Let’s look at the the purpose and role of each of these mechanisms, generally and in Yam specifically.
Rebasing: Typically rebasing is used to establish price stability, and is largely useful in a asset trying to be money. This relates to one of money’s intrinsic qualities, the unit of account. Basically if 1 AMPL is always worth $1, I can start paying for things in AMPL. But it also touches upon another intrinsic quality of money, the store of value. Because everyone is rebased proportionally, my ownership of the network remains constant, meaning in the context of the network, my value is stored appropriately.
In general, I don’t think Yam’s gone down the path of trying to be money. Ultimately I don’t think the initial concept was particularly well suited to it for a number of reasons, one of which being that non-LPs are slightly diluted on a positive rebase.
So what are the other objectives and benefits of rebasing? In general, there’s a strong psychological component to rebasing of receiving increased supply on a positive rebase, and generally making accurate portfolio tracking difficult. They generally have a strong FOMO factor.
They also have some somewhat interesting financial games you can play with them, such as rebase/supply options and others.
This brings us to YAM’s rebase: Yam’s rebase (in my mind) is used for a very specific purpose of measuring and operationalizing demand to grow a treasury. It is kind of a constant fundraising mechanism. To compare it to a start up, rather than raising a seed round, then a series A, then a series B, etc., Yam is more like a rolling fund. Whenever the market wants to invest in the Yam DAO, it is able.
Treasury Growth: Another traditional analogue to compare Yam is a bank, which issues shares to raise capital, and then deploys that capital to earn revenue. The bank then trades at some multiple of its book value, all quite similar to Yam, minus the decentralization.
That is to say, for how much criticism these mechanisms have received in the Yam community, they are not ridiculous concepts, though they have not played out as we’d like.
In general, I think the sell pressure from the treasury purchase does in aggregate create too much negative sentiment – whether that’s entirely rationally justified or not is fairly irrelevant.
So we have a few options presented as ways to proceed:
Seems like almost everyone is against Option 1, so looking primarily at options 2 and 3:
Option 2: We become a little more money like, and are a standard rebasing token. We can play around in the elastic finance space, but we’re still severely limited in our ability to interact with much of DeFi (as collateral, easy trading pair, etc).
Option 3. We become a standard ERC20 token more or less, able to do all the things normal ERC20s can. This limits some governance overhead (adding sync/gulp to everything) and opens up new possibilities of collateral inclusion. Also allows for centralized exchanges to more easily list, and incentivizes them to convert V2 to V3 (not that I really give a fuck about CEX’s but I know many of you do).
So, my main question is what is the benefit of rebase to Yam today?
It’s a fun mechanism to be sure, but what are the functional benefits? Because there are a lot of con’s that go along with it.
I will be happy with whatever the community decides, I just want to know if there’s an argument beyond “it’s cool and fun” to keep the rebase.
I vote for " Keep Rebase, Remove Treasury Purchase, Add Inflation".
Rebasing is a good story in Defi, the algorithmic stable coin idea is sexy. As being a rebasing token, YAM is already very successful in marketing, and also gained the attention from the market and also Binance.
I would have liked to have seen the experiment play out as intended and actually voted to keep the rebase in Feddas’ initial poll. I thought the rebase was a novel fundraising mechanism and I appreciated the idea that the treasury was created and seeded by the community. However, it is clear that others see themselves as unwilling participants in this facet of the protocol. Also, no one in defi seems to care about legitimate ways of raising capital- you can just print your own treasury. I am not necessarily a fan of this idea either, even at 3%, but I also do not have better ideas of how to fund the treasury at this time.
I think we should pivot completely away from the rebase. The team has some fantastic products and ideas being developed and Yam would make an exceptional piece of collateral and defi building block. To me this is the most direct way to accrue value moving forward. Option #3 all day for me.
I personally believe that the best way to approach this problem is gradually.
Some of the issues caused by rebasing could see mitigation by removing the treasury buy so i dont think our experimentation with rebasing is complete until we’ve tried it without the purchases on positive rebases.
Testing this out will also give the team more time to develop it’s new products so yam holders would have a new method of yield outside of positive rebases if we were to disable rebasing.
Additionally i’m not quick to try to accommodate CEXs, portfolio trackers & new members as they will have to innovate and be able to work with rebasing tokens weather yam is one or not.
Currency must has sufficient liquidity to play the role in economic markets. However, the suppression of Yam price from rebase system and the tax pattern makes investors excessive panic and retreat. This somehow extremely limit yam’s liquidity.
Bitcoin is getting higher recognized as a consumer payment in real stores. which means that ERC20 tokens can also be used as financial payment tools as well, in crypto or in real world.
In fact, after the Diem stablecoin is released by Facebook next year, it will bring huge funds and lots of new investors to the crypto market. No doubt that Diem will easily replace usdt to be the first stable coin sooner or later. It will also become the first choice for consumers using for payments.
Facing the upcoming fierce competition, it is not wise to choose Yam as a flexible stablecoin and payment tool, but Diem itself has no investment value. Therefore, when the Diem wave comes, Yam can choose to become the best investment subject to attract those investors. This market is not only huge, but also a stage where Yam can really show off.
YAM’s rebasing mechanism is the first one that I find interesting. In the months that it has been live we have learned a lot about it and how a fair launched rebasing token acts in the wild. It is not perfect by any means, and I want to use this post to touch on why I think it is interesting.
Incompatible is too strong of a word here. Some of the elements of YAM do not run as smoothly as they could, but this is because not everything is up and running yet. There are parameters that we have not studied and some of our problems are not related to the rebasing mechanism
I agree with this statement, but rebasing is not all that is holding us back. There are many metrics that we can look at to measure success. The treasury size is one of those, and using the rebasing mechanism to fund the treasury has worked. At the same time, while selling a portion of positive rebases has grown the YAM treasury, those sales have had a detrimental effect on the YAM marketcap and investor confidence. But I want to be clear here: Rebasing is not the cause. Selling YAM for yUSD and ETH in large amounts is what has caused this crisis in confidence. That YAM was highly overvalued at $100 million marketcap during V2 did not help.
Even if we get rid of the rebasing mechanism, this is still a dynamic that we need to wrestle with. What is the right amount that should be contributed to the treasury? We recently lowered the rebase sale rate to 5%. In the end this is probably good, but my opposition to it came from the fact that I saw minimal research into what the best rate should be. For all we know, the rate should be 0.5%, but without study we have no way to know. There are other factors in play as well. Once the treasury starts earning revenue from products, what are we going to do with that revenue? Will it counter-act the downward pressure from sales to the treasury? Making changes to one side of the equation will always be impossible if we can’t make an educated guess about the other side.
In my mind there is only 1 Pro for rebasing that matters: It funds our treasury once we have hit equilibrium and the price starts rising again. It does that without us having to vote to make it happen or come to some kind of consensus whether we have enough money in the treasury. In this way it makes things simple. When the price goes up, the treasury size increases.
This is one important part in aligning the incentives of YAM holders and the YAM treasury. It is missing the second part because we haven’t gotten there yet. That is a return of value for the dilution that all YAM holders are submitting to. All YAM holders, in holding YAM are agreeing (whether they know it or not) to have their upside limited in order to build out the treasury, which they then can control and use to build new products, invest, and limit their downside. Once this second part starts working, it should counteract the effects of positive rebase sales.
Rebasing tokens are not stablecoins. They are not stable and I am skeptical that they ever will be no matter what their marketcap. But the treasury model that YAM has built around the rebase is a stability mechanism of sorts. It is so in the sense that it limits the wild speculative swings that rebasing tokens go through. It’s like a piggy bank that all holders deposit into when the price increases. In doing this, the price swings back to the price target faster. YAM holders then use the funds in this piggy bank to generate revenues which in turn help the price swing back toward the target faster than if there were no treasury investment.
If the treasury is managed well and the products that we build are successful, then there will be a surplus coming in to counteract the dilution from positive rebases. Furthermore, the parameters here are adjustable. We can find the right balance. Here is a diagram of how I imagine an ideal feedback loop works.
Most of what I have mentioned above does not need rebasing. But I am pick at what the rebase mechanism does for YAM that is useful and then look at whether that is something that we can continue in a non-rebasing token model. The biggest element of it to me is incentive alignment in that treasury growth only occurs with token price growth. A flat inflation/issuance rate does not do this quite so well since the inflation is coming whether the price is going up or down. There should be a feedback mechanism to benefit YAM holders and the treasury simultaneously. What is good for the goose should be good for the gander. Right now that mechanism is incomplete. The treasury has grown and YAM holders have not reaped the benefits of that. But if we look to the future, there is a ton of potential for the YAM community to build a really interesting system that benefits everyone involved.
In the end, rebasing may be too much of a pain to deal with. The cons listed in the original post are accurate. It is harder to deal with and compose with other protocols. There is added overhead for everything that we do. But we should be taking the lessons that we have learned from what we have seen so far and try to build on those.
Can we build a new mechanism that keeps the treasury funded autonomously and is fair to YAM holders?
In doing so, how do we structure treasury sales to grow the treasury but limit slippage. This will continue to be an issue even without rebasing.
Can we increase the size of our sushiswap liquidity pool. That pool is the lifeblood of the DAO and a deeper liquidity pool means less slippage on treasury buys and more stability.
How can we structure new products and revenues to feed back into a positive incentive loop for all YAM holders?
I recently stumbled across one of @trente’s old posts about the potential for YAM, and I thought it could be helpful to post here. I think it captures how the YAM protocol has evolved since it’s inception and lays some groundwork to think about how the protocol can continue to evolve.
Trying to get everyone on the same page as to what YAM is and can become is a key step in figuring out what changes we should make.
Amazing discussion! YAM’s upcoming product launches seem v promising.
How about this to reconcile different positions: Bootstrap treasury: What’s the operating budget and a buffer to give the team enough cash at hand? Let’s say treasury would have enough runway with $3mln. Pause rebase: When treasury hits $5mln, pause the rebase. When treasury is at $3mln , reactivate (could also pick $4mln to have some buffer to $3mln). Alternative to the pause: Only rebase once a week to decrease dilution/supply pressure. Sweetens the optics. Ongoing inflows into treasury: Assets in the treasury generate interest (eg yUSD) or capital gains (eg ETH). Future product launches will also generate income (eg UMA token, tx fees). Hence, there’ll be visible cash flows into the treasury from other sources than rebase.
Couple of thoughts on design: Ongoing fundraising: No organisation raises money on an ongoing basis. If you do that, there’ll be excess cash in the treasury and holding cash is value-destructive. Ultimately, YAM might have so many marketable tokens/cash that special dividends would be the only logical outcome. Which equates to – gimme your money so I can give it back to you. Comparison to rebase coins like AMPL: AMPL gives a claim on network activity vs YAM which gives a claim on treasury (tangible asset) and builder team (intangible and massively valuable). However, it’s difficult to quantify the builder upside so most people will look at the tangible assets as the valuation floor. With AMPL, people can buy into a narrative on “expansion of adoption/network usage” which has no valuation floor. Apples vs Oranges IMO.
The issue has never been one of compatible tokenomics. The issue has always been one of hypergrowth at the expense of reinforcing a community culture which aligns with the established tokenomics of the coin and project.
The result has been a community that is not united behind the token and its mechanics, in large part because the community disagrees on what the token is and what it is intended to do. This has only recently been addressed, in part, by our newly ratified brand pillars and mission statement.
Here are the Pros of a rebasing asset as presented:
Here are additional Pros that have been left out:
Allows goods and services to be denominated in an asset with reduced risk of hyper-inflation or hyper-deflation
Ranges from “less-than-correlated” to Bitcoin’s market movements to fully uncorrelated (in theory)
Discourages hoarding of capital assets, a market behavior common to fixed-supply assets such as gold-backed fiat prior to the development of modern elastic fiat supply policies
Imitates the elasticity of fiat through trustless and decentralize mechanisms rather than untrustworthy centralized banking entities
Allows for investors to bet on and derive value from the growth of a whole economy at an early stage rather than the appreciation of value in a fixed quantity of assets
Multi-variable asset with the potential to accrue value from either price movement or supply movement or even accrue value from both price movement and supply movement at the same time.
As for the Cons:
We are abdicating an opportunity here to provide a user dashboard to track and calculate profit/loss for our users. This is a failing of our community to provide support tools and interfaces, not the rebasing mechanic itself.
This is a legitimate negative aspect, but again, something we should look for solutions to ourselves in order to become thought leaders in the elastic space.
Correct, but again, shouldn’t this be something that’s easily automatable?
Most rebasing tokens up to this point seem to settle into stable channels, although not nearly as tight a channel as a pegged stablecoin such as DAI. They’re not meant to be stablecoins in the way that pegged tokens like USDC, DAI, USDT, etc. So they are “volatile”, but not in the way I’ve seen with fixed supply ERC20 tokens.
Guess it’s a good thing that one of our first product offerings is a gas derivative/gas price hedging asset with strong inter-project, B2B potential in addition to individual user appeal.
That said, some additional Cons to add to the list in the name of comprehensiveness:
The user experience of rebasing tokens is easily manipulated and obfuscated by CEXs who can perform activities behind their black box façade. How CEXs choose to present or transact with a rebasing token is completely outside of our control.
Higher user education needs
The rebasing mechanic, to function as it was intended, requires sustained and applicable token utility. Otherwise, the positive rebase has a near overwhelming strength advantage in terms of affecting market behavior and guiding the token price back towards the target in comparison with the negative rebase mechanic. This becomes dangerous and difficult to manage for pre-utility tokens such as the majority of early rebase projects.
The benefits claimed to occur from removing the rebase are as follows:
Understanding the purpose and goals of Yam is not something which requires removing the rebase. All it requires is committed communication, marketing, and culture building. If you look at AMPL, the de facto example of rebasing mechanics at the moment, they pour a ton of resources into marketing and communication, both internal to their existing community and external to attract new users. Up to this point, we’ve done very little of that. It’s no wonder people have confused and conflicted narratives because up to this point, we’ve abdicated that responsibility or did not value it appropriately. This, in and of itself, is not an indictment of Yam’s rebase or a positive derivative of removing the rebase.
The collaborations we’ve obtained thus far have all been accomplished while Yam was a rebasing token, and there’s no causal guarantee that removing the rebase will cause more collaborations to occur. This is purely a speculative conjecture and can’t be construed as any kind of substantive prediction or proof of benefit.
This is certainly a fair point. I would argue that we could also do our part by providing APIs or other tools to make it easy for CEXs to integrate our token. At the moment, we’re just hoping they will choose to do so but expecting them to do all of the work to make it happen.
There are other ways to accomplish deeper liquidity than removing the rebase, although I don’t deny that removing the rebase would also accomplish this.
There is no guarantee that Sushi farming will continue to be a sustainable practice in the long-term nor even the mid-term. Sushi farming is irrelevant to the conversation of whether to remove the rebase or not since it has no direct relationship to Yam’s tokenomics.
Personally, Yam’s capacity to exist as both a capital asset and a governance asset is one of the things that initially drew me to it in the first place. I wanted to find a project like AMPL where the community could actually get involved and do things rather than exist at the mercy of dumping VCs. It saddens me that Yam’s vision has drifted and diverged from its embrace of elastic finance. That said, I don’t believe we can put the genie back in this bottle, and I think we lost our chance to really do something special with the elastic aspects of Yam. So if the community votes to remove the rebase, I will of course continue to fight for and support Yam to the best of my ability, although I will privately mourn the decision.
Frankly, even if we get rid of the rebase, I think we’re still in for a bumpy ride because as the token price accrues, we’re going to see wave after wave of profit-taking from users who have just been waiting for a tenable exit. So in all likelihood in my opinion, it’s more likely that we’ll see an initial price bump of support followed by at least one, if not multiple, price crashes as unhappy buyers from the migration exit. Unless we implement some other complex incentive to convince people not to dump the minute they get the chance. The question is whether the price can recover if the dump is too big.
Ultimately, for me, this is what the rebase question boils down to - one question:
"What is YAM?"
Not “What is Yam Finance?” but what is YAM the token.
If Yam is just a governance token with no other use or purpose other than voting on DAO proposals, then it clearly doesn’t need to rebase to accomplish that. There are other ways to fund the treasury such as fixed inflation and eventually, generated revenues from products.
But if Yam is money, or if Yam is a token with some other smart contract utility, then there’s an argument to be made that the rebase assists or can assist in that goal.
To me, that’s the only question that matters.
I would like to clarify something. I am not asserting one way or the other what YAM the token’s functionality should be. I am merely clarifying the question at hand. Personally, I don’t think Yam is base money or should be base money. Not in the way that AMPL is seeking to be. Whether it should have utility beyond governance is another thing entirely. That said, this is not for me or any of the team leaders to decide unilaterally. It’s a community governance decision to make, and my only goal is to help the community better understand what they’re deciding on.
I am so glad you posted. I had been waiting for your input on this subject. I worry myself, that too many people are just waiting for the price to go up and they aren’t waiting for organic growth. Just want their pumps now. You articulate the pro’s and con’s very well.
I also came here for many of the same reason and will be disappointed if the elastic token goes away without some substitute.