Basically every project has done yielding farming wrong except @Compoundfinance and @Yamfinance

Even successful projects that launched via farming didn’t optimize.

We’re still in the discovery process for best practices, but here are some quick rules of thumb

Figure out what your community needs to bring to your project.

If it’s just awareness and “equitable” initial distribution (as Yam needed in order to be money), you want a diverse set of Pool 1s and to distribute rewards quickly.

Yam aced it (at least the distribution part)

If it’s to attract capital to a protocol (Compound), then rewards should be dragged out over a very long period of time. We’ve seen that liquidity is not loyal, so you need to pay for it constantly and hope some kind of moat develops during that period

4 -10 years seems optimal

So where do other projects go wrong?
They don’t align incentives for what they need to get out of their community.

Now it’s worth mentioning what most already know but very few have said.

Many distribution schedules and strategies are designed to enrich the founding team. By distributing quickly, when the founders are among the first to know about a project, they can pick up a significant chunk, keep a fair launch narrative, & stay good with the SEC.

A protocol like YFI had to balance two key factors.
1) Maximizing AUM for the protocol
2) Getting enough YFI to core devs to make it worth their continued participation.

However, as YFI attracted more AUM, it increased the EV of YFI, which would dilute rewards per $ staked.

The longer rewards drag on, the less a founding team gets in a “successful” fair launch.

2 would’ve been a non-issue if Andre kept a good chunk for himself & for other future devs w/o requiring them to mine.

He then could have distributed YFI over a longer period to attract & retain more capital into the protocol (like Compound)

But because he was worried about YFI being classified as a security, there was a quick distribution.

Now that YFI is done with distribution, non-dev holders can only justify their existence (in the devs eyes) if they can continue to increase AUM more than their share of of the protocol.

So if devs own 20% of the protocol in total, AUM would have to remain 5x higher than what the devs could attract on their own. As Andre and other devs become celebrities, they’ll realize most of the capital would migrate w them

@bantg has discussed some of these incentivization issues.

The issues facing YFI face every robo protocol and almost every fair launch project.

Even for teams that kept a team allocation, the cardinal sin has been distributing rewards too quickly.

Farmers aren’t (that) stupid. As a protocol’s AUM declines rapidly after farming ceases, it affects the expected value of the governance token.

The correct answer in almost all cases is to keep printing the governance token until the project has real sustainability

The way projects distribute tokens now is like a startup who gives away all its equity to employees who work there for 2 weeks.

You’re not providing an incentive for continued and future work, so most people walk out the door.

Too often, projects are left with the tokens distributed such that the founders have a minority and the majority are held by people too stupid to see there would be a mass exodus at the end of farming.

It doesn’t have to be like this.

Even projects that distributed too quickly may be able to redeem themselves by restarting their farming programs.