After reading a lot of the comments that continually come up about rebasing, I want to do a rebasing thought experiment and apply it to YAM.
What would happen if we changed the rebase target of YAM to the price of (1) BTC?
Let’s imagine that right now we set the price target of the YAM rebaser contract to read from the ETH/WBTC pool and we adjusted the total supply of YAM accordingly. Let’s assume that nothing else about YAM is changing and this change doesn’t cause anyone to FOMO buy or panic sell.
- The current price of BTC is $19,113 per coingecko
- Assume price of YAM is 1.00 for ease of calculation
- Current Supply is 11,086,295.6 (totalSupply in contract)
- Current Scaling factor is 2.39 (yamsScalingFactor in contract)
- YAM BoU supply is 4,647,291.7 (initSupply in contract) This number does not change other than when new YAM is minted or people migrate from V2. This is the “real” amount of YAM you own.
With the above numbers we can calculate the marketcap of YAM (price * current supply). That gives us $11,086,295.60 (higher than reality because we are assuming the price is $1.00). We want to now recalibrate this to target a price of 1 BTC instead of 1 Dollar. We can do this by changing the scaling factor, which in turn changes our current supply. Since the market cap should stay the same, we can divide the market cap by the price of BTC to get our new desired supply.
New supply = Marketcap * BTC Price
New supply = $11,086,295.60 / $19,113
New supply = 580.04
From here, we can calculate our new scaling factor.
BTC scaling factor = BTC supply target / BoU supply
BTC scaling factor = 580.04 / 4,647,291.7
BTC scaling factor = 0.0001248
Once this is done, everyone’s wallets would now show that they have less YAM but that individual YAMs are worth much more. The value of your underlying YAM holdings is unchanged as the quantity of the BoU YAM you hold is unchanged. All that is different is the price and the scaling factor.
Imagine Bob buys $100 worth of YAM right before the target change. The price of YAM is $1.00. At a 2.39 scaling factor, he is buying 41.84 BoU YAM, but his wallet reads that he owns 100 YAM. Now the target factor is changed to BTC. The scaling factor is changed from 2.39 to 0.0001248. He still owns 41.84 BoU YAMs but now his wallet tells him he owns 0.00522163 YAM. This amount of YAM is still worth $100.
As you can see, by changing the price target for YAM all we have really done is change a variable in the contract. But, in changing this variable, have we somehow changed the value proposition of YAM and what will this do for the price of YAM going forward?
Rebasing tokens are often advertised as being pegged to their price targets, but this is not really true. Via supply adjustments they will trend toward having a price that matches the target. The overall value of a wallet holding a rebasing token will move freely. Just like holding YAM today does not mean that you have invested in a stablecoin, changing the price target to something else does not mean you have invested in a derivative of that product.
The target price will impact how many rebases you have. Using a target price that is correlated to your asset will result in fewer rebases as the 2 prices will naturally track each other to a degree. If the price of the target asset increases faster than the price of the rebasing asset, then the underlying asset will rebase more to try and keep the 2 prices in line. But in doing this, the value of the rebasing asset is not being impacted by the target asset. The value of the rebasing asset is still only affected by the utility of the asset and the supply and demand dynamics of the market.
With YAM, because the rebasing mechanism is an integral part of treasury growth, setting the rebase target impacts how often positive rebases will occur and when the treasury will be funded. By setting the target price to USD, we are funding the treasury when the price of YAM increases faster than the price of USD. If we were to set our target rate to track BTC then we would fund the treasury when the price of YAM increased faster than the price of BTC.
So from a system standpoint, the price target that is used in YAM’s rebasing mechanism can be used as a variable to adjust how we fund the treasury, similar to how we can set the amount of YAM minted on positive rebases. It is a complex variable to predict though, so setting it to target the relatively stable dollar keeps the system more predictable.