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YAM Finance Attempts to Rise From Ashes via V3 Launch

2020.09.20 Matthew Lam

OKEx Insights' DeFi Digest is a weekly examination of the decentralized finance world.

DeFi Market Snapshot

The decentralized finance market recovered its positive momentum this week as the total value locked rose from $6.8 billion to $8.8 billion. Aave took the top spot with the most USD value locked and achieved a market dominance of 15.3%. 

In terms of decentralized lending, the total borrowing volume reached $1.67 billion — a 15% weekly increase. 

Decentralized exchanges have seen a 28% decline in weekly average trading volume, which was dominated by Uniswap. 

In the sphere of yield farming, Swerve was the largest liquidity pool with $9.01 billion locked.

Key metrics in the world of DeFi primarily recovered this week. Sources: DeFi Pulse and DeBank

DeFi News of the Week

There were two important milestones achieved in the DeFi community this week: 

  1. YAM Finance relaunched its protocol.
  2. Uniswap launched its governance token, UNI.

In this edition of OKEx Insights' DeFi Digest, we will dive deeper into the relaunch of YAM Finance.

Saving YAM Finance

Described as a "minimally viable monetary experiment," YAM Finance is a decentralized stablecoin that seeks innovations in price stability and governance. 

Its most notable feature is the setup of the elastic supply of its token, YAM. This means that the supply of YAM can expand and contract in response to market conditions. To achieve price stability, 10% of each YAM supply expansion is used to purchase yCurve, a USD denominated stablecoin, and is stored in the YAM treasury. The value of each YAM targets $1. 

For governance, YAM Finance adopts on-chain governance, in which the community may determine the functionality of the YAM protocol and manage the YAM treasury.

YAM Finance was initially launched on Aug. 11, and its market capitalization soared from zero to $57 million in two days. However, YAM co-founder Brock Elmore discovered a critical bug in the protocol on Aug. 13, leading to a massive sell-off of YAM tokens and a 90% drop in its value.

The price of YAM tokens plummeted once a critical bug was discovered. Source: CoinGecko

According to an official announcement, the bug was found in the YAM rebasing contract and sent a large amount of excess YAM to the protocol's reserve. The bug also made quorum impossible in YAM's governance, meaning that no governance actions could be taken and the funds in the YAM treasury were locked. 

In an attempt to save YAM Finance, the team proposed a two-phase process to relaunch the protocol:

  1. Phase one was to migrate from YAMv1 to YAMv2.
  2. Phase two was to conduct a complete audit on the YAM system and redeploy as YAM V3.

The proposal was accepted by the YAM Finance community and the protocol was successfully migrated from v1 to v2 on Aug. 22, enabling off-chain governance for the community. In the second version, a governance forum was launched for community members to submit proposals. Also, token holders can vote for proposals using their signatures. Furthermore, a new YAMv2 ERC-20 token was created, which allows the token holders to convert their v2 tokens to the YAM V3 protocol. 

Following the launch of YAM Finance v2, the team cooperated with Peckshield Inc. to conduct a full audit of the protocol. The full audit was successfully completed on Sept. 10, and no critical bugs were found in the protocol. The 15 bugs that were found during the audit have all been fixed by the team. As a result, the protocol is redeployed and the third version launched on Sept. 18, as scheduled. 

YAMv3 liquidity mining may further boost Uniswap

As stated in an announcement, the YAM/yUSD Uniswap liquidity provider pool is the only incentivized rewards pool of YAM Finance V3. Users can supply their crypto to the pool and earn YAM tokens as rewards. yUSD will be the reserve asset, and the YAM treasury will purchase yUSD in the Uniswap LP pool.

The YAM/yUSD Uniswap LP pool will hold the yielding rewards of YAM/yUSD, totaling approximately 925,000 YAM tokens. 92,500 YAMs, 10% of the total, will be distributed each week. The supply of rewards will decrease by 10% each following week. With the current YAMv2 token price of $25, the value of YAMv2 distributed in the first week amounts to $2.31 million.

Users can earn YAM by staking one of the eight cryptocurrencies, such as COMP, LINK and MKR. Such flexibility aroused the interest of the DeFi community, and $500 million was locked in the first YAM protocol within the first day of its release. When the protocol collapsed from the smart contract bug, the price of DeFi tokens that are supported by YAM collapsed as well. For example, Ampleforth dropped from $0.90 to $0.71.

Following the announced schedule of YAM Finance V3 on Sept. 15, the price of YAMv2 once again surged from $24 to $33. 

Price of YAMv2. Source: Uniswap.info

For YAMv3, the farming reward of YAM will be concentrated in the YAM/yUSD Uniswap LP pool. It is possible that users will pile their funds to the Uniswap LP pool to earn YAM, which would provide another boost for Uniswap, following the release of Uniswap's governance token, UNI.

A community-driven stablecoin

YAM V3 continues to be an experiment for community-driven stablecoins. The YAM Finance community contributed to the protocol's governance by voting on the initial parameters of YAM V3. These decisions included updates to reserve assets, distributions of farming rewards to token holders, the setup of bug bounty programs and more.

Compared to Ampleforth, YAM's stablecoin rival with an elastic supply of cryptocurrencies, YAM Finance has a higher degree of decentralization as the governance process is dictated by the community.

Rewards and YAM token distribution

The launch of YAM Finance V3 outlined the token reward distribution to token holders and delegators.

For YAMv2 token holders, they can migrate their tokens to YAM V3 at a 1:1 ratio, anytime. Once their tokens are migrated, 50% of the tokens are available to them immediately while the remaining 50% will be vested in the YAM protocol for 30 days.

For YAM token holders who missed the initial migration from v1 to v2, the YAM team will create a multisig to assist them in migrating the tokens to YAM V3. This assistance won't be applied to those purchasing YAMv1 tokens after the expiration of the migration window.

Delegators are those who cast votes to facilitate the migration from YAMv1 to YAMv2. To reward the delegators, they will receive a 1:1 YAMv3 reward if they have over 27 votes. Those delegators with equal or less than 27 votes will receive a flat reward of 27 tokens. The rewards will be continually vested for over 90 days.

Saved YAMs

From the start of the "Save the YAM" initiative to the recent launch of YAMv3, it is apparent that YAM Finance is widely supported by the DeFi community. The active community of YAM Finance will be the key to the long-term value of the YAM token.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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