What The YAM Drama Can Tell Us About DE-FI

in HODL2 months ago

Hey Jess-FI

The DE-FI space is gaining so much traction of late, the need to find ways to earn money and protect yourself against inflation is driving users deeper into DE-FI. DE-FI is also creating the building blocks for future API's and connections between P2P capital and leveraging blockchain to get capital to where it is valued most and used most productively.

This is indeed the end goal for De-FI but the short term goal is basically use cases and yield farming. The De-FI space users tokens as a way to rehypothecate value and is essentially derivatives trading in some places, in other places it's using the increase in interest to reduce their liquidity pool and then reward users with new inflation.

A Ponzi scheme by nature, not all DE-FI is this shitty but I want to focus on the ones really walking the line, ones not doing anything productive with the capital injections.

Yam will be the first of many

YAM hit headlines this week as the pseudo-De-fi half meme coin yield farming project went viral. The YAM token has lost more than 90% of its market capitalisation within a few minutes as a "potential flaw" gets uncovered.

The market cap of YAM has plunged to $19.5 million at the time of writing from $475 million about one hour.

The price of YAM hit its low and traded at about $0.6 each, down from its peak of $120.


What is YAM?

So YAM as I understand it is a supply and demand DE-FI project that tries to peg itself as an algorithm stable coin. In stable coins like USDT and USDC coins are minted and burned as fiat is added to their liquidity pool to create a digital representation of that dollar.

First rebase was successful, so essentially a “stock split” happened and YAM holders that first bought yesterday multiplied their shares by 8.9x.

Over 509 million in Total Value Locked (TVL) in just 24 hours for YAM Finance!

YAM is a project using the concept “elastic cryptocurrency” that will expand its offering over time. Its initial $1 target per YAM was valued at $71.42 USD as of 5:07 pm Pacific Standard Time.

It is an experimental protocol that brings together two of the most important components of blockchain technology: the YCRV and the token. Once the Treasury starts to consider the growth potential of y-CRV, the future allocation of capital by its token holders can be controlled, as can the return it can generate.

As people invest in YAM more YAM is printed to try and keep the value as steady as possible, which means more money piling in means more YAM is printed and so a house of cards begins.

Untested unrestricted greed

YAM's ponzinomics and yield farming abilities with those who pile in early takes the concept of a Ponzi and supercharges it. YAM's model will surely be replicated by get rich quick schemes and pump dumps looking to prey on the de-fi space and its exciting opportunities.

As solid projects are trying to return a yield of 2-4%, greed will see investors try their luck further out the risk curve and even so far that it goes into a gambling spectrum.

YAM reminds us all that sometimes we need to put our breaks on this untested part of crypto and not let the promise of short term high yield gains get in the way of where we're going as an industry.


Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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Truth is that I'm still new to crypto so i could not really understand most of the things u wrote but i learnt something from the last three paragraphs of the post where greed will always push people into trying to gain so much in a short period of time and at the end of the day end up loosing. I've had a lot of regret from ponzi schemes and I'm no longer making such mistakes again.
I'm learning to work hard and i believe over time I'll do well

That's normally what scams do, they try to make it seem "complex" so you don't try to think about it and see through the rubbish. I believe in getting rich slow, that's what I promote and not just in money but in health, in relationships and in education. Take your damn time, learn, leverage time, its your best asset, use it wisely

When it sounds too good to be true, it usually is..

Lol My dad always says that, even about Bitcoin and I get that but I feel like Bitcoin is different

I agree. And I just finished reading an interesting article and found that I didn’t fully understand before what this yield farming really is.

It is not nothing. The coin that is farmed is real and is used for governance of the decentralized project, but it is helpful to think of it as an investment in a startup. Nobody will guarantee you that it will still exist a year from now.

Also DeFi is still a very new industry. So there are loads of things that can and will go wrong.

But I saw the code for the YAM smart contract was never audited and people still jumped into it, I'm not saying the designer of the contract was malicious but it was misused by someone, since yes a lot of people lost money but someone won big time on the trade.

I don't see how yield farming is a net positive for the ETH ecosystem, yes people are making money but its a zero sum game of moving capital around but not actually doing anything constructive with it

Oh I didn’t know that. That is exactly why you should consider this totals farming, like most other crypto projects, high risk investments.

Well, the idea was that users of the system would get the tokens and then would take part in the governance of the project. But because the token can be traded, people found ways to maximize their gain.

Decentralized governance is cool, but when the benefits of the token are too big then people will go for the gains rather than the governance.

You make such a great point there I was actually listening to a debate on that topic that anything that is about governance or utility on chain is better suited to have a lower unit price or it actually holds back the system

Not every crypto is meant to be a hard money asset like BTC, these more complex ones like ETH that’s virtual machines require more daily transactions to operate and playing thousands makes more sense just to use operations

Then like you say on the flip side if is just pumping you get people who are more focused on trading than using the utility and they overwhelm the system and supply and then actually detract from using the chains services


Also, there isn’t much point in several different kinds of gold. Because then we still don’t know how much gold A is work in terms of gold B.

But decentralized projects that are governed by the people that actually use it. That is a great idea and we can easily have millions of those, as long as they don’t try to be a better bitcoin.

I don't mind if there are two trying to do the same thing in a sector lets say with Oracles, BAND and Chainlink are trying to do that, so them competition brings down the price of the service, instead of one ruling the sector.

Bitcoin is so different from other projects, it's about anything other than its provable scarcity, I think most blockchains are trying to do too much, look at Eth its always pivoting trying to find something that will stick

Just a reader today. No comment.

Lol you're not a fan of DE-FI? I thought you love a good scam coin

Yes I love Scam. I love ICO. I love loosing money.
I have too much of them.

Lol well you love using SEK and that's a shitcoin

Today I did get a job -- paying btc. Thats nice!

Oh nice, is this the first time you getting paid in BTC? I still hoping to get my first BTC paying job, I do have a pitch coming soon for a crypto exchange here, hoping to get that job soon

Will write about how to avoid scam in a newspaper

That’s brilliant and do you ask to be paid in BTC or do they offer to pay you in BTC?