YAMpocalypse: How Extreme Hubris and Speculation Smashed the Latest DeFi Token
But it's not over; BASED is the new YAM.
By:
Hello Defiers! Crazy (and risky) days in decentralized finance,
- YAM came, conquered, and fell. A complete recount of the YAMpocalypse
- BASED is the latest experiment for degen farmers
- Gas tokens are surging along with record Ethereum gas prices
and more :)
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YAM is Dead. Long Live YAM
Yam Finance TVL went from $0 to as high as $500M, now to $280. YAM token jumped over $150 and is now trading at just below $1. The team discovered a bug in the code, which the community organized to fix, but ultimately made governance impossible.
And all of that happened in less than 48hrs.
Yam Finance aggregated more than $400M worth of DeFi tokens from traders seeking to farm YAM in the hours after its launch, while its token soared many times over its $1 peg to as high as $157.
Then, the project underwent its first rebase as programmed, in which the supply inflated by roughly 10x to bring the token to its target peg of $1. Note that similar to AMPL, the number of tokens in holders’ wallets changes with each rebase, so while the price of YAM drops, the amount of YAM held by each investor increases.
Bug Found
It was at this time that a bug was found in the unaudited code where the YAM reserve inflated by 10x more than what was originally anticipated. The reserve is designed to purchase funds from Uniswap’s YAM/yCRV pool, but the inflated supply meant it would be impossible to reach quorum as the new YAM doesn’t have voting rights. Governance would be blocked, and so would funds in the treasury.
“There will be so much YAM printed that quorum will be impossible,” the team said in a blog post.
The community of YAM holders rallied to pass a governance vote in which rebases are paused and governance is migrated to a new contract. YAM token holders were called to delegate their voting power in exchange for added rewards so that the team could submit the bug fix, and while the vote count was low at first, the YAM count quickly picked up, culminating in a nail-biting event which came down to the wire.
Yam Finance @YamFinanceWe have been contacted by various benevolent YAM whales. Many are farming the Uniswap Pool until 7am UTC to accrue extra YAM to delegate. Progress toward our 160k goal will appear slow but then speed up rapidly as we approach 7am UTC. Help us. We are all in this together #DeFi2:03 AM ∙ Aug 13, 2020462Likes87Retweets
Smashed YAM
Ultimately, not even the fix could save Yam governance.
“We concluded that the rebaser bug would interact with the governance module and prevent this proposal from succeeding,” the team wrote in a blog post.
So where does YAM go from here? The token will continue to exist, with its supply expanding and contracting to keep its $1 peg, and YAM can still be farmed from staked tokens, but there will be no governance possible. The YAM/yCRV Uniswap pool, which now holds $1.4M in liquidity, remains unsafe and traders should withdraw their funds.
The hardest hit by the YAM collapse were Uniswap LPs. For those in the YAM/ETH pool, they did not receive the rebase and therefore had their supplied ETH drained as farmers rushed to squeeze every last drop of liquidity out of the project.
Holding Bags
There remains just north of $230M of assets staked in YAM, many of which are likely small farmers who are stuck holding the bag with cost averaging $30 to withdraw from any given pool. The return on these staked assets has dropped by 99%.
The Yam team will look to relaunch following a community-funded audit.“If the funding goal is reached, upon the completion of the audit, we plan to support the launch of YAM 2.0 via migration contract from YAM.”
Power of the Token
While unsuccessful, the experiment shows the power that token incentives and an open, global ecosystem have to create active communities. YAM holders didn’t exist three days ago, yet they were able to quickly coordinate to try to save the project they had rallied behind.
But let’s not shrug off the risks. Yam Finance issued YAM tokens with no pre-mine, no VC investments, distributing them completely among users to ensure decentralized governance —but also with no audits or value proposition other than accumulating YAM. Still, hordes of yield-hungry traders jumped in, while others looked on with dread. It turns out the latter now have good reason to say I told you so.
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BASED is Latest Experiment for Degen Farmers
As if the hype around YAM wasn’t far enough down the rabbit hole, a new project called BASED is taking experimentation and risk a step further.
Branded as a “DeFi game of chicken to shake out weak hands”, Based.money combines a YFI-styled no-premine launch with AMPL-like rebases, much like YAM. Less than 24 hours after launch, Based now has over $30M in capital locked for the latest meme token.
And no, it hasn’t been audited.
BASED 🍥 @BasedProtocol𝔹𝔸𝕊𝔼𝔻 > 𝔹𝕃𝔼𝕊𝕊𝔼𝔻
8:33 PM ∙ Aug 12, 202075Likes8Retweets
Rebasing BASED
BASED is earned by staking sUSD Curve tokens, which are interest-earning stablecoins from Synthetix. Unlike YAM, the first rebase does not occur until 97% of the supply has been distributed, giving yield farmers a longer window of time to prepare to get BASED.
This comes in tandem with a weekly allocation of 25k BASED capped at $12k per account to prevent whales from dominating the distribution in the first 24 hours. Each day, the reward allocation will be cut in half with another 75k BASED allocated to Uniswap liquidity providers seeding an sUSD/BASED pool.
Pre-Mine
Shortly after launch, community members brought to light that contrary to what was advertised, an Ethereum transaction showed that BASED developers added liquidity to the protocol before it was announced, which would have given them the first share of tokens.
The BASED team responded by updating their website with four “Proof of Burn” transactions showing all ownership keys being destroyed in tandem with this transaction in which the very first tokens were burned.
Russian Roulette
If nothing else, BASED has shown that yield farming has reached new extremes, completely boxing out anyone outside of those who proudly call themselves “degenerate farmers” from using the Ethereum network, with an investment style that’s similar to a game of Russian Roulette (“will I lose all my money this time around?”) and gas prices soaring to over 200 gwei per transaction.
Gas Tokens Soar Amid Transaction-Fee Mania
With gas prices at new all-time highs, tokenized gas prices are also thriving.
1inch’s Chi gas token (CHI) is up 1903% in the past 30 days while Gastoken (GST2) is up 683%.
As a tokenized form of Ethereum gas, gas tokens can be redeemed to reduce transaction costs. By using “storage refunds” gas token holders can hoard tokens when transaction costs are low and burn them to receive up to a 50% refund when costs are high (like now).
Gastoken & CHI
Gastoken (GST2) is a gas token which can be used across the wider Ethereum network. CHI tokens can only be redeemed on 1inch and Curve transactions with the added benefits of paying 1% less to mint tokens and 10% less to redeem.
CHI can also be pooled on 1inch EARN and their newly launched Mooniswap AMM, with APYs estimating over 500% as the 1inch team executes buy-backs in tandem with growing demand to cut costs on gas in any way possible.
Speculation
While gastokens are meant to solely be used for gas refunds, many are now turning to them as a speculative investment on Ethereum’s rising gas prices.
Given gas prices don’t seem to be slowing down anytime soon, solutions like CHI and GST2 are becoming more valuable by the day.
MyEtherWallet adds support for DeFi protocols Ren and Aave: Decrypt
MyEtherWallet, the open-source client for generating non-custodial Ethereum wallets, today announced integrations with DeFi lending protocol Aave and Ren, a protocol that lets Bitcoin interact with the Ethereum blockchain, Decrypt reported.
Aave Takes Step Towards Decentralized Governance
Aave’s launched its governance module on the Ropsten testnet. Community members can vote on the first Aave Improvement Proposals, or AIPs, and provide feedback without incurring high gas costs. Decisions on the testnet will not be considered valid for the mainnet.
Coinbase to Enable Users to Borrow Cash Against Bitcoin
Coinbase’s US customers in eligible states can join a waitlist for the option to borrow up to 30% of their Bitcoin holdings.
“With portfolio-backed loans on Coinbase, customers can borrow cash quickly from their Coinbase accounts. No need to fill out a long application or go through a credit check. Customers can simply sign up with a few taps and get the cash in their accounts within 2–3 days,” according to the blog post.
CoinMetrics.io @coinmetricsETH fees are going absolutely insane. This is hourly total fees in USD:
9:19 PM ∙ Aug 12, 2020230Likes83Retweets
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.
