YIP: Size and Effectiveness of The Great Yam Wall

Modelling of Size and Effectiveness of The Great Yam Wall

Abstract

The Great Yam Wall pool of funds will be deployed to buy Yams on the market to keep the Market Cap above the value of the Yam Treasury. This will effectively create a price floor for Yam as originally intended by “Ragequit”. This will directly defend the price of Yam as it is falling and will bring up the price as the Yam Treasury grows.

This Proposal will explore the different size and effectiveness of the Great Yam Wall.

There are three scenarios where the Great Yam Wall will be used.

  • There is a massive sale of Yams due to a black swan event.
    • What is the lowest Market Cap Great Yam Wall recover from given a certain liquidity in AMM.
  • There is a slow consistent sale of Yams below the Market Cap < Treasury Value
    • How much support can the wall provide?
  • The Treasury Value grows above Market Cap.
    • How high can the treasury push the market cap up before it is exhausted?

Scenario 1: There is a massive sale of Yams due to a black swan event.

Question: What is the lowest Market Cap Great Yam Wall recover from given a certain liquidity in AMM. To find this, we need to find the max slippage given a liquidity and the amount of funds in the pool.

Max Splippage Given Liquidity and Pool Value

As a point of reference current Sushi ETH/YAM Liquidity is $2.8mm. Let’s use $3.38mm as liquidity in this example:

Lowest Price Recovery

Conclusion 1:

Given that AMM liquidity is $3.38mm and the pool size is 5%-20% of treasury:

If the Market Cap drops to highlighted amount, the Great Yam Wall will buy enough Yam to bring the Yam Market Cap up to Treasury Value, thus successfully defending against black swan event. Charts above can be used for other liquidity values.

Scenario 2: There is a slow consistent sale of Yams below the Market Cap < Treasury Value

Question: How much support can the wall provide?

If there’s no large selloff and it’s a consistent sell pressure against Yam’s Market Cap, the wall can only buy as much as the funds in the pool.

For example, if the pool holds 5% of the treasury, it can buy up to 5% of the market cap @ Market Cap = Treasury Value. Without any buyers except for the Great Yam Wall, there needs to be enough sellers to sell 5% of all Yams. A tall order for even the greatest of sellers, especially if the price has already gone down so far.

Conclusion 2:

Since the Great Yam Wall function can only be used when Yam Market Cap < Yam Treasury Value, whatever x% of Treasury we assign to the Great Yam Wall pool will require sellers to sell off the same x% of entire Yam market.

Scenario 3: The Treasury Value grows above Market Cap.

Question: What is the max slippage that the Great Yam Wall can push Yam Market Cap up to, given an AMM liquidity?
This function also depends on if there are sellers or not. Worse case scenario if there is a “wall of sellers” in front of the Great Yam Wall, then this will have the same conclusion as scenario 2.

What happens if there are no sellers except for what is on AMM liquidity, it becomes the inverse situation of scenario 1. Let’s explore this:

The slippage table would be the same:

Max Splippage Given Liquidity and Pool Value

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Conclusion 3:

Given that AMM liquidity is $3.38mm and the pool size is 5%-20% of treasury:

Worse case is the same as Scenario 2.

Best case is if there are no sellers and ONLY the Great Yam Wall is buying from the market, the final MCap would be a function of slippage given a liquidity amount and purchase amount.

What is the optimal solution for the size of the Great Yam Wall?

There are two considerations that we must make in order to determine the size:

  • If we earmark the funds, we do not have access to those funds to be used to develop other projects and grow the treasury value. Ultimately, the goal of Yam is to grow bigger and larger. It is best to keep the size of the wall small.
  • The larger the wall the larger the protection but the law of diminishing returns comes into play. If you look at the slippage table above, as the wall size gets larger, the protection does not increase as much as before.

So, what is the best size of wall? In my personal Opinion, it would be 10%. It is a good balance between affording plenty of protection @ $3.388mm in AMM liquidity = 25% price protection and minimizing funds being tied up.

Poll

% of Treasury allocated to the Great Yam Wall?
  • 0%
  • 5%
  • 10%
  • 15%
  • 20%

0 voters

Forward from Feddas:

The Great Yam Wall is a simple idea but has many unquantifiable aspects of psychology towards the price of Yams and I think this warrants some further exploration.

In Traditional Finance, there are many ways to determine a valuation of an equity, a few of them that have relevance in his discussion: Price to earnings, Dividends to Price, Cash on Hand, and a function such as stock buy backs. As Decentralize Finance progresses, there will be many analysis that will tie the traditional finance tried and true formulas to DEFI.

Conceptually the function Great Yam Wall can be described similar to a “buy back program.” Imagine a public company that states, We will automatically buy back our stock when total asset value equals market cap and we will set aside the cash into a pool to do this.

How would this effect investors?

For example:

Instead of a buy-back and burn model some tokens employ. Why not set aside the money into a pool that specifically and programmatically will defend a floor price of the token. If designed properly, it would have a significant psychological effect on the perceived value of the token. Buy-back and burn events are at worse short sighted, with little long-term effect.

Although I like the idea of having some YAMs in Treasury, I feel that ETH in Treasury is going to be the biggest wall we have. It is the gold/oil commodity standard in the dapp space.

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YAM will be great again!

We will be transitioning the treasury to an actively managed set called Yam Dao Set using infrastructure on Tokensets.com.
Likely a large portion of our assets will be in ETH but it all depends on the risk management and the active portfolio manager.

To everyone:
There has been some feedback from some team members and one option instead of directly using the Great Yam Wall just to buy Yams on the market is to also provide liquidity in order to reduce slippage and slow down any attack against the wall and Yam. This is how it would work:

Anyone can initiate the Great Yam Wall (GYW) function to buy yams if the marketcap is below the treasury value. When the Yams are purchased, it will be paired with ETH to provide liquidity making it harder for value to drop further.

Let us know what you think about this. As always these things are evolving and getting better, input from the community is important.

Thank you

Now I do like the idea of using treasury assets to provide liquidity.

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Why not be proactive about providing liquidity instead of waiting for an event that would cause the GYW to be implemented?

I propose the two options (both don’t wait until marketcap falls below treasury:

  1. Build yam inventory slowly and when the amount of Yam in treasury equals x amount, then pair it with ETH and provide liquidity with it at that time.

  2. Build yam inventory slowly and if marketcap falls to 1.25 times the treasury, provide liquidity at that time.

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How would you build the yam inventory?

A percentage of the YAMs minted upon positive rebases remain in YAM and are saved in the Treasury. This would only work if there was a prolonged positive rebase trend for there to be any meaningful impact.

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What your saying is instead of selling for ETH, just keep the Yam?

Yes, but most are sold for ETH.

Maybe sell half? and pair with Yam to provide LP.

I would prefer something that results in more being sold.
Like if a positive rebase resulted in $1000 of Yams minted.

$750 Yams are sold resulting in $750 ETH and $250 Yams remaining.

$500 ETH goes to directly to the Treasury, $500 YAM/ETH goes to the pool.

Much like the the DPI/ETH pool is included in the Treasury total on the Dashboard, the YAM/ETH would be included too. So the treasury totals increase by ~$1000 and half of the increase is immediately utilized (which will earn trading fees).

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This is a good idea, but in the wrong thread, this deals specifically with Great Yam Wall.
We should continue this discussion on discord.

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A few thoughts on this:

First I prefer the option of providing liquidity as it gives the treasury the ability to both buy into any panic selling and also sell into bottom buying, ending with a more net-neutral position while still cushioning the bottom.

One thing that hasn’t been discussed is minting the YAM that we need to provide liquidity. This is unique option that we have. In this case, we would essentially be loaning ourselves the YAM in order to provide liquidity. I imagine the process like this:

  1. Marketcap hits specific ratio in relation to treasury and the Great YAM wall contract is called
  2. X% of ETH from the treasury is claimed and an equal $ amount of YAM is minted. Both are added to the sushiswap pool as liquidity
  3. Added liquidity limits slippage and allows anyone who wants to exit the opportunity with decent liquidity.
  • If the price continues to drop, the treasury’s LP position will lose ETH and gain YAM
  • If the price rises, the treasury’s LP position will gain ETH and lose YAM.
  1. When YAM governance decides to remove the liquidity from the pool and wind down the Great YAM wall (metrics TBD), there are 2 possible outcomes.
  • If the price of YAM is lower than when the wall was deployed then the treasury will have more YAM than it started with and less ETH. The ETH will be returned to the treasury, an equivalent amount of YAM as was minted will be burned, and any excess YAM will be distributed via farming rewards.
  • If the price of YAM is higher than when the wall was deployed then the treasury will have more ETH than it started with and less YAM. The YAM will be burned and then ETH will be sold for YAM via the AMM pool and that YAM will be burned until the amount burned matches the amount initially minted.

In doing this we are not adding any supply to the fully diluted marketcap. We are using the mint functionality more like a flashloan that exists over the period that the Great Wall exists and all minting is balanced by ETH from the treasury. This mechanism is also useful for creating liquidity for subDAO token sales but that’s another conversation.

@rossgalloway
I really like this idea… I really would like a hard floor type of function, but this might be an interesting compromise. This doesn’t quite work the same way moving up tho.

Let’s work out the numbers.

I don’t like the idea of a WALL, because we don’t need it. Treasury - is the wall itself. IF mc goes lower than treasury some one will be able to accomodate voting power and vote to distribute the treasury and the protocol will be dead.

I also don’t like the idea of increasing liqudity too much, because if we increase liquidity (the only way is to add it from treasury) our wales will cash out (sell their YAMs for treasury). Now it is imposssible fortunately.

Just so that I understand you. You don’t like providing a programmatic way to sell your Yams if you want to do so at a low value? You’d rather trap the whales and then force a vote to distribute assets?
Some of those assets being projects that are in the works.

Ross here’s the table of slippage, unfortunately the liquidity amounts that we can do with the treasury are very low and slippage won’t be changed much at all. So it is not very effective solution to provide LP unless we are talking about $1mm+.

image

TLDR: Providing liquidity unless it’s in the millions doesn’t do much in creating a soft floor. This makes sense tho

I don’t want to “trap” the wales. The wales trapped themselves now. There is not enough liqudity to cash out even half a million of YAMS for reasanable price (selling 500k YAMs will cause 30% price drop). Thats why the wales play pump-n-dump game: buy low huge volume, ppl FOMO buy at higer levels, wales get the rebase and cash out, ppl FOMO sell.
And of course i’m not for distributing trasery. I just mean that MC will never drop below treasury-value, becase if so, some one will be able to buy 50%+1YAM and vote for distributing treasury (maybe even only for him, I don’t quite sure there is defense against it in the contract). That means that ppl will buy before the MC reaches treasury value. That is why we don’t need any wall.