What is Yam Protocol? (YAM)
The Beginner’s Guide
The Yam Protocol is a protocol running on Ethereum that seeks to incentivize a global network of users to operate a cryptocurrency mirroring the price of the U.S. dollar. It does so by using a new crypto asset called YAM.
The protocol achieves this feat by adjusting the supply of YAM tokens daily in a process called rebasing. Should the price of each YAM token go above $1, then the supply of YAM will rise, driving the price down. If the price is below $1, the supply shrinks, pushing the price up.
In its short life, Yam has helped popularize a concept called decentralized finance (DeFi), in which multiple crypto assets are used together to provide a product or service.
However, despite the promise of Yam’s premise, it has become somewhat of a cautionary tale, as it has struggled to maintain its dollar equivalency.
Who created Yam Protocol?
The Yam Protocol has five founders: Brock and Trent Elmore, Clinton Bembry, Dan Elitzer (an investor with IDEO CoLab) and Will Price (a data scientist at research firm Flipside Crypto).
Of note is that the Yam team did not receive any YAM tokens at the launch of the project. Instead, all YAM tokens were distributed to users who locked up cryptocurrencies to earn YAM.
A day after launching its first version, however, a critical bug was found in the code ensuring funds meant to be distributed by the protocol would be locked forever.
How Does YAM Work?
The Yam Protocol’s defining feature is its ability to maintain price stability with the U.S. dollar by changing the supply of YAM cryptocurrency available on the market.
The intended target per YAM is 1 yUSD, yEarn Finance’s stablecoin intended to maximize yield when deposited into its protocol.
Every 12 hours, the supply of YAM tokens is adjusted to reflect the demand for the coin. If YAM demand is high, the price of YAM would be over $1, meaning the supply would need to increase to drive the price down.
The protocol will either add tokens if the price of YAM exceeds $1.05, or burns tokens if the price drops below $0.95. Of note, is that YAM supply readjustments happen proportionately for all token holders.
This means if a user holds 1% of all YAM before the supply readjustment, they would still hold 1% of all YAM if the supply increased or decreased in the next 12-hour window.
Currently, users are able to earn YAM by providing liquidity to the yUSD/YAM Uniswap pool.
Those that do so will earn a portion of the rewards given out each week. The protocol was scheduled to release 92,500 YAM in the first week, a reward that decreased by 10% every subsequent week.
Further, when YAM undergoes a positive rebase, the protocol mints an additional 10% YAM tokens that it uses to sell into the yUSD/YAM pool to buy yUSD tokens.
The purchased yUSD tokens are then deposited into a treasury governed by YAM holders. It is important to note that the treasury uses yUSD because it is a high yield stablecoin, allowing consistent value with exponential growth.
Yam v2 and v3
The YAM token itself has undergone some changes over time. Because of the bug uncovered after its launch, YAM holders had to move to a new token called YAM v2. However, this new token has no rebasing function, meaning it doesn’t attempt to maintain a stable price.
The YAM v2 token is used for voting on decisions that govern the protocol. As a result, YAM holders have been able to come to an agreement on various parameters around the system.
This includes relaunching the original token as a YAM v3 token. The first rebase is expected to take place three days later.
Why Does YAM Have Value?
YAM derives value from its use in the operation of the Yam protocol.
In addition to serving as a reward for users who lock up assets in the protocol, all owners of YAM tokens can vote on decisions relating to the operation of the platform.
For example, when the Yam protocol went temporarily offline, it was YAMv2 owners who voted on the path forward for relaunching the protocol.
Others believe that YAM has value because it was launched to the market without any initial sale that allocated a portion of its supply to big investors.
Rather, YAM had value because it was an interesting new way of launching a stablecoin, users wished to own it, establishing its price on the open market.
Kraken's Crypto Guides
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- What is Tezos? (XTZ)
- What is Cosmos? (ATOM)
- What is Augur? (REP)
Why use YAM?
YAM may be of interest if you believe in participating in an experimental approach to operating a stablecoin that could become widely used.
You may also want to hold YAM if you wish to vote on proposals that could impact the future of the protocol.
Lastly, YAM is useful if you wish to diversify your portfolio of stablecoins. A wide variety of stablecoins exist on the market, many with different mechanisms to maintain their prices.