"It Was Exciting But Also Terrifying:" Yam Finance's Backstory

Hello Defiers! 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.

CR: Right. We'll get into all of that. But first, because a large part of this experiment was based on Ampleforth, can you guys get into what actually rebasing cryptocurrency is, how Ampleforth works and also, what the difference is with AMPL? I mean, you mentioned some of these pieces already how you want it to be 100% governed by this on chain mechanism on 100% kind of community owned and controlled. But if you can get into more specifics on what this actually is this rebasing currency and what the differences are with the previous ones?

Extreme Governance

DE: Well, the weird thing about rebasing currencies is they're really weird and hard to understand. But I think the best explanation that I've seen for it is where it's been like Bitcoin has a fixed supply, but a variable price, what rebasing assets attempt to do is to have a fixed price, but a varying supply. So the market cap expands and contracts with the supply, but the price is attempting to find eventual price stability at a target for individual units.

“What rebasing assets attempt to do is to have a fixed price, but a varying supply.”

That's just really weird and it messes up price charts and other ways that people think about tracking these things. But it has this really powerful psychological effect that tends to make it be able to drive up and drive down very rapidly.

One of the ways that YAM is different from Ampleforth is the existence of this treasury, and we just had the first successful rebase with the new launch of YAM about an hour ago, and the rebase ended up contributing $571,000 in yUSD into the treasury. Every time there's a positive rebase, that will grow. That potentially has the effect of creating some kind of baseline in there, whereas in Ampleforth, there's no treasury, and there's no governance. Ampleforth is explicitly governance minimized and there's nothing backing it. Here, there is something backing it and extreme governance.

“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.”

CB: Whether or not we actually or YAM is able to find a fixed price is yet to be seen, but that's why it's an experiment. I guess we'll find out.

CR: I understand the mechanics, when these rebasing currencies are above their peg, then the supply is added to the market to push it down. Then the opposite happens when the currency is below the peg. Understanding those mechanics, what's the purpose of having something like this?

Strong Response

DE: The Ampleforth team has done a good job on some podcasts. I know, Joey Krug, and some others have talked about it as well. I mean, they're trying to be kind of useful for debt, honestly, I don't fully understand it. One of the reasons why I found it interesting was that the first few times I'd seen it, I dismissed it and I was like, this seems useless, which was the same reaction I had to Bitcoin early on, was that this seems really, really silly.

But then, the fact that it elicits such strong responses in people, I think, is in itself valuable. Because it just forces people to reevaluate how they're looking at and how they're thinking about it. And while my initial conception of YAM was Ampleforth with a treasury to act as a floor on it, that's not how the community have seen it.

They've seen it as more akin to like, some kind of DAO that's managing a treasury, and happens to use rebasing as a way to bring more funds into the treasury to deploy it in various ways. I think, rather than explicitly selling tokens to people who are interested as a way of kind of playing capital to a treasury, it's just automatically pulling in capital as there is more interest in participation in this organization.

“One of the reasons why I found it interesting was that the first few times I'd seen it, I dismissed it and I was like, this seems useless, which was the same reaction I had to Bitcoin early on, was that this seems really, really silly. But then, the fact that it elicits such strong responses in people, I think, is in itself valuable.”

CR: What happens when the rebase needs to add tokens to the supply, is that taken from the treasury, where does that come from?

Incentivized Pools

DE: No, it's just automatically expands. Everyone just finds they suddenly have more tokens in their wallet than they did previously. But 10% of that new issuance is essentially issued to the treasury and then use to buy currently yUSD out of the Uniswap pool and so that pulls it in. But so effectively, there ends up being actually like 10% that goes into the Uniswap pool as liquidity plus everybody else who's holding it gets an extra…

CB: It might be worth diving into the incentivized pool a little bit more. I found that to be really interesting mechanism. Daniel, you’ll do a much better job of explaining it than I will, so I’ll let you take that one.

DE: The reason we have the incentivized pool, I think a lot of these yield farming projects have different incentivized pools, some with reason and some without. We really need an incentivize pool for YAM or YAM really needs this incentivized pool, because to target that price, you need an oracle and to have it be fully decentralized like we wanted to use the Uniswap TWAP Oracle, Time Weighted Average Price. So we need a pool to pull it from a means to be sufficient liquidity to be able to get that. Then we also need a place where if we're going to be building this treasury, need to know that there's going to be some depth of liquidity there's that those treasury purchases can happen at a reasonable price.

By incentivizing that liquidity pool, there's hopefully assurance that there will be sufficient liquidity there to make those purchases. Now, this is one of the many, many things that token holders can now adjust. If token holders say, hey, we need more liquidity there, they could try increasing incentives. We're over incentivizing, because that's certainly a lot of projects, I think over incentivize the liquidity that they actually need, then they can lower that. It's all tuneable via governance. But I think that pool does serve a very important purpose in the protocol and YAM itself, I don't really know how it would function in anything resembling its current form if there weren't at least one incentivized pool

CR: Right now that yUSD-YAM pool on Uniswap is only incentivized pool that you have?

DE: Correct. There is one other pool that is safe to use which is the YAM/ETH, Uniswap pool, but that's not currently incentivized.

YAM Recap

CR: Let's see if I can kind of summarize YAM accurately. YAM is a currency that rebases, expands and contracts its supply to reach its peg of target peg of $1, right?

DE: Currently, technically, to one yUSD which is $1.20, but that can be changed. You could change the peg to be like, 1 BTC or like 1 ETH, whatever you want to make.

CR: This cryptocurrency expands and contracts its supply to reach its peg of currently 1 yUSD and as a result of this rebase is in its supply, the YAM that is purchased gets to that peg and goes into a treasury and that treasury is then managed by the community of YAM token holders. At the same time, another piece of this is that there's a pool of liquidity on Uniswap, which is used to provide a market to buy YAM in these rebases, and to provide a decentralized oracle for the target peg.

DE: Very close. The one adjustment I would make to that is that, it's not trying to accrue YAM into the treasury. When the rebase happens, and some new YAM is minted for the treasury that is immediately used to buy yUSD out of the Uniswap pool and pull that into the treasury. So the treasury is trying to hold yUSD not holding YAM.

yUSD Adoption Issues

CR: Why did you go with yUSD first?

DE: High yields. It's a very kind of high yield stable coin. The yCurve pool, which is a composite of four different stablecoins, so it's earning both fees on the trading of the stablecoins and each of the underlying stablecoins is a composite that's hopefully generating yield, and then it's earning Curve rewards on top of it. The vault periodically takes all the Curve tokens that are accrued and sells them and reinvest them. So you end up having this currently very high yield thing.

DE: We thought it made sense. It has created some issues, I think early on with adoption because there isn't a lot of yUSD circulating, we're in a very high gas price environment and it's been harder for people to kind of get into yUSD than we'd anticipated. But the community is already proposing a number of different ways and tweaks to that including potentially moving to like USDC or something else for the pool, and then doing the wrapping and converting to yUSD within the treasurer itself.

In fact, that there's now an ETH/YAM pool that is safe to use, people can borrow liquidity there so people come in via ETH. There's a number of different factors trying to solve the same thing, which is that we think yUSD is, it's currently not super easy to use.

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

CB: It's not the most user-friendly. Trying to describe how to get yUSD in the manual process, Dan can go into it, kind of highlights that. But I think and maybe this isn't possible, but I feel like one way the community could change is doing these rebases from multiple pools, and then the treasury, it doesn't just have yUSD, it has a basket of assets.

DE: Although on the usability shoutout to Zapper, they've got a great tool that kind of massively simplifies the process.

CR: Because the process involves going into the Y pool to get yUSD and then add liquidity to the yUSD/ YAM pool, basically?

CB: First thing, you need to go into the Y pool on Curves to get yCurve, and then you deposit yCurve into the Y vault, and then you get yUSD. It’s not super straightforward, but then Zapper kind of lets you do that all in one transaction, I believe.

DE: Yes, just straight from ETH or DAI or whatever, straight into yUSD, and it like handles all this stuff for you on the back end.

CB: It might cost you $500 in transaction fees. But it’s only one transaction, I think so.

CR: That's why you need to do lots to make it count. Then the point, as you mentioned, is having this really high yielding asset in the YAM treasury. Which leads to the question, what is this treasury used for? I mean, my guess is okay, governance will tell, the community will vote on whatever they want to use the treasury for, but what do you think would be a good use of these funds?

Funding Public Goods

DE: Well, the community voted during the kind of an interim governance period before the new audited contracts were launched to give 1% of the treasury to Gitcoin grants. That's already happened, right? When this first rebase happened, about $5,700 were donated to public goods funding for Gitcoin. Every time there's a positive rebase, more funds will go to fund public goods.

“ Every time there's positive rebase, more funds will go to fund public goods.

The funds that are still there, totally up to the community to decide what to do with it. There's already been a lot of interesting proposals in both the discord and the longer form governance forum. I think it's going to be really hard for us to determine what that's going to be. But hopefully, it'll be used for interesting things to either fund external projects, fund things built on top of YAM, fund more audits, fund people to work on it. It's really very open. That is what's the experiment about this.

There isn't some hard path that we're like, this is what the treasury is for, everyone must use the treasury for this thing. Clint, Trent, Will, Brock and I have no more say in that than anybody else.

CB: It's interesting how each of these DAOs, the communities as a whole have kind of a unique personality and each one may decide to do different things. So far, the YAM community has decided to help fund public goods, which is cool to see. Going forward, who knows, more money might come it.

DE: It's been a very pro-social community.

CB: Good vibes, wholesome. I think some of that goes back to the branding YAMs. This whole yield farming thing, I feel like it is very, almost grassroots vibes to it. But it's been a wholesome community so far, which has been nice to see.

“This whole yield farming thing, I feel like it is very, almost grassroots vibes to it. But it's been a wholesome community so far, which has been nice to see.”

CR: I'm looking at the price of YAM now, like an hour after the first rebase and it's at around $6, close to $7. Will the target to $1 happen in a second rebase?

YAM Rebase

CB: Every 12 hours, correct me if I'm wrong here, Dan, but every 12 hours, it'll rebase. And if the price of YAM is still above 1 yUSD, then they'll issue more YAMs and theoretically drive the price down. Over time, it's expected that it would return to that 1 yUSD peg, and then if it drops below that, then the supply would contract and hopefully drive the price up.

DE: The way it's working is it's not trying to issue enough new YAM every rebase to directly drive the price there, it's trying to do it on a more gradual basis. So I think it tries to get like 10% of the way there each time, roughly speaking, or it kind of says, like, let's divide this over 10 periods and move it. Each time, it's just g get a little bit closer.

CB: After the first rebase, the scaling factor is roughly 2.5. So if you had 10 YAMs before the rebase, now you have 25. But then the price, it reacts to that as well.

CR: It's so crazy to think about kind of having a cryptocurrency that where the price moves according to a target, but where you actually get more crypto in your wallet when the price drops.

CB: It creates an interesting dynamic. When the price is above $1 and you're getting issued new YAMs, me personally, I kind of feel like I want to hold on to it, because I'm getting more and more based on how much I hold. But usually, generally, so far, it seems like the price reacts appropriately to the rebase and the dollar amount of your holdings theoretically shouldn't change.

DE: What's going to be really interesting is when there's the first negative rebase, because AMPL has had negative rebases. If the price goes below the peg, and suddenly you have less YAM, I think that can be scary and that, again, can drive things down as rapidly as the reverse drives things up.

I think what will be interesting is to see how does this behave compared to AMPL or other things that don't have a kind of treasury that's also attached to them and does that affect how long it stays below the peg? Can it help stop some of that downward spiral? I don't know, I think that's part of the experiment to see if that has an impact.

CR: Because I guess, that's the risk that you get to a point where what if people start selling and selling and you can never get to the target again? If you're below the peg, and you have fewer YAMs or fewer or whatever of these rebasing currencies, and everyone starts selling and panicking.

Treasury as a Selling Floor

DE: Well, in theory, right now, there's $571,000 sitting in the treasury, you wouldn't expect the market cap for YAM to go below $571,000. Because at that point, why wouldn't all the YAM holders just use governance and vote themselves a dividend with everything that's in the treasury? If that's the game theory of at this point, people would do that, if you think that there's some possibility of a positive rebase which would then draw more funds into the treasury, it should never trade down quite to that level, it should always go above it.

Every time it goes down, and then goes back up, so let's say, just completely detached from the actual numbers, pretend that all of the YAM is worth $100 and then it goes up to $1,000, that should build up about $90 in the treasury, because it's kind of moved up and 10% has gone in. It goes back down, let's say it bounces off $100, again, it goes back up to $1,000. Well, now, there should be like $180 in the treasury.

It has that interesting effect if it goes back down to the bottom and re-achieves the high, it effectively doubles the treasury during that time. So that's an interesting thing. I'll be curious to see, does the bounce happen? Also maybe spinning out the treasury, what effect does that have? It's really hard to know.

There's like a lot that's interesting to theorize about and 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 like economists have theorized about for many years and just see like, okay, how does it actually work in practice?

“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?”

YAM Community

CR: I want to go back to kind of the very early launch, and this community that rallied around YAM. It really felt like a zealous group of people who were instant YAM enthusiasts and were participating in governance and making proposals from the very early days. I would love your thoughts on how you lived through that, were you expecting something like that? Why do you think it happened?

CB: I would say, there was definitely a lot of energy building up within the DeFi space in general and so if it wasn't YAM, maybe it was going to be something else. But I think it was just the right timing for something like this to happen. Personally, though, I did not expect this to be as big as it was, especially on day one of launch, I thought it was going to be some fun little experiment that some people played around with and saw how it worked.

But very quickly, I realized, as the Twitter follower account was blowing up, and people were depositing an insane amount of money into the contracts that this was going to become something much larger than, I think anyone on the team had anticipated.

DE: We're not dumb, we wouldn't have spent our time working on something if we didn't think it was interesting. But I think it was at least an order of magnitude, like bigger, more attention, than we realistically expected. I think, Clinton’s right, like the Twitter attention to it in just that brief window between when we announced it to when it was live, it was just like, oh, we may have underestimated how excited people are going to be for this.

Unaudited Contracts

CB: As we saw the number or the total value locked, I guess, of the funds deposited into the contracts grow, hit a million, and I thought that was pretty big, and then it hit 10 million and at that point, I was like, okay, I thought maybe it was going to be the extent of it. But then fast forward it in, our peak was somewhere around $750 million, that was with crypto deposited into these various farms. In unaudited contracts, which we were very upfront about, and very upfront about it being high risk and experimental, but it was, pretty insane to say.

DE: It was exciting, but it was also terrifying. But I think the one thing that gave me a little comfort was that most of those funds were just in forks of the Synthetix Mintr contracts, right? They weren't in any of these pools. We've seen a lot now since YAM, a lot of these things having these staked liquidity pools where they've got like some newly launched token plus ETH or something in there. It's like, if the newly launched token goes to zero, or something happens, then all the ETH, all the other assets paired against it are going to get drained. The only one we have with that was the ETH/AMPLE pair, and actually, even that was like kind of external to our system.

“It was exciting, but it was also terrifying.”

All these things sitting there, if the Synthetix Mintr contract was broken, there would have been a lot bigger problems in the ecosystem than YAM. Although the headline numbers were really big, and really scary, the actual amount of funds that ultimately got locked in the V1 contracts was very small.

Hopefully, the ecosystem will have learned something from that and have a little more caution, but like, the past month is kind of indication otherwise. For having a significant bug and a smart contract that grew so quickly, things could have been a lot worse than they ended up being.

CR: What was your like thought process when deciding to just launch this without doing any audits or test? Did you guys discuss this? Was this like a thought out decision?

DE: I mean, we talked about it, but there was no company, we didn't raise any money. We truly intended it as just like a little experiments and like we weren't going to shell out $50,000 or $100,000 on our own pockets to audit something. I think, in retrospect, we probably should have told a few people a little bit more about this and see if we could have gotten donated funds are something.

Fair Launch Capital, which you're familiar with, and hopefully, your readers and viewers are familiar with that too, I think, emerged as a response to this in a way to kind of help solve this dilemma for teams that wanted to launch something, but didn't have a built-in business model or anything to it and so therefore, no reason to spend a lot of money upfront on it.

But we talked about it. 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, right now. There's not a lot of qualified audit firms, they are massively overbooked, and they charge very high rates and so it just creates this insanely high threshold. I don't know what the answer is in terms of going forward. I think, some projects can do things like guarded launches. We considered doing a guarded launch and like putting caps, but realized, if we did that, there is the possibility that like a couple whales could come in and just like fill everything up to the caps and then it's no longer fair.

“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.”

CB: Interesting experiments of there when you do that. I'm not going to say that there's nothing I would change if I could go back and change things about the launch. But I do feel like all things considered, it could have been a lot worse. The story of YAM was very interesting as a result and the way that the community rallied in those crucial moments to try and save YAM and everything that unfolded there was quite the experience. Going forward, maybe it's easier to get audits now for these Fair Launch projects as a result. I'd like to think that some good things came from that.

Post-Launch Bug

CR: Can you talk about what you alluded to right now, the bug and what unfolded after? I can just imagine launching this project that hadn't even been on your mind 10 days prior, then suddenly getting up to $750 million in funds and then finding a bug, how was that?

CB: The bug was actually very simple. It was we just forgot to divide a large number by another large number. As a result, the first rebase and correct me if I'm wrong, Dan, but the first rebase minted just an ungodly amount of YAMs, so I think something like a trillion cubed of YAMs to market. We were using a different stablecoin for V1, but the pool allows for up to 10% slippage, and then after that, the excess YAMs get deposited into our governance contract. So all of a sudden, trillions of YAMs are added to the governance contract and now there's no longer a way to reach quorum for these on-chain proposals and as a result, governance was more or less blocked.

There was a point in time where we broke the Etherscan UI and YAM was the most valuable asset on the planet Earth, which was kind of cool.

DE: 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. We went from this euphoric, but nervous high to being like, oh, no, what do we do? Just like, going into this mode of, okay, what do we do? How do we fix this?

Thinking we'd found a solution to fix it, but that would require massive global coordination to get everyone to buy in and delegate and do something that actually was not in their short term economic best interest to do. It was like an actual account like a real-life prisoner's dilemma.

“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?”

Then seeing the community just like rally to make it happen was incredible. Then we just got like the other dagger was like, we passed the threshold and then realized that due to the same issue and kind of a second-order effect that we hadn't understood, that even though we've gotten to that threshold, it still wasn't going to work to save it. Man, it was crushing.

CB: It was heartbreaking. But before that, the fact that this community didn't exist two days prior, and everyone was able to come together and coordinate and get the proposal passed on such short time notice was at the same time was uplifting.

Then even after everything unfolded, the way that the community rallied behind it to make a V2 happen, there was a get Gitcoin grant that went up to fund an audit for V2, and V3 and within an hour, we had it fully funded. Everyone was rallying behind each other to get this thing underway. Now, fast forward a month, and some days and we've replanted YAMs. Hopefully, this is the final version.

“Everyone was rallying behind each other to get this thing underway. Now, fast forward a month, and some days and we've replanted YAMs. Hopefully, this is the final version.”

DE: To be clear, the reason why the extra effort went into doing another audited version and getting it out there was because the community response was so strong. As terrible as we felt about, like having the bug and having that problem, we feel like the right thing for us to do was to fix that as best we could and in as transparent manner as possible, and just get the original intended experiments back on track.

What it becomes from there, is completely up to the community. But we thought that if the community was so strong, and took such action, and they wanted this thing to exist, we kind of owed it to them to get it back on track.

CR: I think that was so incredible to see. I remember obviously covering it for The Defiant and writing about it and it was just like, this group of people around this token and project that didn't really exist a couple of hours or days before is totally getting behind this project voting and then funding this Gitcoin grant. What do you think was motivating that?

Brave New Narrative

DE: 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. That was not, I think part of the original thing that became, was like through the interaction of this group, they were like, okay, well, actually just doing what YFI did, and just distributing to stablecoin holders, just really advantages folks with a lot of like US dollar capital.

“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.”

We thought this is a crypto project, we should really incentivize the different crypto communities and the stakeholders in this communities. YFI, AMPL and COMP that kind of inspired us, but also who have experience with governance and showed some interest in this, like, the Synthetix community and the Maker community. We thought folks who would get governance, and would be interested in this experiment we wanted to pull them in. It was, I think, why people were so excited and wanted to be a part of this.

CB: I think it's very common in crypto for tribalism to run rampant. But I think what YAM did was brought a lot of different communities and ecosystems together and it was awesome to see.

Since then, we've got, I think every single vegetable and food has been taken as a result. But it's a lot of fun too. I think YAM’s really tapped into the fun side of DeFi.

DE: I mean, I've never seen the front ends, like go so viral. That's kind of crazy.

CB: That was totally unexpected. When I was making it, I thought, if you look at, well actually, don't look at the commit messages —now everyone's going to look. But when I was designing it, initially, I tried to go for something more serious like Compound, but then it occurred to me as our coin is named after a vegetable, and maybe the logo is an emoji, maybe it's lean into this a little bit more. And gamify it to some extent, make it fun, make it approachable for more mainstream audiences. But it was really, you know, I didn't expect, I guess, I think we have like 250 forks.

Image source: Original yield farms on yam.finance

CR: Oh really?

CB: Yeah.

CR: That’s amazing.

CB: Had I known that, maybe I would have put a little bit more time into making it more readable. But actually, I did do that for this relaunch, I made the front end easier to fork and easier to rebrand for whatever food or emoji would like…

DE: Clinton's eyes were bleeding seeing how some people were using, and he was like, let me make this so it doesn't look so bad elsewhere.

CR: No, but it was really incredible to see the same design everywhere else. But it's true. Because it was playful and fun to see and to use. So going forward, are you happy with the YAM version that that is out today? Was this the initial plan? If it is, are you stepping away and leaving it all to the community or do you expect to still be involved in the development going forward?

No Core Team

CB: Not much has changed from V1, it really is a relaunch with a few minor tweaks that were voted on during V2 governance. Going forward, I would love to contribute in ways that I can as another community member, but I don't think of myself as like a leader of YAM. I think, YAM is very decentralized in spirit. I'd like to be one small piece of that going forward.

DE: Similarly, to the extent that I can be involved in governance discussions and stuff like that, I'd love to hop in and participate, but it's certainly not my full-time focus. I'm kind of just another community member at this stage. Other members of the team, I think, are figuring out too, like what level of involvement they would like to have going forward. But the intent was not to have a like, core team that was continuing development on this, it was to get this thing out in the world, and see what would happen. Some of them may decide to be involved, some of may not, it's all very open.

“But the intent was not to have a core team that was continuing development on this, it was to get this thing out in the world, and see what would happen.”

CR: We've talked about all the copies of YAM and the explosion in DeFi that's happened since. What are your thoughts on all the food tokens and meme tokens since then? Because I think, there's a lot to praise, and to criticize. I think, some of the common criticisms is, these things aren't really serving any actual purpose. They're made to yield farm, and people are pumping and dumping these tokens and, there’s a continuous cycle of speculation.

At the same time, they are experiments in building community and trying out different governance mechanisms and the different token mechanisms. What are your thoughts? Do you see it as on net positive? Or maybe, what's the endgame? Where is this going? Because I see it as it, we’re in this transition to something else, that these are a bunch of experiments that will lead to something.

Gamification of Finance

CB: That's a great question. I want to preface with saying, I don't know where this is all going to go. While the food coin mania probably got a bit out of hand, I do think there was a lot of energy there for a reason. Later on, it might take a while, but we'll look back and be able to point out what were the individual characteristics of this recent movement that actually have some value to them. Whether that's the gamification of finance and making it fun and usable for anyone, or if it's this elastic supply dynamic. It could be any number of things that are going on, but the space is iterating so quickly that we're collecting a lot of data points, and I think that's generally good.

Obviously, there's some scams and some rug polls and some not so great things that happen along the way, but at the core of it, there's usually something valuable. Then I think we saw that in the previous bull market with ICO mania, and there was a lot of good things that happened and a lot of bad things that happened there. Then a few years later, we've iterated on that and we've kind of kept the good things and left the bad things behind.

DE: That's spot on. What I think it's showcasing is the power of some of these incentive mechanisms. Hopefully, we can then take these incentive mechanisms and apply them to things that are going to be long term useful and meaningful. I don't want to say that there's nothing here that is long term, meaningful, useful. I think some of these things, including YAM have potential, but it's going to be what people make of them.

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

But now that we've seen in the wild, kind of how some of these incentives work, and the kind of behavior they can drive, if you're thinking about building something that really has the potential to be a meaningful, open financial primitive, you'd be crazy not to look at some of these incentive mechanisms, saying, how can this help me solve some of the early bootstrap problems? How can I actually like, build this protocol, build sufficient liquidity and start making things usable? I think that's a lot of what's been going on in crypto.

I mean, I've been focused on crypto since 2013. I was in micro finance before that and so I was very interested in how can crypto actually become financial infrastructure for billions of people around the world? I think the answer is you can't jump straight to there. Even today, seven years later, you can't jump straight to there. But by using some of these mechanisms, and experiments on these things, feel very game-like or toy-like. We're learning fast, iterating fast and ultimately, it's going to help us build something that is much stronger, much more robust, and really can expand out and be globally useful and valuable financial infrastructure.

Make it Fun

CR: For teams building these next generation of DeFi or even fintech projects and companies, what lessons would you tell them? Or what would you tell them from your experience in building YAM?

CB: From my perspective, I would say, make it usable, make it fun, make it digestible. I think use certain things like using emojis as our logo and our icons helped a lot by making it reproducible and no one's messaging us asking us for our SVG is to like for our logos, places, because it's just an emoji. I think just reducing friction for people to adopt and use your product or protocol and then, making it an enjoyable experience. From my perspective, there’s a lot of different things to take away from here. But for me, that was the core case.

DE: I think that's one piece. I think the other piece is just like, test and audit whenever possible. There's no such thing as too much auditing or too much care. But also, when you want something, always have a game plan. I mean, we didn't have a very well thought out scenario plan. But think about what is the upside scenario and how are you going to respond if it just goes gangbusters? Then also think about the downside scenario where if something's wrong, or if nobody uses it, like, what are you going to do, how you can respond then? I think having mapped out some potential scenarios before launch is a very valuable thing to do. Shout out to friend, Derek on the Futureswap team. He was giving a talk to some folks earlier today emphasizing they really learned that lesson too.

YAM in Five Years

CR: Where do you hope to see YAM 5 years from now, or even a year? What's the right timeline for these questions in DeFi, things change so much.

DE: For me, I mean, this kind of a joke, kind of serious, but like success for YAM, is if you start typing in like the emoji search and you type YAM, that actually pulls up that emoji, rather than needing totype sweet potato, I think that'll be successful. But I think if the community persists, and finds ways to create value out of this system and out of whatever treasury it manages to build, if it's still around in 5 years, and even if people are still talking about YAM and actively involved, I think that'll be a huge success. But even just like people learning from it right, and saying, like, this is what we took away from this, and we used it in this way in our own project, I will feel very good about that.

CB: I would like to see more developers get involved, more people jump in, especially on the front end, and really have fun with it and make it into something special. I'd like to see the YAM community maintain some level of wholesomeness and good vibes, because that's been a big part of it today. So keeping that going forward, it'd be awesome to see. It would just generally be cool to see that this thing still exists a year, or 5 years or maybe even 100 years from now.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.

About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.