The Yam yield farming frenzy that took DeFi by storm last week highlighted a number of elements that could have been improved with the launch.
A new offering called Ham aims to right the wrongs and improve on Yam with a truly community-driven project. There were several flaws with the Yam launch, but the ultimate reason was that it had to be rescued by whales.
This pretty much negates any progress made on the path to becoming a truly democratic and community-governed monetary system. A migration plan proposed late last week promised to reset the project to its original ethos in a two-phase approach involving burning original Yam tokens.
It would also mint Yam v2 tokens before a set deadline, carry out a full audit, and then migrate to Yam v3 tokens. The team posted a migration FAQ on Monday, August 17, though initial feedback was mixed.
Those against the migration assert that the distribution of Yam v1 is not as reliable as it was pre-vote. Meanwhile, those for the migration were hoping to regain any funds lost during the process.
Ham, a New Baconning?
Enter the Ham, a new monetary experiment building upon the Yam. The official blog post elaborates,
With HAM, we believe the incentives driving either decision for YAMs future are either selfish, unfair, or flawed in some form. We love the experiment that YAM began as, and it is unfortunate that it turned out the way it did. But we believe the best way for its goal to move forward is a fresh start through HAM.
— Ham.Money (@HamDotMoney) August 17, 2020
The team plans to dissect what happened with Yam and discuss it transparently while using the EIP (Ethereum Improvement Proposal), to be renamed to HIP. In doing so, it hopes to formalize changes, power discussions, and reach consensus among every participant.
Strong community support is reportedly the backbone of the project which aims to avoid the ‘closed-door’ approach that Yam took. The blog post highlighted three major flaws with the Yam launch and design.
The first was a flaw in the farming model as all pools were equally weighted. Some such as wETH were heavily diluted and unattractive whereas others were too rewarding, resulting in a rush to purchase the underlying asset. The surge in COMP prices at the time is evidence of this.
The second reason it states is that Yam’s farming schedule and liquidity mining design ‘nearly incentivized chaos’, meaning that the combination of early crypto staking and later Yam depositing raised issues when the protocol went south.
Due to the protocol’s sudden downfall, and the bug being especially harmful towards the YAM/yCRV pool, liquidity providers witnessed intense impermanent loss if they were caught in the pool during the second rebase.
Thirdly, it said that the governance mechanism was an ‘odd choice’ because it required exiting previous positions in order to participate. It added that exercising the rights of voters shouldn’t have any opportunity cost, or else governance would become inefficient and unreliable.
Ham has called on the same community that poured liquidity into Yam, promising them full transparency and democratic governance. As with most crypto governance models though, the whales usually have the last say, which means they’re not really so decentralized after all.
Despite its downfalls, it appears that yield farmers still have some confidence in Yam as TVL has reached $400 million, doubling since Friday.
TVL in @YamFinance has doubled since Friday currently sitting at $400m
— Jack Purdy (@jpurd17) August 17, 2020
There was very little else about Ham on its virgin twitter feed other than a post warning about possible impostors, adding that it hasn’t launched yet and is still waiting for the community.
Yearn to Launch New DeFi Insurance Incentives
The DeFi scene today shares some similarities to the pump and dumps of 2017/18 when various altcoins with very little substance surged. Yam was just one example of what could go wrong with unaudited smart contracts, and it won’t be the last project to befall this fate.
Yearn Finance is looking to add some protection to this largely wild west DeFi environment containing liquidity farming. The latest offering from the platform is a prototype for a new kind of tokenized insurance called Yinsure.Finance.
In a blog post on Monday, August 17, yEarn founder Andre Cronje laid out the new offerings and explained how a decentralized insurance mechanism can be constructed. There will be three components. The first will be Insurer Vaults for liquidity providers.
It will use yiUSDC, a stablecoin provided as liquidity to earn initiation and weekly fees from insurees. USDC can be deducted from the vault and paid out to the claimant upon successful claim approval. Secondly are Insured Vaults which hold the tokenized asset being insured.
Tether, for example, can be insured by providing USDT to the vault and generating yiUSDT. There is a 0.1% initiation fee on deposit and a deduction of 0.01% each week. Deposits and withdrawals can be made at any time with the amount in the vault being the amount insured.
The third offering will be a system that allows the insured to create a claim by staking their yiUSDT, called Claim Governance. Insurer liquidity providers can vote with their yiUSDC which, if approved, will be distributed to the liquidity providers while USDC is paid out to the insured. The post continued,
The design of this system allows any asset that has a financial primitive to be insured, be it a base asset such as DAI, or a composite asset such as aDAI or yDAI.
Incentives can be aligned through the approval process as rejected claims will result in the withdrawal of liquidity, a process that is detrimental to the entire platform.
The Ham proposal and latest offerings from Yearn are just two examples of the rapidly evolving world of DeFi today. Tomorrow will likely ‘yield’ some more.