$AYM: A YAM-Built Stablecoin and Revenue Token

$AYM: A YAM-Built Stablecoin and Revenue Token

Inspired by Gnosis’ $OWL token and SpankChain’s $SPANK and $BOOTY

Introduction:

Now that YAM is no longer a rebasing token, it is time to look forward to the next evolution of YAM and explore how we can continue to innovate with DeFi Products. A stable token that is native to the YAM protocol is useful for the DAO and has potential utility beyond the YAM ecosystem.

The YAM token remains a governance token, but also has a role in creating, managing,and backing this new token.The new stable token would not grant any governance rights.

I propose that YAM holders Stake YAMs to mint a new token called $AYM (name not set in stone, but pronounced like “aim”) that is pegged to a price target by three means:

  1. By building a treasury through supply expansion sales when the price goes above a dollar, and selling from the treasury or staked YAM when it goes below a dollar.
  2. By accepting our stablecoin as always being worth $1 within our ecosystem of products.
  3. By incentivizing Yam DAO participants to hold it via revenue distribution.

The Details

This is a non-rebasing stablecoin that a holder should expect to remain around a dollar or whatever unit we wish based on our uniswap TWAP. It is backed by YAM and the ETH earned from non-inflationary price growth. YAM holders benefit directly by minting dollar (or other) stablecoins that can earn a yield based on the revenues of the DAO.

When the price of AYM is above $1, Tokens are minted and sold for ETH to push the price down and then the ETH is deposited into the AYM treasury. This treasury is then sold first to restore the peg before any staked YAM is sold. The AYM treasury has a streaming fee that goes to the YAM treasury. And ecosystem revenues go to AYM holders who stake their AYM.

Because the YAM treasury takes a fee from the AYM Treasury, YAM holders who value the DAO element of Yam will want that treasury to be as large as possible. Increasing the demand for AYM will increase the size of the AYM treasury and subsequently earn money for the YAM treasury via fees. If YamDAO product revenues go to AYM holders, we incentivize our own community to hold AYM for those rewards and give a base of dedicated holders. Since the only way to mint AYM is by staking YAM, we can either lock up or incentivize a large amount of YAM into beneficial pools and projects for the ecosystem.

YAM stakers earn AYM by staking sushiswap LP tokens. In doing this, they are putting their YAM and ETH at risk by doing so. There is also risk for all YAM holders as a downward peg break would sell staked YAM into the market. This is a dis-incentive to start out unsustainably, and instead limit quantities initially to test out the system.

All YamDAO revenues help restore the peg and provide rewards to YAM LP stakers. Revenues are sold to ETH and then AYM, and these AYM added to the AYM inflation rewards given to LP stakers. This pushes the price of AYM up, increasing issuance if over a dollar, or helping to restore the peg if under.

Incentivized Pools:

Pool 1: ETH/YAM - This pool is currently incentivized with YAM tokens. This would instead change to mint AYM over time. This LP token is at risk when staked as it can be sold to bolster the price of AYM if the AYM treasury is empty and AYM is below $1.

Pool 2: AYM/ETH - Needs to be incentivized for revenue buys and issuance sells. Earns YAM inflation rewards and lets users earn YAM without direct exposure to it. This pool is key to keeping AYM volatility low since more liquidity will limit slippage on buys and sells.

Pool 3: AYM/YAM LP - Needs to be incentivized for backstop AYM buys. - Stake ETH/YAM LP tokens in this pool to mint AYM as well as earn YamDAO Revenues. When a backstop buy is needed, X amount of the needed ETH/YAM LP tokens staked in pool 1 are sold for AYM and the AYM is distributed to Pool 1. At the same time, Y amount of AYM/YAM LP tokens are un-pooled. The ETH/YAM LP tokens are sold for AYM and it and the rest of the AYM goes to the revenue pool.

Distribution of different tokens to different pools, and in what amounts still needs to be analyzed and discussed.

Benefits to existing YAM holders:

  • YamDAO can Merkle Drop existing YAM/ETH LPs and governance participants a premined amount of AYM tokens, but lock them as AYM/(ETH/YAM LP) tokens that get vested over time. These LP tokens earn unlocked AYM during their vesting period. Lots of details to work out here
  • YamDAO can offer to pay contributors in AYM and/or YAM. By paying contributors in AYM we can still provide contributors exposure to Yam DAO revenues but require minting less YAM. Minting more AYM dilutes existing AYM holders’ claims on future revenues.
  • Successfully managing the AYM peg and building the AYM treasury will fund the YAM treasury and benefit YAM holders who stake to earn AYM.
  • A new farming opportunity could get people looking at YAM again.
  • More people will lock their ETH/YAM LP tokens in our incentivizer, earning the treasury more sushi.

Concerns/Questions

  • The system is a little complicated and will have a learning curve. But really not that much more complicated than many of the mechanisms in DeFi.
  • Adds price risk for all YAM holders. But also upside potential and gives YAM a yield in AYM.
  • Mechanism(s) for determining issuance rates will need to be worked out. Because the primary defense against a peg break is the ETH treasury, building the supply via native demand will create a safer system. Increasing the issuance beyond what is sustainable puts YAM holders at risk of devaluing their YAM.
  • Is there an attack vector where an attacker can Rug Pull YAM stakers by crashing the price of AYM in order to liquidate the treasury and crash the price of YAM?
    • Could a whale come in, provide liquidity, buy a lot of AYM, remove liquidity and then sell the AYM at a loss?
    • Probably not, but selecting a longer TWAP interval would be important here. A long enough time period to smooth the spikes and prevent the treasury or staked YAMs from being sold in a short term attack.
  • From a regulatory standpoint, is there an advantage to creating a new token that collects Yam DAO revenues and does not grant governance rights?
This is:
  • Cool
  • Not Cool

0 voters

Let me know what you guys think!

2 Likes

Very cool!!!
Hope the $AYM’s idea will come true :+1:

I like the concept. Simplification if possible would be good. Also, we should think of other black swan like events that could take the entire thing down — such as a market crash like we had in March, or some other ‘Fourth Turning’ episode. (Nice diagram).

1 Like

Let me clarify a bit on what the goal of $AYM is in my mind. I don’t think we should be trying to create the next DAI and that kind of scale should not be our goal, at least in the short term. Instead, I see this as an opportunity to add value to our ecosystem by creating a new stable token that YAM holders and our customers can use. Having a second token that does not grant governance rights, but does benefit from YamDAO revenues creates a clear distinction between our governance token and our revenue token.

AYM doesn’t need to be a stablecoin to fulfill that purpose, but in being a stablecoin it can be used in ways that YAM cannot. Since the release of YAM there have been plenty of discussions about the role and function of YAM. Is it trying to be money like AMPL, or is it more like YFI? After removing the rebase, I think we can now safely say that it is much more akin to YFI, UNI, COMP, etc. These governance tokens are generally not considered “money” in the sense that they will not be exchanged for products or services (medium of exchange).

There are big questions here about what functions a token within the YAM ecosystem should have. Right now there is only YAM, so it has to do everything. Right now it is primarily used for governance. Since the rebase mechanism has stopped, it’s role as liquidity for treasury buys is now diminished and the main goal for our incentivized sushiswap pool is to farm sushi and provide exit and entry liquidity to investors.

Do we want YAM to be more than that? Should it do everything? Or do we keep it as a governance token that was fair launched and then find a way to use it in conjunction with new tokens that can take some of the load off of YAM’s shoulders?

Risks/Robustness

Yes, agreed. I would love to get feedback on what people think of the potential robustness, or lack there-of of this idea.

If there is a black swan like in March and the prices of YAM and ETH dropped 50-60%, then the value of the AYM treasury would fall and the value of any YAM backstopping the price would also fall. This would provide less support for the AYM price if it were to drop below its peg. At the same time. the price of AYM should hold up better than the price of YAM or ETH, so it may be in greater demand and could increase above the peg, minting new ETH to support the peg. Furthermore, if the price did fall below $1 for an extended period, YAM holders or other investors who believe in the revenue potential for YAM could buy AYM cheap with the knowledge that it will eventually work its way back to $1.

It is worth considering how responsive we want the price to be. We could decide that we want AYM to be stable only over longer time frames (1-2 months) and ramp up the under-peg selling as the price drifts further from the peg. If revenues are sold for AYM then as long as YamDAO is generating revenues then the peg will be defended passively.

My gut is that the expectation that AYM (or any stablecoin) will find its way back to the peg is a large part of it’s stability. Unlike with rebasing tokens, buying under the peg is a safer bet since you don’t get diluted as the price goes back up. At the same time, buying above the peg is less beneficial since supply expansions don’t go directly to token holders.

Another response I got from a friend was:

Point 1 and 2 of how maintain 1$ are too much gameable
One bad actor could drain the whole treasury if he/she had enough money

I’m still trying to wrap my head around how game-able this mechanism may be. In order to crash the price, the attacker would need to buy or mine a lot of AYM and then pull off a sustained attack for long enough for the TWAP we set to trigger a significant selling of the treasury. If they buy AYM then they are adding ETH to the treasury that will counteract their later selling. If they are mining a lot then they are holding YAM to do so and would want to sell before attacking. I’m not sure what this attacker gains other than hurting themselves and YAM holders. As of now there are no good ways to short.

With regard to point 2, it is worth considering whether there is a risk of someone dropping the price of AYM in order to buy products on the cheap. There are probably ways to mitigate this and may depend on how the AYM that is spent in a product is used by that product. If AYM is at $0.60 and is then needs to buy $1 worth of ETH for each AYM spent then this is a problem. If the product is something that has already been created though (like a subscription) then the YamDAO would just need to wait until the price recovers before selling the AYM. If the AYM is just being passed on to YAM stakers then it shouldn’t matter if the YAM stakers believe the peg will come back.

Comparisons

I am open to discussions of how these mechanism can be improved. I know Seignorage is very in right now, and this is a riff on some of those mechanisms. Seignorage is the act of minting or burning supply to impact the price.

Basis.Cash: Speculators buy Basis Bonds when the price is below peg, which burns Basis cash and these bonds are redeemable when the price is above a dollar. If the price is still above a dollar when all bonds are redeemed then new Basis Cash is minted and given to the boardroom.

Empty Set Dollar: ESD holders can lock and burn ESD to get debt coupons when the price falls below the peg that can later be redeemed for additional ESD. There is an expiry on the coupons.

AYM: Similar to the two above, seignorage is used to address the peg. Unlike Basis and ESD though, AYM uses direct sales to an AMM to move the price. Instead of giving new supply to existing AYM holders, new tokens are sold for ETH and held in a treasury. This treasury is then used in the same way newly minted tokens are when AYM is below the peg. Unlike the above, we do not have bonds or coupons that we can mint to push the price back. But by staking YAM to mint AYM, staked YAM holders serve as these bonded entities. As a final backstop, YAM could be minted to protect the peg.

2 Likes

To much to soon for all the reasons u mention as well as unknown…unknowns,…the idea of a means to grow the treasury and do some lifting for yams…I though that removing the rebasing was to allow yams to appreciate and give time for new products to come online to increase revenue streams to add to the treasury…

i’d just like to give YAM a chance before going in 10 directions all at once…is all