There has been a lot of discussion on Fei’s discord and discourse about how value accrues to Tribe token holders. In these discussions, many community members suggest creative ways to earn yield on PCV. Some of these creative ways include: Yearn vaults, ETH 2.0 staking on Lido, Aave/Compound deposits. I love these ideas and think they will effectively grow the protocol.
The next question is, what does the community do with this earned yield? A number of community members suggest we return part or all of that earned yield back to Tribe holders in the form of a dividend or buyback. I get the argument that it signals to the market that you can earn income from holding Tribe and people think that will lead to price appreciation. However, I disagree and think that we should not distribute earned yield to token holders for two reasons. First, the fact that we can vote on an action like this should be enough of a signal that Tribe holders can earn yield if the community chooses so. Second, and most importantly in my opinion, returning yield back to Trible holders is not in the best long-term interest of the protocol because it eliminates the immense benefits of compounding the PCV.
Let’s expand on the second point. I think the power of wielding a massive PCV is underestimated, and Tribe holders should use the benefits of scale to grow. For example, community members have suggested using a portion of the PCV to purchase governance tokens of a lending protocol such as Compound in order to vote to integrate Fei into the platform. This action is easier to take if the PCV is larger, and it increases demand for Fei, thereby generating additional upward pressure on PCV growth. Now during this process, let’s assume there’s some other portion of the PCV locked in a Yearn vault earning yield. As a token holder, ask yourself this question, “Would you rather use that earned yield to return value back to Tribe holders or would you rather use that earned yield to accumulate tokens of another lending protocol (e.g. Aave) and vote Fei into that lending platform?” If the community chooses the latter, use cases for Fei will grow more quickly, creating a flywheel effect for the protocol’s future growth. More integrations lead to increased Fei demand which leads to greater PCV growth which leads to greater scale to execute more integrations…and on and on we go.
My point is that there are so many growth opportunities for the protocol, and long-term holders will realize more upside if the protocol reinvests and compounds earned yield instead of returning it to token holders.