in a user’s wallet in a frictionless, gas-free fashion).
4.) A certain percentage of the generated yield is also directed back to the DAO, which in turn can be used to diversify its treasury, increase FOX buybacks that are distributed to FOXy holders every week, or utilized in various other ways.
Yieldies offer a powerful and frictionless user experience. Earning yield requires that users only need to make a deposit into the staking contract. Once that step is done, they can simply sit back and watch as their staking token balance increases. While there are certainly no guarantees that revenue will be generated, and no strategy in DeFi risk-free, stakers can take a “set it and forget it” approach and watch as their assets rebase and increase in quantity; no worries about managing their own strategies, compounding, or expensive gas fees.
These attributes could be particularly appealing for DeFi neophytes; while they might not understand the mechanics of what makes Yieldies work, they can easily understand that by holding one of these tokens, their balance will “automagically” increase with each passing week.
SPECIFICATIONS:
This proposal entails the creation and maintenance of the Yieldy infrastructure, including its smart contracts, tokens, and technical logistics. Specifically, this outlines a Yieldy Phase 1, with key parameters and operational details defined here:
Q: What percentage of revenue earned from Yieldy strategies will be directed back to the DAO?
A: 10%.
Q: Which assets will be created initially?
A: This proposal entails the creation of Yieldies for the following tokens: ETH, USDC, FEI, LUSD, and ALCX? Why those five? ETH and USDC are the most liquid assets in the space; FEI is a reliable stablecoin (plus, the DAO has built a meaningful relationship with the TRIBE community); LUSD is a compelling stablecoin alternative with solid liquidity; and ALCX represents a token of another vibrant and popular DAO.
In order to manage risk and implement a gradual rollout, only ETHy and USDCy will be deployed upon the approval of this proposal. The other three assets will be deployed after ETHy and USDCy have had a chance to be de-risked. The TMDC will determine when to launch FEIy, LUSDy, and ALCXy.
Q: Who is responsible for the maintenance of Yieldy strategies?
A: Similar to the responsibilities outlined in the FOXy proposal, the TMDC will determine how to manage the strategies that generate revenue for Yieldy assets. However, the strategies themselves will be a matter of community governance. The TMDC will also determine if, and when, to deploy FEIy, LUSDy, and ALCXy.
Q: What revenue-generation strategy will Phase 1 of Yieldies employ?
A: Again, borrowing a page from the FOXy playbook, Yieldies will rely on Tokemak reactors to generate revenue.
Q: How will the DAO pay for the cost of building the Yieldy contracts?
A: These contracts are already built, and are currently undergoing multiple audits.
POTENTIAL BENEFITS:
Yieldies offer a new way for the DAO to generate revenue, while also potentially benefiting FOXy holders (in the event revenue is used for FOX buybacks). These tokens would also strengthen ShapeShift’s position and name recognition in the DeFi world, thanks to their unique ability to generate yield in a simple, user-friendly fashion.
As alluded to above, the frictionless nature of Yieldies could allow the DAO to connect with a wider variety of users–both sophisticated DeFi degens, as well as those who are newer to crypto or less informed. Building these relationships with newer users could put more eyeballs on our platform and engender positive world-of-mouth.
There are also myriad benefits stemming from “money lego” applications of Yieldies. Building blocks like the combination of Yiieldies and Elasticswap create new possibilities for rebasing tokens across DeFi. Various vaults and tools could be created that leverage Yieldies (similar to what’s currently possible by LPing and staking FOX and FOXy onto ElasticSwap) that still captures the underlying yield of the yield bearing and rebasing token. This offers the tantalizing possibility of being able to earn yield on top of yield.
POTENTIAL DOWNSIDES:
Unless an extremely deliberate and cautious approach is utilized, there is a high degree of risk involved with smart contracts that could someday hold hundreds of millions of dollars worth of crypto assets. The DAO is managing this risk in multiple ways:
1.) Putting the smart contract code through multiple audits.
2.) Releasing a limited number of Yieldy assets initially (ETHy and USDCy).
3.) Placing TVL caps on these assets in order to limit the total amount of USD value that these contracts can hold.
This gradual, limited rollout mirrors best practices regularly employed across the DeFi and (more recently) the Rollup ecosystem. Once the ETHy and USDCy contracts have developed a track record of successful operation, the TMDC will have the option of raising the TVL limits and/or deploying the three additional Yieldy assets outlined in this proposal.
Even with these steps in place, it’s impossible to provide guarantees against exploits or bugs. To that end, the DAO may want to consider having the contracts listed on risk harbor, which in turn could allow the DAO to insure itself against Yieldy smart contract failures.
To be clear: an exploit of a DAO-maintained smart contract could be disastrous both financially, and from a reputational perspective. Thus it’s crucial to release Yieldies in a methodical and careful fashion. For instance, the initial TVL limits placed on Yieldies should take into account the DAO’s ability to make users whole–something that’s readily doable with FOXy (since the DAO owns ample FOX), but not as possible with Yieldy assets.
WHAT THIS VOTE DOES:
1.) Create a regime for the deployment and maintenance of Yieldy assets as described above.