YAM Finance Review

There is a well-known quote that says, “what comes easy, goes away even easier”. That was the very case with Yam Finance, which went from the hottest DeFi project in 2020 to a big collapse in a matter of just 48 hours.

However, after being declared dead by most people in the DeFi scene, Yam managed to resurge from the ashes. With new upgrades and a more cautious road map, the plan is to show the world that the project is still worth attention. 

What Is Yam Finance?

Built as a monetary experiment, Yam Finance had as a primary concept to combine different innovations in the DeFi scene to create a unique platform. These innovations included several aspects of other protocols, such as:

  • An elastic supply to seek eventual price stability (similar to Ampleforth).
  • A fair distribution mechanism inspired by Yearn Finance. 
  • A model of fully on-chain governance to decentralize control since the grassroots.
  • A governable treasury to support stability.

The YAM Token

Their native token, called YAM, was designed to react to market conditions by expanding/contracting its supply. The target used as a model was 1 USD per YAM. 

It’s not hard to see that Yam Finance’s mechanism was inspired by Ampleforth. However, there are some main differences. Instead of going full Ampleforth mode, Yam designed a different approach, using a part of each supply expansion to buy YCRV (high-yield stablecoin). 

The plan was to lock all these YCRV funds into the Yam’s treasury. For governance purposes, YAM holders would vote to decide how these funds should be used. It includes several aspects, such as structural/technical development in the platform, changes to the protocol, etc.

The Launch

After only 10 days of developing, Yam Finance was launched on August 11, 2020. The protocol was launched with a total supply of 5 million YAM and a rebase period of 12 hours (in this case, 8 am and 8 pm UTC). 

Here the plan started to reveal some defects. Instead of allocating a share of YAM tokens for the founders, team, and investors, the whole YAM supply was distributed in a widespread fashion. 

With no pre-mining and no founders share, YAM distribution started based out at simple equal opportunity for anyone participating in their liquidity mining program. The initial supply of YAM was distributed across 8 supported pools: COMP, LINK, LEND, MKR, SNX, WETH, ETH/AMPL, and YFI. 

Once the token was launched, the money started pouring into the network. However, despite the financial skyrocket, founders noted that no formal audits had been conducted on the protocol before the launch.

The Boom

Yam finance Exchange

In less than 24 hours after the launch, Yam Finance reached an astonishing number of almost $600 million worth of crypto assets in locked value. This fact just attracted more and more yield farmers, which gave even more momentum to their hype train. However, this train was about to get derailed- they simply did not know yet. 

Expand your knowledge: Learn everything about DeFi in 2020.

As no formal audit process was done before the launch, active and loyal members took the hold of the situation and started to audit contracts by themselves. 

The staking contract was found to be clear, showing no issues or irregularities. Given that no huge red flags were found, members were satisfied, and the case was rest- at least temporarily. 

The Beginning of the End

Still, on August 11, the community thought it would be a good idea to have a second distribution wave to incentivize a YAM-YCRV Uniswap pool. The goal was to use this pool to provide liquidity for rebase operations to purchase YCRV for the treasury. 

They also needed the Uniswap price oracle to provide input for necessary calculations, so the decision was accepted by the community right away. At this time, YAM reached its peak of $167 per token, and the network was approaching $0.5B in locked value (despite the high ETH gas prices).

The next day, August 12, would be Yam’s doomsday. At 6 pm of this very day, only hours after the network reached its pinnacle, a critical bug was discovered, leading to the ultimate downfall of the project.

Crumbling Apart

The bug affected the rebase mechanism directly, which means it would mint far more YAM than intended. As the governance model used within Yam’s community was not able to address the problem quickly by achieving a quorum, it meant no governance action would be possible.

This fact fell like a hydrogen bomb on the community’s lap, given that the treasury now would be locked up forever. As a reaction to this situation, a governance proposal was created urgently to address the issue. The proposal was to make a change in the rebase mechanism, which needed to be done before 8 am on August 13. 

The proposal needed nothing less than 160k votes to be approved. In a rapid effort, the Yam community got together and started to pour YAMs into the network. Meanwhile, liquidity providers were asked to withdraw all their funds from the YAM-YCRV pool, to avoid losing their YCRV tokens.

After a huge effort of the community, the proposal reached the required number of votes just one hour before the second rebase. However, it was too late, as once the proposal was submitted, another bug was discovered, which blocked the execution of the proposal. 

After 8 am, the price of YAM started to collapse and reached less than one dollar in a matter of minutes. 

Conclusion

After a while, the Yam’s team presented a plan to the community, proposing the migration to the new 2.0 version in two consecutive steps. This time, the project would count on fully audited code, sponsored by a community effort. 

As the governance of the protocol is now impossible, the new version would survive on the Ethereum blockchain, relying on it heavily for maintenance. Currently, the project is still under observation and the date for the launch of YAM v3 (the “definitive” version) was not released yet.