This post attempts to assess yearn.finance in terms of the Bankless Protocol Sink Thesis.
At it's core, yearn.finance is a automated money manager that automatically allocates tokens into the highest-yielding protocol(s).
In order, this post touches on
- Surface Area of Attack
What is yearn.finance?
- In the words of creator Andrej Cronje, yearn.finance is a 'one stop, deposit and forget, automated yield money manager' (Unchained Podcast 9/15/20)
YFI in terms of the Protocol Sink Thesis
- Utility: Very high
- Surface Area of Attack: Low
Coinbase (or any fiat onramp)Yearn Finance (aggregator of protocols for automated actions)YFI (governance of yearn finance)Compound (or other protocols serving yearn.finance products)Ethereum (settlement layer)
Utility: Very High
- You can make money automatically; without yearn.finance, finding the highest-yield takes work.
- YFI is a "one stop, deposit and forget, automated yield money manager,” Andre via Unchained Podcast
- yearn products → in short, make money
- How strong is this incentive?
- Fairly strong; though people will chase yield wherever it exists. This forces YFI to continually improve/adapt, and not make poor governance decisions
- YFI token → govern the protocol
- How strong is this incentive?
- Very strong, buying token gives you a vote/power to influence how the protocol grows, changes, and allocates funds
Surface Area of Attack: Very Low
- When using the protocol, how much trust are users placing in others to do the right thing? None, automated
- Will the selfish motives of others impact the outcomes upon other users? No
- Is anyone extracting anything from a user against their will or knowledge? No
- Can anyone use the protocol? Yes
- Is there someone that can restrict or censor usage of the protocol? No
- Are there any admin keys that give certain privileges to a special set of users? Yes, 9 multisig signers
- Does the protocol benefit any particular user or entity above any other? No, other than benefiting particular protocols via product choices
- I don’t believe this is a detriment to credible neutrality
- Does one person or entity disproportionately benefit from the success of the protocol than what is fair? No, today it doesn’t appear so (Crypto Rank, Spencer Noon)
“The Protocol Sink Thesis” - Notes
- The core prediction of the Protocol Sink Thesis is that centralized businesses and companies will freely build on top of trustless, permissionless, and unbiased protocols, in order to offer superior services to their users.
- The thesis states that the more trustless, permissionless, and credibly neutral (unbiased) a protocol is, the further it can scale itself to a global platform, and as a consequence, absorb a larger amount of capital.
- The more people use an application, the further down in the Protocol Sink it falls from the collective weight of the people and companies building on them.
- Global Public Goods (GPGs) are the things that are found at the bottom of the Protocol Sink.
Utility, Attack Surface Area, and Density
- The Utility of a protocol is the value that the protocol brings to its users, and generates the incentive for adopting and leveraging the protocol.
- For protocols with a token, Utility can be measured by the tokens market cap or the total value deposited into its contracts.
Attack Surface Area
- Simplistically, having a low Attack Surface simply means that there is no central point of a protocol.
- When using the protocol, how much trust are users placing in others to do the right thing?
- With the selfish motives of others impact the outcomes upon other users?
- Is anyone extracting anything from a user against their will or knowledge?
- Can anyone use the protocol?
- Is there someone that can restrict or censor usage of the protocol?
- Are there any admin keys that give certain privileges to a special set of users?
- Does the protocol benefit any particular user or entity above any other?
- Does one person or entity disproportionately benefit from the success of the protocol than what is fair?