The superimposed influence of the DeFi boom, liquid mining, innovative product mechanisms and the spirit of the blockchain has contributed to YFI’s outstanding market performance.
Original title: “Re-examine the YFI project under the joy of “irrationality” in the market”
Written by: Loners Pengpeng
Since the start of Compound mining in June this year, the lock-up volume of its lending platform has risen from 100 million US dollars to 1 billion US dollars; after that, some projects have started mining, such as Balancer, MStable, etc., because the rate of return is not very high. There are not too many people; then, about early July, Year started mining. YFI has zero pre-mining, zero allocation, and zero fundraising. YFI mining has brought the farming market to a hotter height, and then the domestic team split YFI, the issuance of a new governance token YFII, aroused more topical discussions for a while; YAM mining last week basically confirmed the transition from liquidity mining to the distribution of new tokens through token pledge .
To put it simply, Compound created liquid mining, YFI used liquidity mining to complete token distribution, and YAM used token pledge to complete token distribution. Two major innovations took place in two months. So far, the model of staking the circulating tokens for the distribution of new tokens and building a consensus has gone through.
But all of these things happened in the past two months. The amount of information is too large. Maybe many people have not had enough time to understand what liquid mining is all about. They discovered that there are endless new tokens in the market. Of course, some early participants are enjoying the “irrational” joy of the market .
As DeFi projects become more and more complex, the mechanism inside is difficult to understand without a certain period of understanding. In such a general environment, this article uses YFI as the background and try not to discuss coins. Price, and rationally explore some of the underlying principles. Of course, in order to cater for the different backgrounds of the readers and their understanding of DeFi, this article will elaborate on the views as much as possible.
What is YFI?
YFI is the governance token of the DeFi platform yearn. Yearn is an aggregation platform that supports multiple DeFi protocols. It can automatically move warehouses between various DeFi protocols that provide liquid mining to help users obtain higher returns.
To understand YFI, you have to start with two DeFi projects. The first project is called yearn and the second is called Curve.
First of all, let’s talk about the yearn project. Before we talk about it, we will make a foreshadowing. We know that some DeFi projects are used for lending. We can deposit stable coins, such as tokens linked to the US dollar, and get the corresponding rate of return; Compound and Aave, when we deposit USDC token in Compound, it will produce a cUSDC, deposit DAI in Aave, and it will produce aDAI;
We tentatively call such a token a bond type token, which can be used to redeem the assets at the time and earn a certain interest. This is the function of these tokens.
Yearn is actually the same. We can deposit USDC in yearn and it will produce yUSDC. It also supports other tokens, such as USDT and DAI; the generated yUSDC, yUSDT, and yDAI can be collectively called yToken . yToken is the bond type token with yield that we deposit in stable currency and exchange it.
So what is the difference between yearn and other DeFi protocols? The main reason is that it does not have the function of lending itself. It does not generate income by lending itself. What it mainly does is: when we deposit USDC into the agreement, it will go Look for various other agreements, such as Compound, Aave, dydx, etc. The return rates of these agreements are different (the return rate in the figure below is only a hypothesis), the yearn contract will look for an agreement with the best return rate, and put the asset Save the past. In fact, it is equivalent to a trading strategy , and it is a process of dynamically transferring positions . Recently, the rate of return of this agreement is very high, so the amount of assets deposited is also quite large.
Next, let’s take a look at the Curve project. Unlike other DEXs, Curve only does stable currency exchange. Curve has different exchange pools. For stablecoins in the same exchange pool, their value anchors are unique , such as USD or Bitcoin. Currently, users can exchange between 7 USD-linked stablecoins or 3 BTC-linked tokens . As shown in the figure below, in Curve, assets with different anchors cannot be exchanged, and only tokens in the same pool can be exchanged .
On the Curve interface, we can see that the first 5 pools are stablecoin pools anchored to USD, and the last 2 pools are token pools anchored to BTC.
There will be several contracts in the same pool. For example, in our USD token exchange pool, there are different contracts. Each contract corresponds to a different agreement. Among them, there will be a yearn (named iearn) asset pool, which corresponds to a dollar stable currency asset pool. And it will deposit some assets in the pool, for example, deposit USDC in iearn’s contract. If you deposit your USDC in it, as a Liquidity Provider , you can receive the procedures for this asset pool transaction Fee, this is one of them. Another point is that this asset pool will invest part of the tokens into the yearn smart contract to obtain some income from that smart contract. This is the function of our Curve project.
Back to yToken, taking USDC as an example, we just converted USDC to yUSDC, by depositing the yearn agreement, and then depositing yUSDC in the iearn asset pool of Curve. Curve will also generate a bond type Token yCRV, so this yCRV is equivalent to yUSDC’s asset with income. For exchange: yCRV returns to this agreement, and will give us the asset yUSDC deposited at that time, and provide a certain interest rate.
Next comes the YFI token , the key point of this article . YFI is obtained by depositing yCRV into YFI’s smart contract as a staking. This contract will generate a corresponding YFI based on the tokens you deposit. Your assets will not be lost, but the YFI will be given to you according to the amount you deposited, which is equivalent to the extra income we obtain by providing liquidity to Curve.
When we walk through the entire process, we can imagine what we can get:
- First of all, USDC is an asset with no return rate. When we deposit yearn, yearn will choose the best return according to the different return rates of each DeFi agreement to make an investment and generate interest .
- After depositing yUSDC in Curve’s asset pool, it is equivalent to providing liquidity to Curve, and you can get the transaction fee of the asset pool.
- Then deposit yCRV into the YFI staking contract, and give you YFI tokens according to the proportion of your deposit.
- Obtained Curve’s governance token CRV .
What is the role of YFI and its circulation?
At present, YFI tokens have two main functions, one is to obtain income and the other is governance .
We know that the yearn agreement is an agreement to choose different DeFi project areas to invest in, and these benefits will be concentrated in the contract of the Vault warehouse. The income in the contract can be exchanged through the governance token YFI. According to our YFI, it is circulated throughout YFI. The proportion of the amount can be extracted from the Vault contract to extract the revenue generated by all yearn contracts, so the essential value lies in: The right to withdraw the revenue in the Vault warehouse , that is, once we use YFI tokens to extract the revenue at the same time This YFI token was also destroyed.
For example, if there are 10,000 YFIs in circulation in the market, there are 10,000 USD in the asset pool, and an individual holds 1,000 YFI tokens. When withdrawing, 1,000 YFI tokens are destroyed and 1,000 USD is withdrawn.
The second role is the governance part, because yearn has many governance products, and the product will have some exchange rates and other parameters. If you want to make adjustments, you have to vote through the YFI token to govern the agreement .
The most interesting thing is that the entire process of acquiring YFI tokens will greatly increase our rate of return.
Because the yCRV token itself has Curve transaction fees and yearn investment income , the rate of return may be about 10% (the rate of return of the original yearn agreement), and then depositing yCRV in the YFI contract will get YFI’s proxy At the same time, because YFI has a relatively small amount of tokens , the price will rise faster. So if you count YFI’s tokens, the rate of return will be higher (YFI itself may provide an annualized rate of 400%-2000%), depending on the price of the token.
Therefore, the return rate of yCRV itself plus the rise of YFI tokens leads to a very high overall return rate, which leads to more people following the above process: deposit the tokens into the yearn agreement, and then deposit into the flow of Curve By depositing the produced tokens into the smart contract of YFI stake, more people will generate yCRV, and more yCRV will mine more YFI, which forms such a positive feedback .
As the price of YFI tokens continues to grow, the locked-in dollar value is also more. YFI has three asset pools, each with an upper limit of 10,000, and the total circulation limit is 30,000. Most of them have been Digged out through liquidity.
The advantages and risks of YFI?
Generating token path from the point of view, YFI tokens generated only through one way, i.e., by providing liquidity and this token as Staking (mortgage interest) is generated, so the only way that you put your stable credits YFI can only be generated by depositing it (not considering secondary market purchase for the time being).
Including the founder himself, there are no tokens, so the initial supply is actually 0 .
Therefore, the advantages of YFI can be attributed to the initial supply of 0 and can only be obtained through liquidity mining. This positioning makes it easier to gain community recognition, and fair distribution makes YFI a bargaining chip for community control.
This is its advantage, but at present, its risks are also quite high. The main risks are:
The process of obtaining YFI has undergone many smart contract conversions, depositing USDC into the yearn contract through USDC, depositing USDC into the circulation pool of Curve, and depositing yCRV into the Staking contract. The whole process has gone through three contracts, as long as there is Whatever contract goes wrong, it will cause loss of our assets. Moreover, according to the official introduction, their contract has not undergone security audits, which may involve relatively large technical security risks. This is the first risk: the security risk of the contract .
The second is about the issuance of tokens. At present, there are only three liquidity pools, each of which is 10,000, and the total is 30,000. YFI can only be generated through liquidity mining, but how many tokens are not currently available An upper limit, so the second risk: uncertainty of the total issuance .
The third risk is that you, as a liquidity provider, must be alert to the risk of impermanent loss of tokens . In other words, if you use 10ETH and 3000DAI to provide liquidity for this trading pair, if the price of eth fluctuates sharply, your standard assets may become 5ETH and 6000DAI. So because the focus of this chapter is on YFI, the principle behind impermanence loss can also be discussed as a separate article in the future.
The fourth risk is whether the current DeFi field is overheated , because the current methods of liquid mining are to deposit stablecoins or some other tokens to generate our governance tokens. Once this craze passes, provide liquidity If the number of sexes is not so large, or if the price of the token drops, whether our current price can be maintained, this is a relatively big question. Because by that time, the income of yearn products will decrease, so when YFI tokens are exchanged, the value of the exchanged assets may not be as much as we expected.
Summary and digressions about YFII
This is an introduction to YFI farmming in the YFI community
From this picture, we can find the secret behind the surge in APY (annualized income), Yeild Farmers is attracted by yCurve’s super high APY. They definitely want to get the full income. So what will they do? They dug yCurve and pledged to get YFI. Later, they found that depositing in the Balancer pool can get more YFI. They want to join, but most of this time there is no YFI.
Therefore, YFI Farmers brought yCurve assets to join liquidity.
This is the key. Since YFI/yCurve is 2%/98% (Balancer can specify the ratio of different tokens when creating a liquidity pool, which is different from uniswap, which limits the fixed 50% and 50% between two trading pairs). You will feel transaction friction and loss. Injecting liquidity into the pool is equivalent to buying YFI with yCurve. In short, when a new YFI fammer joins this pool, he deposits in yCurve, it is like 2% of it is used to buy YFI.
98% of the Balancer pool is the secret of YFI’s success. It leads to a positive feedback loop. More capital stock raises YFI price, higher YFI price means higher APY, higher APY attracts more people to join the game of yield farmming, and so on.
Andre, the founder of the YFI project, created this project almost by himself. After building the project, Andre chose to hand over the project to the community for governance; moreover, the total amount of YFI tokens for the project is limited to 30,000, no team share, no Pre-mining, there is no public offering, and even the founder himself has no token rewards.
With the blessing of the selling points of “DeFi boom + liquid mining + innovative product mechanism + blockchain spirit + extremely small token circulation” , the currency price took off.
And because the total amount of YFI is fixed at 30,000, it is not enough for players who are keen on mining. In addition, if there is no mining, a large amount of funds will be withdrawn from the pool, which may have an adverse effect on YFI.
At this time, some community members proposed an additional issuance plan, changing the total amount of 30,000 to 60,000, and at the same time imitating the Bitcoin halving mechanism, halving every week. This proposal is called Proposal 8.
However, Proposal No. 8 received a support rate of over 80%, but it failed because the total vote rate did not meet the minimum requirement of 33%. It can be seen from the voting results that the large currency holders did not participate in the voting at all (the top 100 accounts control 80% of YFI tokens).
This actually reflects the role of YFI as a governance token: it can pledge voting to determine the development direction of the project.
Regarding the fork, the reason behind it lies in the conflict of interests between the new and old miners. Earlier miners obtained a lot of cheap chips through mining. If additional issuance, it means that the value of the tokens in their hands will shrink, and they will naturally not agree. Then the miners who enter the market are not satisfied with the number of tokens they have dug, or they are unwilling to control the direction of the project by the giant whale, so they want to issue more to gain more chips and voice.
Although YFII has joined, YFI has not stopped its progress. Since August, YFI has been making new moves. For example, through the YIP 33 proposal, it agreed to add the first mortgage asset LINK for the v2 commissioned yVaults. For example, the recently announced decentralized insurance service yinsure.finance, etc. Active explorations in different fields have shown us more possibilities for YFI.
Source link: mp.weixin.qq.com
