A Guide to Yam Finance – A Yield Farming Protocol That Has Seen it All
The summer of 2020 has brought many DeFi protocols into the limelight. Some of them were vying for attention for the past few years. Others sprung from the moist soil of the decentralized finance boom overnight and went from being pound shop projects to million-dollar protocols in just a few days.
One of these sudden hits is Yam Finance, a yield farming protocol that has seen it all. Rising to unbelievable community support only to fall into disgrace and ridicule in the same week, Yam has had a love-hate relationship with investors.
Bouncing back from another failure, Yam Finance aims to steadily improve its image and regain its early days’ reputation when many saw in it a safe and better way to profit on the DeFi market.
In today’s guide to Yam Finance, we try to find out if Yam is worthy of yet another chance or at least deserving of an increase in its trust capital.
What is the Yam Protocol?
Yam Finance is a decentralized finance protocol running on Ethereum that aims to incentivize a worldwide network of crypto users to develop a digital asset that mirrors the U.S. Dollar price. To reach its purpose, it uses a crypto-asset called YAM.
According to its developers, Yam Finance is an “experimental protocol” launched in August 2020 to combine several features of the emerging DeFi market, including:
- Elastic supplies of tokens that support value stability
- Community-governed treasuries that provide platforms with balance and security
- On-chain governance leading to decentralized autonomous organizations (DAOs)
- Mechanisms that ensure the equitable distribution of tokens or other assets
The protocol’s native coin, YAM, should achieve elasticity in supply by design. Its goal is to maintain its value as close as possible to $1 per unit. After being released at zero value, it has been the community’s duty to determine its value and development.
YAM uses a rebasing mechanism to add funds to a treasury managed by the community members who can later use the funds through the Yam governance system to develop the protocol.
Who is behind Yam Finance?
Yam Protocol started as an “experiment in fair farming, governance, and elasticity” with the mission to make programmable money. The developers behind it include Brock and Trent Elmore, Clinton Dembry, Dan Elitzer, and Will Price.
All of these crypto enthusiasts have a history of building decentralized finance applications or taking part in blockchain-based projects. Brock and Trent Elmore also founded Topo Finance in 2019, a DeFi protocol providing a non-custodial smart contract that pools funds and automates capital allocation.
Banking on the DeFi boom, the founders created the Yam protocol to be completely under the community’s community’s ownership and control. On the paper, it sounded like a promising project. However, its early evolution was far beneath the expectations, and it almost failed on two occasions.
Let’s break down the Yam Finance timeline and see where things went wrong for this DeFi project!
YAM’s Initial Launch and Token Distribution
Yam Finance surfaced on the DeFi market on August 19, 2020. Without undergoing a formal audit and launching after just 10 days of development, Yam only issued a short warning to potential investors about the general risks of DeFi ventures.
On the same day, the Yam developers began distributing YAM tokens following the YFI method, which doesn’t involve pre-mining or rewarding the founders with shares.
At first, a total supply of 5 million YAM tokens was distributed across different liquidity pools, more exactly: COMP, LEND, LINK, MKR, SNX, WTH, YFI, and ETH/AMPL. The developers also announced at that moment that a future YAM/yCRV pool would also be deployed and enabled through a Uniswap price oracle.
The founders were planning to rebase the cap of 5 million YAM tokens every 12 hours,, with 10% of the rebased assets going into the treasury as reserves for future yCRV tokens.
The initial governance mechanism required at least 1% of the total supply of YAM to be deposited for a proposal to become eligible for submission. Additionally, the proposal would have to receive % of the total YAM supply to achieve quorum.
Early YAM Controversies and Protocol Bugs
After the launch, YAM enjoyed a great deal of attention and demand. Thousands of investors rushed in to deposit significant resources into the YAM token. In only six hours after the release, the token had already $170 million in total value locked (TVL). That figure tripled in the following 24 hours, and everyone seemed to have an insatiable craving for YAM.
One of the early supporters of the Yam protocol was Arthur Hayes, founder of BitMEX, who tweeted, “I’m a farmer now. Long live the #DeFi bull market.”
On the other side of the barricade, Erik Voorhees, founder of Shapeshift, warned that the hype around YAM was unjustified and that the protocol may be a scam in the old “pump and dump” crypto tradition.
The Yam founders didn’t even have the time to answer Voorhees as they discovered a bug in the protocol just a few hours after YAM had reached its all-time high (ATH) at $183.44.
The bug enabled excessive minting of YAM tokens despite its coded parity with $1. As a result, the on-chain governance became impossible to achieve as proposals could never meet the 4% quorum required to pass it.
The YAM Community’s Cry for Help
The discovery of the bug meant that the members of the YAM community had only seven hours to save the funds in the Yam treasury, which at that moment contained 160,000 YAM tokens locked in a smart contract. Unfortunately, they quickly realized that the smart contract was faulty as well.
Almost instantly, YAM’s price plummeted from $183 to less than $0.8. The treasury lost $750,000 and $500 million worth of YAM tokens, which prompted the community to cry for help.
The Big YAM Migration Plan
The YAM community members decided that the project is a failure alas,, not a complete one by uniting their efforts. They agreed to let it enter a coma sort during which they would migrate all the existing tokens to a new protocol based on a more secure and functioning smart contract.
As part of the migration plan, the YAM holders were asked to burn their tokens from the first version (V1) of the protocol and mint new tokens on the new smart contract (V2). By employing off-chain signature-based voting, the new protocol would officially re-launch by deploying an audited V3 contract.
The community moved quickly, and the YAMv1 to YAMv2 migration was complete on August 22. The result also implied the updating of the first version of the YAM token to the YAM2 version.
The final transition to the YAMv3 version of the token took place on September 18, 2020, and witnessed a revived interest in the Yam Finance protocol.
Ever since,, Yam has constantly updated its roadmap to increase credibility, the hype around the protocol didn’t match the August gold rush. The proposed addition of a Guardian that would allow founders to cancel potentially malicious proposals from the community managed to build more trust in the project.
Most recently, Yam teamed up with UMA to create a new product suite, Degenerative Finance. Building on UMA’s gas futures token, uGAS, Yam Finance will be able to address the Ethereum gas price volatility problem by enabling users and providers of gas to lock in their costs or revenue.
How Does YAM Work?
Yam Finance works to reach its intended purpose, which is to maintain price stability with the USD. The protocol achieves its goal by changing the supply of YAM tokens available on the market every 12 hours to reflect the coin’s demand. If demand is high, the price will be a bit over $1. At that point, the protocol will automatically add more tokens to the circulating supply.
On the other hand, when the YAM price drops below $0.95, the protocol will burn tokens to help the price adjust as close as possible to $1 again. It is worth noting that these regular adjustments affect all the token holders proportionately.
The primary target per YAM is 1 yUSD, which is Yearn Finance’s stablecoin intended to maximize yield when deposited into its protocol.
How Many Yam Tokens Are There?
Despite its migration, Yam still features three different tokens on the market.
Of course, the primary token is YAMv3, which is the latest version of the YAM token. At the time of this writing, YAMv3 was trading at $1.22 per unit. There were no less than 4.6 million tokens in circulation out of a total supply of 4,816,256 YAM.
The intermediary version of the YAM token, the YAMv2, was trading at $5.62 per unit. It had a circulating supply of over 3.7 million tokens, identical to the total supply. This token has no rebasing function, so it cannot maintain a specific price. Holders use it to vote on decisions regarding the protocol’s development.
The first version of the YAM token, the YAMv1, had a market capitalization of $31,709,880 at this writing time. One token was trading at $1.10, and there were over 28 million tokens in circulation out of a total supply of over 32 million units.
Users can earn YAM by providing liquidity to the yUSD/YAM Uniswap pool. You can purchase YAM tokens at popular crypto exchanges, such as Uniswap, Sushiswap, and 1Inch.
The Bottom Line
Yam Finance is the perfect example of a half-baked protocol that came with the DeFi craze of 2020. While the intentions behind it were good, the result was quite far from its potential and expectations. The lack of an audit and the faulty smart contracts were two colossal blows that stopped Yam in its progress and most likely stole its chance to become a powerhouse of the DeFi sector.
At the moment, Yam is slowly but steadily picking up the pieces and moving on. The support and frenzy behind the project are considerably smaller than in its early beginnings. Nevertheless, with new partnerships and more community backing, Yam Finance should regain its promising status.