YIP 77: Bootstrapping Yam Fuse Pools

Yam Dao has been whitelisted as a ‘Fuse Pool Creator’:
https://snapshot.org/#/rari/proposal/QmdNYSDUdojyAREMf2hzf2nEw7iRTSbvrSsVr4hWX2LHG5

Rari Capital’s Fuse product, allows for the creation of custom lending/borrowing markets which are parameterised by the pool creators, in our case this would be Yam Dao. By creating a Fuse pool centered around the YAM token the community can reap the following benefits:

Increase token utility:

Borrow stablecoins against YAM collateral
Borrow YAM or YAM/ETH SLP against stables to farm without price risk
Borrow YAM or YAM/ETH SLP against stables to hedge YAM positions

Make YAM a yield bearing asset:

Existing YAM or newly minted YAM would be yield bearing if deposited into a Fuse pool maintained by Yam.

Earn yield on a portion of treasury assets:

Any Treasury assets deposited into the pool would also become yield bearing

Earn Fuse Pool admin fees:

Rari have agreed to pay 20% of the initial Fuse Pool admin fee to the Yam treasury (this fee is charged at 10% of interest earned within the pool)

Benefits aside, Fuse pools come with standard lending/borrow market tail risks that are common across Defi, some examples:

Oracle manipulation (TWAP’s are used, increasing the risk and cost of performing this attack)
Imperfect liquidation system in times of extreme volatility

Yam Dao has engaged with Rari to advise on setting up these pools to be as secure as possible. It is noteworthy that to date no Fuse Pool has been exploited.

Pool Specifications:

The initial Fuse Pools would consist of the following assets:

YAM
USDC
DAI
YAM/ETH SLP

As YAM and YAM/ETH LP are lower liquidity tokens and more sensitive to large price movements, two separate pools will be created to isolate this risk. The first and larger pool will include all assets listed but only allow the lower liquidity tokens as collateral, and a smaller second pool consisting only of these two tokens where they are both borrowable and allowed as collateral will be created. Both pools are necessary to reap all the benefits listed above.

Action Required:

To create a liquid lending/borrow market for Yam token holders in the form of a Fuse Pool, bootstrapping liquidity is necessary. If we consider Yam Dao’s asset base to be treasury funds + contributor vesting pool’s YAM, we arrive at the figure of $5.36M + $907K = $6.27M at the time of writing. It is initially proposed that we deposit 8% of Yam’s asset base into the initial Fuse pools.

This is enough to create a liquid market, but not too large a sum that in a black swan event that we haven’t seen before would severely impact the treasury. 8% of the current asset base would amount to $500k. The full amount would become interest earning once borrowers take out loans, and Yam dao can chose to withdraw these funds at any time in the future (less current amounts loaned out which can be withdrawn once repaid)

It is important to note that a large portion of this amount would be YAM. Which can be sourced from the existing YAM in the contributor vesting pool or can be sourced by minting new YAM. Please note that this choice is included in the voting options.

The non YAM portion would need to be sourced from the treasury. If this proposal is to be implemented, these funds would be secured by using existing treasury assets and selling Sushi and DPI tokens, as they are the most outsized positions relative to the rest of the treasury as indicated in the July treasury report.

Polling
There is a live snapshot vote here: Snapshot
It runs until 3:59 PM UTC on July 22nd.