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“It Was Exciting But Also Terrifying:” Yam Finance’s Backstory

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In this week’s interview, I spoke with Dan Elitzer and Clinton Bembry, who were part of the founding team of Yam. Yam Finance is an experiment in rebasing cryptocurrencies, plus token incentives, plus full on-chain governance, plus a DAO-like treasury managed by token holders. It’s also testing the power of the emoji and opened the flood gates to meme-based DeFi tokens.

Dan and Clinton tell me the back story of how this crazy project was created, how the group loosely coalesced in a chat group and from there it was just 10 days until launch. They talked about how the project blew past all their wildest expectations, and about the absolute terror of having hundreds of millions of dollars flow into the unaudited code they had pushed into the world. 

They talked about the bug they found right after launch and how incredible it was to see a community that didn’t exist days earlier, rally to help save YAM. The only reason why the project exists, they say, is because the community’s response was so strong. It’s unclear what exactly the takeaways from projects like YAM will be, whether it’s the gamification of finance, elastic supply tokens, the power of incentive mechanisms or all of the above. But whatever it is, the measure of success is that something that initially looked like a joke will likely end up having a lasting and profound impact in DeFi as a whole.

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Daniel Elitzer: I am Daniel Elitzer, I was one of the founding team members for IDEO CoLab Ventures, which is a venture fund out of IDEO, which is a big design firm and we invest in crypto and blockchain-related companies. I’ve recently left there and am working on a new fund, which we’ll be talking more about soon. But have been pretty deep down the rabbit hole for the past couple of years and got together with Clinton and the other co-creators of YAM, Brock Elmore, Trent Elmore and Will Price. 

We’ve been kicking around some ideas, and obviously, just very deep into DeFi. We’re inspired by seeing Ampleforth and just, personally, at first, I thought it was pretty stupid and then, as I saw it being used more, realized how interesting of a mechanism this actually was with the rebases, and we were all very inspired by YFI, and how that was distributed and then grew, and was very active in the Compound governance process as well. 

Obviously, I think the whole space has been very inspired by the experiment. We were kind of kicking around some ideas and just thought about combining some of these different pieces together, I thought it’d be an interesting experiment to try. It really was an experiment, it was meant to be very short time from concept to launch. You know, just can’t say enough good things about this team. 

Clinton and I collaborated on a couple things previously, but I hadn’t really worked with the other members of the team before. It was just really incredibly even over the short, 10-day time that we were working on this, everybody got their hands involved in a lot of different pieces of the concept and how it came together. Clinton was just an absolute wizard doing all the front end stuff, which has then turned into the template that is being used by all of these different yield farms. Brock, obviously, just incredible, doing all the substantial smart contract developments. Then Trent, Will and I helped a little bit more with strategy, communications and other things. 

Clinton Bembry: You did a pretty good job summarizing all that. Just a little background on myself: I’ve been building products in the blockchain space for the past three years and so when Dan gave me the call and said, hey, we got this interesting experiment we’re working on in the DeFi space, but we need someone to come in and help out on the branding, look and feel, that sort of thing, I was just like, hell yeah, let’s do it. Now we’re here. Accidentally, I created this template for fair launch projects, which was really fun to see.

CR: Who was the one who rounded up this group of people? Were you already talking about these kinds of projects in a chat group? Interested to hear more about the backstory, because it felt like it came out of nowhere. Nobody knew that there was this team working on anything and then all of a sudden, there was this YAM emoji everywhere.

YFI+Ampleforth =YAM

CB: Well, to be fair, it did kind of come out of nowhere, seeing as we organized, maybe 10 days before launch, I think so it wasn’t very premeditated.

DE: I think some of us independently had ideas for some of the kind of core mechanisms in this. So Will and I were talking about it, and then I think he was talking with Brock and then we all hopped in a chat together and of course, Trent joined too, and we were like, oh, man, this is great. But like, who’s going to do the front end? Trent could kind of do a little bit of some of that stuff. Then I was like, Clinton would love this, and he did and so he’s just an absolute wizard, so he came join us. Just happened really fast. The plan wasn’t an emoji at the beginning, the name came initially was just inspired by YFI, and Ampleforth and so putting together like, YAMPLE, YAM.

“The plan wasn’t an emoji at the beginning, the name came initially was just inspired by YFI, and AMPLEFORTH and so putting together like, YAMPLE, YAM.”

DE: Then the finance domain was available. I think that was a day or two and someone was like, hey, guys, there’s an emoji. That ended up being a very powerful piece of it, but it wasn’t like premeditated. From like, when we said, hey, this would be fun idea, someone should do this, why don’t we just do this to when it actually launched was literally 10 days.

CR: When you say this is a good idea, what exactly was “this”? What was the initial idea behind YAM?

Decentralized From Launch

DE: I think at the core, it was the idea of having a rebasing currency that was building a treasury, if it grew, that it would build a treasury to create some floor potentially underneath it and then do it fully on-chain governance from day one. What was also really cool about it was that a lot of other projects launch with meaningful administrative control. 

“At the core, it was the idea of having a rebasing currency that was building a treasury and on-chain governance from day one.” 

Even if you might technically refer to some of these things as noncustodial, the administrative control effectively makes a lot of them custodial in the early days, and we didn’t want to do it. We wanted to see, could it actually be governed in a decentralized manner from launch?

So we never anytime had any administrative privileges, over the contracts. The instant the first tokens were minted, already governance control was in the hands of token holders. That was a big piece of the experiment too. Then all the other stuff never sort of became like what people want to do with it, that’s all but on the community. I think we’ve been pretty surprised at some of the directions that has been taken.

“So we never anytime had any administrative privileges, over the contracts. The instant the first tokens were minted, already governance control was in the hands of token holders.”

CB: It’s definitely been interesting how, you know, start off as one thing, but for a lot of people, YAM is something entirely different. A lot of people see it as just this meme coin. Once you peel back the layers of the gamification of it, and the memes, there’s some pretty cool mechanisms underneath that let you do some pretty cool things with that going forward. So, it’s going to be really exciting to see what the community proposes and kind of how it just evolves going forward from here now that we finally are live with the relaunch and it actually works this time.

[ … ]

Paid subscribers have access to the full transcript, including sections on:

Difference with Ampleforth

“One of the ways that YAM is different from Ampleforth is the existence of this treasury (…) Here, there is something backing it and extreme governance.”

yUSD

“It has created some issues, I think early on with adoption because there isn’t a lot of yUSD circulating.”

DeFi experiments

“I think what’s so cool about what happening in crypto, in DeFi specifically is that we’re able to try these experiments and see stuff that economists have theorized about for many years and just see, okay, how does it actually work in practice?”

Unaudited contracts

“If we had any idea that it would get as big as it did, absolutely, we would have gone with the audit. But I think it’s also a challenge in the industry.”

Post-launch bug

“That was the bug in a nutshell. There was a missing division there and it made it ungovernable and it was a terrible, terrible feeling. Went from this euphoric, but nervous high to being like, oh, no, what do we do?”

New narrative

“It was the distribution mechanism, we now take for granted, there’s all these new projects launching with. All these different farms, but YAM was the first one to do that.”

Long-term value

“Hopefully, we can then take these incentive mechanisms and apply them to things that are going to be long term useful and meaningful.”

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