Monday, October 5, 2020

YAM and Rebasing Explained: ELI-5 [Text Only Version]


Original: YAM and Rebasing Explained: ELI-5

This post is simply text version of that ☝️post. May it be useful to you.

What is YAM? 

YAM is a decentralized cryptocurrency that uses a rebasing mechanism to raise funds for a treasury controlled by the community!

What is rebasing? 

YAM changes the balance of everyone’s wallets to try to reach a price of 1yUSD. This is called rebasing and it happens every 12 hours.

When YAM price is above 1.05 yUSD

the number of YAMs everywhere increase! (lowering the price)

When YAM price is below 0.95 yUSD

the number of YAMS everywhere decrease! (raising the price)

When YAM price is between 0.95 and 1.05  yUSD

no rebase happens

To calculate the change in supply in a rebase we need to determine how far from the peg the current price is: 

(Current price - target price) / Target Price = Deviation from Peg

For example

1. If current price is $10 and Target Price is $1, the deviation from the peg is (10-1)/1 = 9

  • To smooth this out, we divide this deviation by 10 rebase periods. This means if no other buys or sells occur, after 10 rebases, the price target will be met.

2. If the current supply is 5,000,000 then the change in supply will be 5,000,000 * (9/10) = 4,500,000

3. The new total supply would then be 5M + 4.5M = 9,500,000

How does rebasing raise funds for the treasury?

On every positive rebase the treasury mints 10% of the rebase amount and sells YAM to the YAM/yUSD Uniswap pool. The purchased yUSD is deposited into the YAM treasury, governed by tokenholders.

In the example on the previous page, 10% * 4,500,000 would be used to purchase yUSD to send to the treasury, while the other 4,050,000 is distributed to all tokenholders 

Why do we use yUSD as our reserve asset? 

Because yUSD is a stable asset with high yield! Using a stable asset (as opposed to ETH for example) allows the treasury to both maintain its value and grow consistently over time.

What does the treasury do? 

The treasury is controlled by YAM community and can do whatever governance decides. This could be investing in yield bearing assets or other cryptocurrencies, deploying liquidity into other protocols for fees or farming, creating new financial protocols that leverage YAM treasury liquidity and provide fees, and more!