Finally, the new-age tech investing has become delicious with the latest buzzword project, called Yam Finance.
This particular protocol, which first entered the idea phase on August 1 and whose developers released the first implementation of their product on Tuesday, managed to rack up hundreds of millions of dollars’ worth of investments, before crashing out in a blaze of social media-hosted meme-economy glory last night.
No duh, the coding was rushed and unaudited. It was bound to have flaws. In many cases finding a bug in your software is a lot worse than finding one in a vegetable.
But, what I really want to understand is what made this project so appealing to begin with? What sets it apart from a thousand other buzzword projects that exist right now?
Root of the issue
We can certainly point to some of the features, fully decentralized governance, no pre-mine or founder rewards, and an elastic supply model … wait … a what now?
Ok, so this was the one thing that tripped me up at first, but I think it is the key to why this particular meme fits in with this time and market.
The idea is that the price of YAM tokens is designed to remain pegged to the U.S. dollar (why the buck? I have no clue) and that the network re-balances every once in a while in order to uphold that peg.
So let’s say you bought 100 units of YAM for $1 each, and then the price of YAM rises to $100, you now have $10,000 worth of YAM tokens. Then, the rebalance comes and gives you 9,900 more YAM tokens and the price per unit goes down to a penny, or something like that.
It also works in reverse so that if the price per YAM goes down, YAM tokens are subtracted from your balance to get back to $1 apiece.
Therefore, what’s important to watch is not the price per YAM, which rose to nearly $160 before the bug hit, but the overall market capitalization, which should give you a better understanding of the network’s value, or lack thereof, as the case may be.
Even though the project was officially declared dead by one of the founders, it seems the community hasn’t quite given up yet, and the latest updates indicate that a migration to version 2.0 is now in the works.
Ironically, the fact that the network had seemingly been abandoned by its founder actually had a stabilizing affect on the price. Clearly, $160 is too much for a token that’s supposed to be pegged at $1.
The DeFi ecosystem is quite tightly knit, and while the hype was in full force, lending rates across all networks skyrocketed as people scrambled to farm units of YAM.
Now that the network is in remission, things have come back to normal, and the price per unit has been hovering around $1 for the last few hours.
Ultimately, and we alluded to this in the intro, this goes right into what we wrote about in yesterday’s BMJ Newsletter about stock splits. If valuations no longer matter, then investing simply becomes a game of accumulating units.
If I can accumulate 1 million marbles, why should the value of each marble even be relevant? I’m basically a marble millionaire, which these days many might view as more prominent than being a dollar millionaire.
After all, there are hundreds of trillions of U.S. dollars around, whereas marbles are of a much more finite supply.
Not saying that this makes sense to me at all, but it seems to reflect the way many people are thinking these days. Ultimately, when it comes to investing in this environment, the risk factor is through the roof, but all risk metrics and meters have long been broken, so we really need to approach all investments with extreme caution right now.