🐻 The Bear Case for $YFI

$YFI, Yearn.Finance and Andre Cronje are some of the hottest things happening in DeFi and cryptocurrency as a whole right now.

However there are certain risks that speculators, investors and maximalists alike need to be aware of and understand before making a decision to get involved.

This is our alpha draft that will be updated and shared over twitter.

Given that hacks, exploits and/or contract risk are a problems and exist for every cryptocurrency product we have not expanded on them here.

Founder Risk:

The founder dilemma most entrepreneurs face is choosing between wealth or power. Andre is in a unique position where he actually has neither. Andre did not pre-mine or reserve any $YFI for himself or the development team. While we hope he has $YFI of his own, he does not stand to gain significantly if the value of the $YFI token increases.

Andre is leading the development of Yearn.Finance and its product releases while theoretically not actually having any control over the development. He has said himself he is at the mercy of $YFI governance.

At this time everything is still very new, warm and fuzzy. The release of $LINK + $SNX vaults, leveraged stablecoins, and whatever else he has planned has been met with a warm reception from the market and twitter alike. It is illogical to assume this will continue forever. So one must consider the conflicts that will occur and what impact they may have on Yearn / $YFI.

Conflicts:

Founder vs Governance - This is a disagreement between the community and the founder. If Andre is the sole developer and does not agree to follow governance, the project could collapse. People do not like to leave their money in places that lack stability.

Here is a potential disagreement that could occur when it comes to distributing fees back to $YFI holders. It is clear that the $YFI community is interested in maximizing the value of the token. The easiest way to do this would be through increasing yVault deposits and increasing the 0.5% withdrawal fee. However as we see with the $SNX vault, Andre is building with the customer put first. He tweeted today that there were other products he wanted to build but did not because of fees. If governance wants a higher return on deposits but Andre doesn't, what happens? How was the 0.5% withdrawal fee determined to begin with?

Burnout, Ego, Other - It's not an overstatement to say that Yearn is the hottest product in the DeFi space. As a founder this adds immense pressure to continue to perform at a high level. How will the sole leader react when an exploit is found and millions of dollars are lost and instead of hearts he's getting fuck yous on twitter?

Ego can become an issue if Andre feels he is not being compensated fairly for developing Yearn / $YFI. The protocol he developed has made a few hundred people very very wealthy. It's understandable to want a part of that and he deserves it. There was previous discussion on minting new $YFI for him and to fund other projects but it has died down.

Consider this: If Andre quit today and just evaporated into the ether what would happen to Yearn and $YFI?

Governance Failure:

At this time there is no true organizational or governance structure in place. The YIP-30 vote was flipped to against with only three hours remaining. Communication channels are spread throughout discord, telegram, and twitter. While there are "respected members" who are affiliated with the project in one way or another, a true leadership structure has not emerged.

How long this can go on for is unclear. The revenue model for the $YFI token has not been fully developed nor have the suite of products been built. Yearn is an early stage startup with significant traction and should be treated as such. The DeFi space is new and as we have seen with the farming and subsequent dumping of $YFII, the money is not yield loyal and will go wherever the best opportunity is.

But the money now is very much "smart money". As DeFi onboards millions around the globe, not everyone will be interested in chasing new yield and hopping into one pool or the next. This is where Yearn's opportunity is. To be the easiest way to earn a return on your cryptocurrency assets no matter what kind of assets they are.

Communication, marketing and onboarding will be challenging without governance allocating a budget towards hiring people to do these things. While Yearn has the first mover advantage now, new products that are more user friendly will be able to rapidly capture market share (think Robinhood).

Lack of Global Support:

The distribution of $YFI was the fairest since Bitcoin, but that doesn't make it problem free. There is a clear lack of representation for non-english speaking countries. This is why the Chinese $YFII narrative worked so well. Andre has recognized this as such and even presented a method where fees would be shared with YFI clones.

In order to scale to become the Bitcoin of DeFi, more people need a seat at the table. A seat ($YFI) may be considered expensive given the suite of products are not fully built and a revenue model not fully developed. If Yearn does scale, then the "considered expensive" will be come prohibitively expensive shutting many people out. This is by design as early holders assume the most risk.

Thoughts:

$YFI and Yearn.finance needs to structure leadership in a transparent method that can be evaluated by stakeholders ($YFI holders). Failure to organize will eventually hinder production and growth of the platform. We believe this is the biggest risk.

Our immediate recommendation is supporting Andre with a world-class operator who can handle developing governance, security audits, and team hiring / organization.

It's time to get our shit together and take over the world.

We are super bullish on the future of $YFI and Yearn.

We will be sharing the bull case in our next post which will melt a lot of minds.

@learn2yearn