Yearn Finance Seizes Dip and Buys Back $1.47M of YFI Token

DeFi gateway Yearn Finance is buying its own YFI token dip. 

In accordance with mandates in Yearn-Improvement-Proposal 56 (YIP-56), the protocol uses YFI staking rewards to buy back the token and “use bought back YFI for contributor rewards and other Yearn initiatives.” 

As such, Yearn Finance periodically buys back its own tokens, recently announcing a total purchase of 8.15 YFI, when the average purchase price was $50,121 per token. Because of today’s market crash, at the current YFI price of $49,979, the organization is down $12K on those purchases at the time of writing.

Yearn doesn’t seem concerned by the drop, doubling down today and announcing another purchase of 21.35 YFI for $1.2M. 

Digging into Yearn’s Discord, it’s clear the team shoots to buy when YFI’s value drops. On May 16 when YFI hit a seven-day low of $58.7K, Yearn developer Banteg, upon getting no response to their question “why is market ded,” decided it was a good time to buy back tokens.

Etherscan shows Yearn purchasing 3.43 YFI later that day. The transaction URL comes from the protocol’s ychad-audit Github repository which tracks all incoming and outgoing transactions from Yearn’s multisig account. 

The csv file shows two other purchases made for  2.43 and 2.30 YFI on April 24 and 26 respectively, sandwiching YFI’s 30-day low of $38,044 on April 25.

What to Do With All That Money

According to Messari senior analyst Ryan Watkins, who also co-authored YIP-56, “Yearn is primarily just yield farming with its treasury.” Watkins anticipates that in the short term, Yearn will use the capital to borrow DAI to generate more yield by locking up the YFI in lending protocols like MakerDAO.

Yearn’s Q1 report revealed that at $460K, yield farming made up over 12% of the protocol’s revenue in March. 

And with $245M of assets and $32M of debt, according to Banteg, Watkins believes that “in the future, [Yearn] will have a lot of options.” 

According to Yearn’s Q1 report the protocol has paid over 50 grant recipients for contributions like front-end development and content writing. Yearn also pays a subset of contributors through a treasury management tool called Coordinape, which aims to decentralize the grant giving process. 

In the future Watkins anticipates the project’s constituents will “begin making formal grants for new initiatives,” à la Uniswap or Compound, whose grant programs aim to extend the respective protocols’ functionality.

For Good or For Bad

Buybacks in the traditional finance world have received heavy criticism as they went from almost nonexistent prior to 1980, to constituting 54%, $2.4T, of the earnings of companies in the S&P 500 from 2003 to 2012. 

There’s a difference when companies buy stock when prices are rising, than when protocols like Yearn buy their tokens on the way down, said  Ceterispar1bus, an active DeFi voice on Twitter.

 In the last 10 years, “most of these stock buybacks happened on the way up and a lot of exec bonuses were tied to share price,” they said in a message.  “The problem with buybacks in a rising environment is that if your stock is already richly valued that money may not be best spent buying shares, but execs will always push for it if their compensation is tied to it.”

Yearn buying its token as it’s sliding shows DeFi protocols can be more efficient and quicker to act, Ceterispar1bus said. 

Yearn now has another $1.47M of YFI to deploy as the DAO sees fit. As stakeholders have more say in DAOs than in traditional public companies, it appears more likely that the funds will be used to aid the long-term health of the protocol.