yDiscount

Implementation of yDiscount segment of YIP-66, giving contributors opportunity to buy locked YFI at a discount

Install dependencies

# Install foundry
curl -L https://foundry.paradigm.xyz | bash
foundryup
# Install ape
pip install eth-ape
# Install required ape plugins
ape plugins install .

Run tests

ape test
ape test tests/fork.py --network ethereum:mainnet-fork

YIP-66 specification

From YIP-66:

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.

Discount calculation

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

% 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 purchase allowance

# 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)

Adjustments to the spec

1. Relax one global address per contributor

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.

With the transition into teams we should enforce one address per contributor per team. I.e. it's acceptable for one contributor to be member of many teams and use one address, but also ok for one contributor to have many addresses for many teams. But NOT many addresses for one team.

2. Relax address changes

Changing a participating wallet address is only permitted in exceptional circumstances and requires yPeople approval.

While we should not encourage address (and thereby veYFI lock) rotation, we propose we relax the policing of this.

3. Allow min_discount delegated locking

The YIP sets veYFI min_lock duration in order to be eligible for yDiscount to 4 weeks, which gives the contributor right to purchase YFI at 10% discount which is then locked for 4 weeks.

However, the early_exit scheme of veYFI that was introduced after this YIP introduces a theoretical loophole, where a contributor can:

lock min amount of 1 YFI for 4 weeks
buy YFI at 10% discount that also gets locked for 4 weeks
exit early immediately thereafter and pay 1.92% penalty on the total amount resulting in an 8.08% - 0.0192 YFI profit if sold immediately on the market

The incentives are there for this to be maximized by rational contributors, encouraging low locking and increased YFI sell pressure.

To mitigate this, we propose to allow for delegated locking to third parties, effectively "selling" their yDiscount, at the minimum discount, if the third parties have long locks.

Contributors can delegate their yDiscount to third parties, as long as the third party's lock duration is greater or equal to 2 years, for a flat 10% discount.

Rationale: This is net equal or better for Yearn, as it removes the incentive to min lock, exit early, and dump. Instead conributors can earn the min discount by delegating to a third party that has a longer lock than they have. Income stays the same, and YFI does not hit the market.

Implementation requirements

General

All contracts immutable, non-upgradeable
Updates require contract redeployment

yDiscount allowances

At the beginning of a month, yBudget gives yDiscount allowances to teams (team gnosis safe), in ETH. These amounts refer to the previous month
- For revenue sharing teams, the allowance is equal to the team's share of the revenue of the past month
- For teams with a budget, the allowance is equal to the sum of the total contributor compensation of the past month
- For teams that have both, the allowance is the sum of the above two
Teams then distribute this allowance amongst their contributors (individual addresses)
A contributor allowance is not allowed to exceed its received compensation, though this is not enforced on a smart contract level
All allowances expire after 30 days or whenever a new allowance is set, whichever happens first
Any non-ETH compensation amounts are converted to ETH using the average price of the assets in the past month

YFI purchases

Once a contributor has been given an allowance to purchase YFI, they may interact with yDiscount smart contracts to do so.
The yDiscount contracts looks up the veYFI lock duration of the address to determine the applicable discount.
In accordance with the YIP, total amount available for purchase is influenced by the discount.
YFI price is current spot price, using Chainlink oracle for YFI/ETH.
Contributor has the option to purchase any granular amount up to the max.
Contributor may make multiple purchases during the month, until allowance expires.
yBudget keeps yDiscount topped up by transferring YFI to the contract.
If the Contributor elects to delegate to a third party address, the discount is hard coded to 10%. The transaction reverts if the third party's address has a lock duration that is less than 2 years (104 weeks).

Abuse

Any party, whether individual contributor or entire team, found abusing yDiscount will be disqualified from the program
Examples of abuse include but are not limited to:
- Locking small quantities and using early exit to manipulate returns
- Using multiple addresses to manage lock durations
- Inflating or pooling individual allowances

Future possibilities

Extend protocol to handle team veYFI bonus program

murderteeth/yDiscount