An article to understand the YFI model of the yearn governance token and its value as an automatic market maker

Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom), author: Zhang Gaijuan, published with authorization.

Chain News ChainNews (ID: chainnewscom)roll out, author: Zhang Gaijuan, published with authorization.

On July 18, the on-chain income aggregator yearn (formerly known as iearn)

roll out

• The governance token YFI is distributed entirely through liquidity mining, without pre-mining or pre-sale. This new type of governance mechanism has injected new vitality into the already popular DeFi field.

• first level title

• Yearn Governance Token Features and Supply

• YFI has the following characteristics:

• yearn emphasizes that YFI is completely worthless (financial value is 0), but can be used to change the mechanism, fees and rules of all ecosystem development projects;

1. No pre-mining mechanism;

2. There will be no pre-sale or auction;

3. not obtainable by purchase;

4. To earn YFI, you need to provide liquidity to one of the following platforms, so that you can get a certain amount of YFI every day. These platforms are:

5. yearn.finance, aggregate income agreement;

6. ytrade.finance , a ytrade.finance that allows leveraged trading of stablecoins, not yet released;

leverage.finance, a platform that supports trading DAI with 5x leverage using USDC;

yswap.exchange, a stable automated market maker;

image description

Source: Coingecko

YFI information, source: EtherscanThe price of YFI on Coingecko is $1443 (6.04ETH), which is more than 40 times higher than that at the time of publication ($34).：

image description
Source: Coingecko
YFI will allow holders to make the following
agreement decision
1. Add a new lender;
2. Repeal the current lender;

4. Change the on-chain weight of the lender percentage (to compensate for other rewards, such as COMP);income5. Allocate a percentage of the protocol yield to fund the reward pool (up to 3.5% of interest earned);

6. If distributed rewards are enabled, YFI will also allow holders to claim their share from the reward pool.
Available in the yearn.finance ecosystem
income
Very diverse, including but not limited to:
1. yearn.finance interest;
2. Obtain COMP from Compound;
3. Obtain CRV from curve.fi;
4. curve.fi/y transaction fee share;

5. ytrade.finance leveraged trading fees and liquidation allowances;

6. yswap.exchange basic system fee;

7. iliquidate.finance liquidation allowance;

1. 8. Unallocated Interest or Fees.

2. These fees will be collected on a daily or weekly basis and can be requested by the governance contract. Once declared, it will be distributed to the "vault" contract. The vault contract credits the rewards to aDAI (Aave’s interest-bearing DAI token) via 1split.eth (1inch.exchange’s on-chain Dex) before sending those funds to the rewards contract (0xcc9EFea3ac5Df6AD6A656235Ef955fBfEF65B862).

3. At present, yearn has launched its reward distribution system, and last week's dividend was more than 54,000 US dollars. You can earn platform fees and other benefits by meeting the following three conditions:

Voted on proposals in the ecosystem;

Pledge YFI.

first level title

The value of yearn's automated market maker platform

secondary title

1. Simplify the current complex mechanism of liquidity mining

1. A few days before the release of YFI, Yearn founder Andre Cronje also released a product called "Stable AMM" (yswap.exchange), which is dedicated to solving the complexity of the current AMM protocol and the inability to perceive liquidity mining tokens and needs Provide pain points such as at least two tokens.

2. In the DeFi field, Synthetix, a synthetic asset issuance platform, was the first to create an incentive mechanism aimed at incentivizing sETH/ETH liquidity pools and rewarding early participants who provided liquidity with SNX tokens.

3. Curve, the automated market maker platform, then provided a new design method to increase the yield of liquidity mining, that is, to become a market maker by injecting ETH and DAI into Curve to obtain the commission share in the trading pool.

4. At this time, the methods to obtain income in DeFi are:

Provide liquidity (inject assets) to uniswap to obtain transaction fees;

Obtain SNX by providing liquidity to the sETH/ETH pool;

Become a market maker by injecting USDT and DAI into Curve to obtain transaction fee share in the transaction pool;

Become a liquidity provider of Aave, Compound, Fulcrum or DyDx to obtain loan income.

The yearn V1 version was originally used as a lending LP, and moved positions in the fund pool to help the party that lent funds obtain higher returns.

1. Later, yearn assisted Curve in launching the flow pool y.curve.fi. When users trade on y.curve.fi, they are actually trading yTokens (such as yDAI, yUSDT, etc.). However, when yToken is converted, the liquidity pool will automatically deposit or withdraw the underlying token assets.

2. Subsequently, Synthetix launched an incentive program designed to reward Curve's sUSD liquidity providers with SNX. The plan was made possible with the help of yearn founder Andre Cronje. The way to participate is to recharge in the Pool function of yearn first. After obtaining Curve's "sUSD/y.curve.fi" liquidity token, visit the Synthetix website to pledge to get SNX rewards.

3. Incentivized liquidity mining wars are imminent. Compound issued the governance token COMP, which quickly set off a boom in liquidity mining. Immediately afterwards, Balancer released BAL, mStable released MTA, Fulcrum released bZx, and Curve will soon launch CRV tokens with an incentive mechanism.

4. So far, the method of obtaining income in the DeFi field has become more complicated, mainly in the following ways:

Deposit Dai into Compound, get cDai, and deposit cDai into Balancer. In this way, not only can you earn COMP on Compound based on Dai, but you can also earn BAL based on cDAI, and you can also get the interest of lending DAI and the transaction fee share of the Balancer pool, which can be said to serve multiple purposes.

Deposit Dai into mStable in exchange for stable currency mUSD, and then deposit mUSD into the Balancer fund pool. Users can not only get the interest of lending Dai, but also get BAL rewards and transaction fee sharing in the Balancer pool.

Mint DAI by depositing USDC to Maker, then repeat the first three options.

However, the above strategy is based on COMP, BAL, MTA, SNX, CRV and is closely related to the price of these tokens. This also means that these strategies depend on oracle. However, as of now, there are no oracles for these types of tokens, unless the Uniswap pool or Balancer pool is used as an index.Currently, liquidity mining has become very complicated. Yearn realized that instead of picking from these already complex options, a new solution could be provided to simplify this complex mechanism.。

secondary title

1. 2. The current AMM protocol cannot perceive liquidity mining tokens

2. This new solution is

3. Revenue-aware AMM

4. We can start by looking at a basic example. BAT holders have the following options:

Deposit BAT to Compound to earn interest and COMP;

Deposit BAT to Aave to earn interest;

Convert half of the BAT to ETH, and then deposit the ETH and the remaining BAT into Uniswap to earn transaction fees. However, liquidity providers also face arbitrage losses (Impermanent Loss, also known as temporary losses).

1. Convert half of the BAT to ETH, and then deposit the ETH and the remaining BAT into Balancer. Like option 3, the actual income that the liquidity provider can obtain is the accumulated transaction fee minus the arbitrage loss caused by the price difference. .

2. Of course, you can also deposit BAT to Compound to get cBAT, and then provide cBAT and ETH to Balancer to earn transaction fee share and BAL (minus arbitrage losses). On the surface, users thought they were accumulating COMP and cBAT interest.

3. But in fact, it is the Balancer fund pool that is earning COMP (not liquidity providers) and cBAT (which will be arbitraged, so technically speaking, liquidity providers are only earning transaction fees, not cBAT interest). Therefore, no matter how perfect this strategy looks, the final result is similar to BAT + ETH deposited into Balancer, that is, the income is only the transaction fee minus the arbitrage loss.

Based on the above examples, yearn identifies the following issues:

Fund pools (not LPs) will receive incentive tokens such as COMP, BAL, etc.

The pool of funds (not LPs) is earning token interest.

Half of the BAT must be exchanged for ETH, and the ETH and the remaining BAT must be injected into the fund pool.

In summary, the current automatic market maker (AMM) cannot meet the needs of liquidity providers at all, and yearn plans to create a new revenue-aware AMM.

Unlike the value of aToken and the underlying asset which is fixed at 1:1, the value of Compound tokens (cTokens) increases based on its supply index. What AMM needs to know is the underlying value of cTokens, not the value of cTokens.

The solution for cTokens also works for aTokens and solves the problem of compound interest.

So this change makes it possible to trade BAT/ETH while actually holding cBAT or aBAT.As mentioned above, a revenue-aware AMM can enable LPs to earn optimal interest while obtaining incentive tokens such as COMP.secondary title

3. The current AMM protocol needs to provide at least two tokens

Therefore, yearn proposed this new type of

Stablecoin Products

In this example, ETH is just a value transfer tool. This value transfer asset only needs to have the same value as itself. That is, when a user provides $1 of BAT to the new AMM, the AMM will create a transfer token worth $1. Similarly, when other users inject $1 of Dai, a $1 transfer token will also be created.online。

Reference link:

https://medium.com/iearn/yfi-df84573db81

https://medium.com/iearn/yield-farming-101-d983a27c542e

https://medium.com/iearn/yield-aware-amms-102-114e1ea37608

https://medium.com/iearn/yield-stable-coins-103-717b097213f1