Bitcoin in DeFi? A paper to understand the increase of 1,500 times the project YFI liquidity mining, management and risk

Original title: "BTC in YFI: DeFi?"

Original author: Notes of Blue Fox

YFI and AMPL are the two most popular encryption projects these days. Blue Fox Notes talked about AMPL the other day: One is the cryptocurrency that wants to be a better Bitcoin.AMPL: Alternative scarcity". Today we're talking about YFI, an encrypted token called bitcoin in DeFi. Both projects have attracted a lot of attention from the encryption community for their bold designs.

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What is YFI? & have spent

In short, YFI is the governance token of a loan aggregator agreement and human finance. It exploded the encryption community in just a week. At the time of Balancer, the price was $3. In less than a week, it peaked at more than $4,500. By that figure, it had gone up a crazy 1,500 times.

What is YFI, specifically? Why does it look a little complicated?

About four months ago Andre Cronje set up hastello. finance. Users can deposit stability COINS (USDT, USDC, TUSD, DAI) into yean. Finance protocol and obtain yToken accordingly. For example, users who deposit USDC and DAI can get yUSDC and yDAI, also known as yToken. YCRV can be obtained by storing stable currency in ypool of Curve and converting it into yToken, while YFI can be obtained by pledging yCRV. And YFI is the governance token of the yearn agreement.

There are four different tokens, USDT stability COINS for example: USDT, yUSDT, yCRV, and YFI. This may be an area where initial contacts can get confused. What exactly is YFI? What's it got to do with stabilizers, yToken, yCRV, yean, curve, balancer?

All related with its original tokens, distribution mechanism, YFI DeFi before with different tokens allocation mechanism, COMP, BAL and MTA in to provide liquidity before mining, have the participation of investment institutions and the team's digging, and YFI initially tokens, allocation is completely by liquidity mining, no team in advance to dig, no investment institutions share, this is the spirit of a highly encrypted tokens allocation mechanism. It is also destined to be more community attention, more legendary temperament.

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YFI's fluid mining & NBSP;

Why some people regard it as "Bitcoin in DeFi"? The core is to understand YFI's mining mechanism, while to understand YFI's mining mechanism, understanding yToken, yCRV token and three liquidity pools is the key.

yToken

Users can generate yToken with stabilizers, so what are the benefits of getting yToken? YToken stands for Yield Optimized Tokens. So how do you optimize returns? We know it's possible to get interest on savings by putting assets like USDC into Compound, Aave, and other loan agreements. But the interest rate varies from agreement to agreement.

So, there's room for optimization. Is it possible to deposit USDC, USDT and other stable currency into the protocol with the highest yield? By adjusting the storage of different protocols in time, the optimal revenue can be realized. In other words, the yearn protocol optimizes the stored proceeds with algorithms. In short, the current phase of the yearn agreement is a revenue optimizer for token storage.

yCRV

Curve There is a liquidity pool in yPool, in which stability COINS such as USDT, USDC, TUSD and DAI can be deposited. These stability COINS deposited in yPool will be converted into yToken and yCRV token can be obtained. Curve is the DEX, which focuses on trading stability COINS. See blue Fox's previous article, "Curve: A DEX whose performance contrasts sharply with its appearance level." That is, you can trade yToken (yUSDT, yDAI) over yPool.

As mentioned above, you can get yCRV when you deposit into yPool with yUSDT. So, what token is yCRV? The yCRV is similar to a set of yToken indexes (yUSDT, yUSDC, yTUSD, yDAI). Holding yCRV can obtain the storage interest of the stable currency and the cost of providing liquidity, which is the index of the stable currency in the yPool. If you pledge yCRV to participate in liquid mining, you can get YFI token.

To sum up, the core of the YFI acquisition was to provide AUM (agree-managed assets) to help trace the return of forever. The more stable COINS the user provides, the more value the Yean protocol can capture. So the yearn agreement will mine through YFI, enticing users to offer more stable currency assets.

In addition, YFI tokens themselves also need to realize price discovery and liquidity. YFI's price discovery and liquidity was realized through a scrip pool in Balancer. By providing liquidity to YFI-DAI and yFI-YCRV pools on Balancer, users achieve YFI price discovery and sufficient liquidity. As of the time of writing, the yFI-YCRV pool still has a liquidity of more than $100 million, even though it no longer rewards YFI. What is this concept? The liquidity of this pool alone is about the same as the overall liquidity of Uniswap, and accounts for about 40% of Balancer liquidity. (Total UNISwaP liquidity, which had previously been below $100 million, recently spiked to $136 million due to AMPL)

(YFI-YcrV Pool, Source: Balancer)

Based on the extent to which users contribute to the yearn agreement, YFI is evenly distributed among early users who provide mobility. The returns of these liquid mines at that time were amazing. According to APY calculation, yPOOL on Curve had a maximum return of over 1500% and a minimum return of over 500%. Balancer's Yfi-dai pool was even more spectacular, with a peak of 5000% and a minimum of over 3000%. Gov can reach more than 500 percent. Finally, there is a pledge reward. As long as the pledge exceeds 1000BPT and at least one community vote is taken, the YFI pledge offers a fee incentive of approximately 40% of the annualized proceeds (which fluctuate).

YFI's three liquid mines

As mentioned above, the way to obtain YFI is through liquid mining. It has a total of three fluid-based mining pools, namely ypool on Curve, YFI-DAI pool in Balancer and YFI-YCRV pool. Each of the three pools has allocated 10,000 YFIs, and all of them have ended now.

Early users who participate in YFI liquidity mining should first have stable currency assets such as USDT. Then deposit stability COINS such as USDT into Curve and trace down agreement to generate yToken (yUSDT, etc.); When yToken is deposited in CURVE's YPOOL, yCRV tokens can be obtained, and then YFI returns can be obtained by pledging yCRV. The remaining two pools also receive YFI rewards by providing liquidity for The YFI-DAI pool and YFI-YCRV in Balancer.

Like other DeFi governance tokens, token incentives can channel liquidity and grow its business. Prior to YFI's mine, its AUM (assets under management) was just $8 million. In less than a week, its AUM soared more than $400 million, up more than 50 times, through YFI's liquid mine. Even after YFI's current dig, its AUM still stands at $190 million, and its locked assets rank in DeFi rocketed from outside the top 20 to the top 10.

(An asset locked on YFI, Source: DEFIPULSE)

There's an interesting positive loop here. When users deposit yCRV tokens, they can get YFI tokens. As the yCRV grows, it can earn more interest income; More interest income would push up YFI prices. This will lead to greater value of YFI, and the increase of YFI price will make yCRV more profitable.

Currently, YFI has 3,911 users. The largest YFI whale has 915 YFIs, accounting for about 3% of the initial total supply. This distribution of tokens was completed over a period of more than a week, and the dispersion of tokens was greater than that of most initial projects.

(YFI's largest whale also has only about 3% of tokens, Source: Etherscan)

This is very rare in the encrypted community. Among them, Andre Cronje, the founder, did not allocate YFI tokens to himself and did not pre-dig. This is why many in the community see YFI as bitcoin in DeFi. All YFI distribution comes from mining, which is to provide liquidity. This makes YFI consistent with the interests of the community, with no founder incentives, no pre-excavation, and no investor involvement, and the fastest transition to community governance.

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YFI complete community governance & NBSP;

YFI is the only token on the ballot so far gone with the help of the yearn agreement. Because YFI distribution is generated by mining from the very beginning. Since YFI's first allocation of 30,000 tokens was completed, YFI has left all its governance to the community.

By the time Blue Fox notes were written, YFI had made a total of 28 proposals, among which 3 had been approved, 10 had not been approved, and 15 proposals were still in the process and had not yet been voted on. This happened in a short period of a week, and the community's enthusiasm for YFI governance was very high.

(YFI users voting on proposals, Source: DuneAnalytics)

(YFI community Vote on future rights issues, Source: Yearn Communities)

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The value of YFI & NBSP;

YFI is the governance token of the yearn agreement, and according to Andre Cronje, it is the governance token of the community, with little value and no hope that the authors will stay away. But YFI is a governance token, which means it can control the future direction of the yearn agreement, and it's not just Andre Cronje who will decide how YFI captures value, it's ultimately community governance.

The value of governance token mainly comes from its governance. One is the security value of governance: assets on the protocol can be protected against governance attacks. If the volume of the locked asset is large, this gives it value. In addition, the governance token has a potential revenue value: the agreement fee can be captured by voting. If forever yearn is successful and expands its operations further, YFI has a chance of capturing even greater deal value.

From this perspective, the ultimate value of YFI comes not only from the governance itself, but ultimately from the scalable scale of its business. Will community governance lead forever down a different path than the other DeFi projects? This alone is noteworthy, and it is one of the things that sets it apart from other DeFi projects.

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YFI risk & have spent

As YFI involves many intelligent contracts, it can obtain combinable income. For example, through its liquidity mining, YFI can not only obtain YFI, but also have the opportunity to obtain CRV, BAL, etc.

But there are also potential risks. It's gone down with no trace, curve, compound, Aave, dYdX, bZx, Balancer, Maker... It's all about the agreement. If the compound or Aave lending agreements go wrong, yToken will go wrong, too. If Curve protocol has problems, yCRV will also have problems. If the yCRV goes wrong, so does the YFI. There is a risk of layers of nesting.

Thus, YFI obtains high returns of composability, but also high risks of composability. See blue Fox Note's previous article, "Fluid Mining: Combinable Benefits and Risks."

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YFI MEME 

There are several memes that are very famous in the encrypted community. Besides BTC and ETH are two Kings of memes, other famous memes exist in the Chainlink and Dogecoin communities, and they promote the development of Chainlink and Dogecoin memes through various ways.

Due to its mobile mining distribution mechanism, YFI also began to have the first batch of MEME sparks in the encryption community, resulting in the "1YFI=1BTC" MEME, that is to say, YFI is "Bitcoin in DeFi".

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The future of YFI & NBSP;

And forever will surely be more than just an optimizer on stabilizing currency returns. It will also expand into trading, futures, clearing and more. As its governance token, YFI has potential governance value and captures the value of future extended protocol fees. As for how much can be captured, how it evolves, and how the community is governed, the Blue Fox notes keep an eye on it.

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