IYO（Initial YFI/YFII-Mode Offering）
Author: Alan Tarjan, a bohemian programmer, who owns one YFI and 128 YFII. This article was issued with author authorization.
Translation by Alex Vane.
Short Story : If you feel too long to read
Here’s a direct conclusion.
1. An unexamined life is not worth living, while an unaudited contract is not worth participating. — — Socrates & Lucun
In the current YFI series, except for YFI itself, merely its only folk, YFII , has experienced professional audit by SECBIT Labs, who was allegedly to changed to a new name DYI. As we all know, early YFI itself was barely audited by the community. Other projects known as Y**I, have nothing to do with the original community of the YFI, without code audit, private key burn as well as multi-Sig, which have extremely high risk such as pre-mining and unlimited additional issuance at any time. It appears that someone has been cheated, please avoid participation.
2. YFI, and its folk YFII (DFI) brings not only a little increase of the price, but also a new story comparable to ICO, which perhaps we can call it IYO (initial YFI / YFII — Mode Offering).
3. Vision of YFII(DFI), YFI ?
Their first goal is to replace the CEX (Centralised Exchanges), you will be missing the train if you don’t fully understand it.
Long Story starts from here:
Uncountable Yields
Since the opening of liquidity mining on July 17, among the CoinGecko marked prices, YFI has risen from $34.53 to $12821, the highest price on Binance, which had doubled 371 times and exceeded the top, BTC.
Virtually all YFI are originally chips from miners’ liquid mining, which is different from high PoW mining costs of Bitcoin. Consequently, except for investment (Almost only gas fees, excluding contract risk. Principal loss, can be relatively ignored), each YFI token, if not considering gas fees and capital costs, looking back original, it is a free chip.
From 0 to $12000, if accord to the textbook algorithm, the divisor can’t be 0, where the yield can’t be figured out.
Why is this coin from the air able to TO DA MOON directly in a month, while Bitcoin almost gets twelve years to make it.
And most simply, if YFI /YFII (DFI)/YAM are all “air “ and “junk “, should we go short them?
I. Cause of inflation: Ponzinomics
The initial surge of YFI is not a single phenomenon that there is a high-speed surge of folks like YFII(DFI), YAM in the initial without exception.
For example, while YAM, the contract code problem led to a near-zero of price. After YFII (DFI) skyrocketing, falling prices came, but there is no doubt that they have skyrocketed, we wonder what is the cause behind it?
Is the reason linked to the total only 30,000/40,000? Or a hot Defi concept? Or because it is the magic of liquid mining? Are their MEME or expressions more attractive? Are their community members too good? or due to Andre just released the insurance product the day before?
Oh, I mean, all the above are wrong.
The Ponzinomic, the Pang-style game, in the design of token distribution decided the initial surge, which I treat here as a neutral word, instead of completely derogatory. Economics prefers to dividing the school, such as Chicago school, Austrian school，etc. I’ll just translate Ponzinomic into Ponzi economics.
And let’s review the distribution of YFI tokens :
- 30,000 tokens, YFI completed distribution with 10 days.
2. Separated into three pools, quota of 10,000 in each Pool, in seven days
3. Pool 1 got online on July 17, charging the stable currency and distributing it in proportion to the balance of the stable currency pledge in the whole (that is a kind of PoS)
4. Pool 2 got online on July 18 with DAI( stable currency), distributed as a proportion of the liquidity provided to the pool.
5. Pool 3 got online on July 19 with yCRV( stable currency), distributed as a proportion of the liquidity provided to the pool.
What is the key to the initial surge?
Pool 1 has no mystery but in Pool 2 and Pool 3, if there is no problem in contracts.
What is a liquidity pool? That means you have to provide liquidity to the pool.
How to provide liquidity? Pledge your DAI /yCRV and YFI on DEX of Balancer.
Sorry?
Aren’t you charge DAI /yCRV? If I don’t have YFI?
The answer is automatically buying.
When you do mortgage with a proportion of 98:2 in liquidity pool on Balancer, if you have nothing else but DAI and put Single Asset as the only selection, it will automatically buy you 2% of the YFI.
Well, obviously, you come into mining, firstly buy 2% of the principal YFI; You come into mining, firstly buy 2% of the principal YFI; You come into mining, firstly buy 2% of the principal YFI. Are we good?
Everyone who thinks he is earning profits with no risk of the capital, buys 2% YFI, and everyone come into the field to mine, which equals to raising the price once.
At peak of YFI developing, there was nearly $500 million TVL, if half were in Pool 2 and Pool 3, thus it would be equivalent to “liquid mining” from Pool2 and Pool3, which should provide $5 million(5*0.5*0.02=0.05).
Yes, it’s a Ponzi Game here.
Keep it in mind, we will come back later.
With a bit FOMO mood as well as a DeFi concept, plus a total of 30,000 in circulation, there is nothing strange that the price can be $4500 on July 25.
4500*30000, a $100 million valuation, it’s not over-estimated for the star.
II. Cause of Surge: Level of concentration of chips
Common sense is that the YFII start-up mode (Ponzinomic) is a double-edged sword that will achieve it and destroy it.
Where is the bug? Liquidity withdrawal happened at the end of liquidity mining on 27 July. In the 98:2 liquidity pool, most users tend to sell 2% YFI. If the currency price does not have a solid value as well as consensus, it will face the risk of collapse.
As a matter of fact, YFI went through it.
25 July 2020, YFI valued $4,505, top stage
26 July 2020, YFI valued $2,483, down nearly half
27 July 2020, YFI valued $2,510, stable
28 July 2020, YFI valued $2120 and continue to fall
Why it went up again?
Because of the LINK.
Pardon?
Resembling LINK, the chip concentration of YFI is very high.
How do we understand high-chip-concentration?
I own an ancestral vase, and then here comes an idea with vase coins, which means the ownership of the vase can be divided into 100 coins, but only sent to the market 2 coins, while I keep the remaining.
If you go long, I’ll give you the remaining 98 to short.
If you short, I buy a little, because the circulation is too small, the process of buying will gradually pull the price, as you are also blown up => the price, you go back to do long => I will throw the remaining 98 to you.
The advantage of high chip concentration and high lockout is that the pull of price is extremely easy, but there are also hidden dangers like Super Mario.
Yes, YFI has such a problem with a total of fewer than 5000 addresses. Among the top 100 addresses, they occupied 87.65% of the chips, and the first ten addresses almost occupied more than 70% of the chips.
Take back the previous example, LINK. Why not take a look at addresses of the LINK, the top 100 holders have more than 83.93% tokens. Combined with the “vase coin” example, is it better to understand reasons why LINK recent soars into the top five market value?
It looks good, but it is not a fair game. What if it throws the remaining “vase coins” on you?
The insurance product just had been released the day before, probably news to raise the price.
Beyond the price, IYO is the real beginning.
Since the YIP-8 proposal has folk YFII (DFI), the various reference to YFI have emerged in endless, some of which have been to smash, as well as simply fraud, but it also comes tenacious developing projects like YFII (DFI), keeping stable token price, with an independent and innovative business model, where the community is growing larger and larger.
Whether it will succeed or not, there is no doubt that the YFI story and its token distribution model, can be replicated.
And let’s look back at the core of the YFI model:
1. Pool1： the traditional candy pool, it obtains profits by mining the stable coins, without risk unless it exists risk in the contract (there have been cases of sneaking contracts to run away directly. If guys have no contract code audit ability, please be careful to participate, or directly involved in vaults similar to YFII (DFI))
2. Pool2&3：Ponzinomic mode has the risk of direct leading principal return to zero with impermanent loss (98:2 pool is fine, except for 50:50 pool on Uniswap )
Here is an explanation of the loss of impermanence. AMA, decentralization of the exchange marketing mechanism, will not be introduced here. Let’s directly come to the conclusion:
Q: what is impermanent loss?
A: While the price raises, nobody would buy your expensive coins;
If the token price has fallen or returned to zero, it turns into commemorative coins.
Therefore,” impermanence loss “is also nicknamed” gratis “loss.
Quantitative analysis of “loss of impermanence “:
As can be seen in the diagram, the 98/2 mobile pool on Balancer:
(Unstable coins which provide liquidity, for example, YFII)
Before the 90% decline of YFII price, the losses of impermanence are modest.
If the YFII price goes down 95%, it will have a 20% loss of impermanence.
If the YFII price falls 95% to 100%, users may lose their principal.
This is the story of a YFFFFI fork that later appeared after YFII (DFI, the only growing and healthy fork). YFFFFI is a coin issued by an anonymous team without community consensus. The price drop was completely unsupported by anyone, which may directly plunge into a death spiral and leads to the loss of a large number of Pool 2 miners directly.
And look at the 50：50 pool on Uniswap, which is more dramatic:
If YFII falls 70%, the loss of impermanence should be about 20%.
If YFII falls 80%, impermanence lost should be about 25% of it
If YFII falls 90%, the principal loss should be about 50%.
If YFII falls 95%, the principal loss should be about 70%.
If YFII falls 95% to 100%, the principal should no longer exist.
As a result, we can say that the 50:50 pool on Uniswap is a big casino with the principal for gambling, while it has nothing to do with the seemingly secure income of mining.
This story also has a realistic bankruptcy example, YAM, whose code was unaudited. When it failed to rebalance, the price direct went into a death spiral. A friend of mine (Oh, Really not me) stepped on the thunder in YAM Pool 2, who lost almost 1 million dollars.
I spend too many words to explain the loss of impermanence, but for everyone’s mining safety, I believe it is necessary. According to the speculation in this paper, liquidity mining will continue to be all the rage. Be careful! Firstly, you should choose the audited projects. Secondly, only safe Pool1 is the best. If you do not have these capabilities, you can choose YFII (DFI) vaults, at least there will be a second audit of community developers.
Back to the point, the biggest contribution of YFI series so far is not a rise in prices, but a way of showing cold-start liquidity and fair opportunities.
Reviewing YFI /YFII (DFI)/YAM and other projects, whether successful or not, they all have such characteristics:
The project no longer needs private equity.
The project no longer requires institutional investors.
The project is not pre-mining.
There is no inflation in the project.
Even the project token itself did not issue a private key.
The project does not require the exchange to get a cold start to get millions of dollars valuation.
This never occurred before YFI and its first folk YFII (DFI), even if DeFi had been popular for so long.
The big shot, Bit Silly on Bihu and Super-Bitcoin on Weibo, clearly has seen the trend, and here are two excerpts:
No pre-mining, no crowdfunding and no team reward means failure of the media publicity, capital advantage of token fund and also a failure for currencies going on exchange, which means everyone is in the same starting line, with the same information advantage, as well as the same capital advantage. However, DeFi has overturned instantly the way we played in the past seven years
— — @ Super King eats roast goose
There exist guys who look down on DeFi, especially some exchanges and investors, with ignorance of a future that DeFi is changing the finance infrastructures of tokens, avoiding quietly exchanges and private investors. At present, with the infrastructure of public chains and DeFi core agreements, the project side can bypass traditional investors and exchanges. Community, fund-raising, as well as getting on dex, is all the way, which avoids the risk for the project side of getting lost. Now investors in the exchange are basically on the last level of the food chain. Private equity is also skipped. Capital ecology in the industry is being deconstructed by DeFi technological developments and things are changing. At the same time, new opportunities are emerging.
— — @ Bit Silly
YFI and YFII (DFI) have proved that the initial liquidity of a project can be done without the old infrastructure. I think in the coming future, as long as the bull market continues, there must be a lot of similar coins which does the same thing. I named them IYO (Initial YFI/ YFII — Mode Offering)
The two pools of Ponzinomic are only one of many ways to start the project, regardless of good or bad. YFI and YFII (DFI) do a good job, which lands the value indeed.
When it was a zero-sum game, retail investors get lost originally on CEX, while it becomes now just a miner who provides Pool 2 with liquidity, but at least it was far fairer. The simplest point is that where retail investors used to have no opportunity to participate in private equity? But now it’s okay.
Here we continue to study the YFI model. What’s the difference if the initial YFI / YFII-Mode IYO project starts with this model? Key-man (author’s 2020 edition) has recently considered three questions:
1. Must project types be limited to DeFi?
This is not limited, which is just a way to start and a token that happens to DEX trading and initializing liquidity. The kind of tokens in specific has nothing to do with DeFi.
Of course, because it starts on DEX, labeling DeFi, as well as rubbing the heat.
2. Must there have been a risk-free Pool 1?
This question is very interesting. Since everyone knows that the essence is Pool 2, why there must have a risk-free Pool 1?
I think it’s still necessary. On the one hand, Pool 1 can be treated as a relative risk-free income, while a project with only a Pool 2 is irresponsible to the holder, indicating that the project side wants to reshuffle and run away. The probability of falling directly into the death spiral is very high, after losing community trust.
On the other hand, Pool 1 resembles a scarecrow, keeping a competitive relationship with Pool 2, which is excellent for the promotion of the whole TVL. If both pools distribute 1,000 coins a day, Pool 1 has 100 million TVL, while Pool2 has only 5 million, A rational man, then, will probably take a chance in Pool 2. After all, odds are high, which is worth taking a position (that’s what happened to YAM smash in the night, APR of Pool 2 even exceeded tens of thousands once), Anyway, there should be a balance between the two pools.
It can be expressed in the following formula:
Pool 2 income = risk-free income (Pool 1 income)+ risk premium.
When the risk premium is high enough, the TVL of the Pool 1 can promote the Pool2.
3. Then, can Pool1 have anything else?
Yes, for example, in YAM designing, mining stable coin used by YFII (DFI)/ YFI in Pool a1 is replaced by eight DeFi related tokens, and the Pool 1 period is changed from two months of YFII(DFI) to a week, while the Pool 2 is halved as in YFII(DFI). It’s clever that the demand for interest on other DeFi tokens is stronger than the stable currency.
4. Why CRV failed?
CRV did not take the IYO route, which is all called liquidity mining despite the difference is obvious. Token economics design has no similar incentive model considerations, on one hand, the total amount is too large and even led to a very small circulation disk due to releasing weekly. On the other hand, CEX is so eager to get popular projects on the shelves, resulting in the initial excessive overestimation.
This also suggests that IYO may be more suitable for faster token allocation, or a YFII (DFI) halving model.
Vaults: A definitive winner, perhaps a second-tier exchange subversive
IYO since it can start quickly without paying a high premium to the exchange, according to the above analysis, it seems foreseeable that it will become a more new token distribution paradigm in this bull market. However, a large number of coins that can not be directly going on head exchanges (three) are likely to be distributed in such a way. Furthermore, there even no need to be confined to DeFi areas.
So who will be the direct beneficiaries of this paradigm shift?
My answer is, “ Vault “mode.
“ 机枪池 ” (directly can be illustrated as a machine gun group) is named by YFII, whose target is YFI Vault, in the product I guess it means something like a PoW vault. The community elite came up with the best payout that it mines and sells specific tokens into the best. Similar to the once largest BSV mining pool (known to all), BTC/BCH/BSV used the same mining algorithm, so why don’t mine when the miner can replace BSV into more BTC. The same goes for YFII DeFi vault, it does the highest instantaneous income and security and repurchases YFII in the market. This can greatly reduce the amount of gas for ordinary liquidity mining participants, while developers audit contracts on behalf of retail investors, which reduces the risk of participation and gets the highest return. (DeFi mining costs several ETH, which is not even worth it, while the mining pool will be able to share the costs.)
The vault seems to be the only deterministic gain in the whole IYO game in the future.
Do developers who start new projects in the IYO pattern welcome such a way? Will there be any limitations?
Welcome or not, there is no way to make too many restrictions, because Pool 1 and Pool 2 is competitive and checks and balances with each other, if a little change is made to make pool 1 easier to obtain, no one goes to pool 2 and they lose the purpose of cold start.
On the other hand, we’ve seen that the project side saw this, and also supported the vaults, Yang who created dForce said:
Some people wonder why we welcome the vault to mine dForce, instead of avoiding going short DF. I understand that vault plays the role of effective allocation of market funds, and ultimately, it will effectively improve our mining efficiency (it will reflect the overall mining return decline or any close to the market level), more efficient and conducive distributing DF to the market. Relatively speaking, without efficient market allocation, giant miners tend t-o do the same thing with high excess returns.
Soon, a large number of new projects will use an IYO way for cold start liquidity, using the advantages of DEX to establish initial liquidity, no longer for a CEX to pay high fees.
And this part of the income from vaults is the original DeFi mapping of the money, but it saved the project side greatly expenses and spread the risk of going short at the beginning for investors.
The only thing left out in the whole game is the original second-line CEX. On the contrary, the first-line CEX is the long-term place to deposit legal currency, grasping the core resources of the industry whose standing is difficult to shake. And the CEX that relies on new tokens to survive may have to face a challenge.
Now YFII (DFI) has mined YAM and CRV through the vaults, while the original YFI Vault did the same thing also. Compared with the draw of 0.5% of the principal clause in YFI, YFII (DFI) seems a bit cute.
The YFII (DFI) community is making a lot of efforts to develop new strategies. Whether it can surpass YFI, two projects are still so relatively early that no one can predict. As a DeFi force in China, we naturally hope that it can grow rapidly and become the backbone of the world’s DeFi.
Other oracles, such as BAND、NEST, aren’t going to be weak, while recent LINK booms. In the time of YFI landing on Binance, can YFII (DFI), like BAND、NEST, hit a beautiful attack with the news?
When the YAM vault was deployed, the YFII (DFI) price was nearly doubled because of the repurchase, although it dropped because of the YAM smash, to some extent, it verified the effectiveness of the vault mode.
YFII (DFI) and YFI market value seem to be a hundred times the gap may not be so big, perhaps the gap is the opportunity for growth. YFII (DFI) also has more economic models of repurchase and destruction than YFI, which is closer to the value of currency price.
Perhaps YFII (DFI) and YFI will become a toll station for new coinage projects, and their decisive battle may be in the speed of machine gun pool deployment, who can combine financial and technical knowledge, Strive to discover the sweetest mouth of the trend, who can be the winner.
— — — -
Epilogue
The whole article has been written too long because I need to review and experience again to get the points that have already come up these days. It’s hard to keep up with such full energy in the end that logic may be a little confused, but I’m sure that most of the points have been expressed.
If there is anything useful to you, then we all get no time in vain.
If not, I do apologize for it.
Let’s end it with the paragraph of the poet, Jiangnan, of course, slightly changed.
Now is the summer of 2020, some of the selected projects still know nothing about their fate, while the other smart boys are unwilling to obey despite they know. At that time, the sky was still clear and the sun was warm as if all shadows were not enough to erase this peace and happiness. Everything should have a chance, everything should be on time, all the bad results can be improved before the bull market feast finally stopped.
