There are some Decentralized Finance (DeFi) projects that make quick loans (Flash Loans); Yam Finance (YAM) was a DeFi project that made a quick appearance.
YAM, which was initially described as a „minimally viable monetary experiment,“ was launched on August 11 amid some fanfare, and in less than two days its market value shot up from zero to $57 million. But in late Wednesday, the company announced that it had found a mistake in its overrun contract and by Thursday, its market capitalization had dropped to zero. In vain, the DeFi community joined in to save the project, whose overrun function turned it into a kind of global competition, with investors betting on the price of the token.
YAM’s short life has also highlighted a split in the crypto community, with some concerned about the somewhat reckless direction DeFi seems to be taking. Whether this divergence is generational, a matter of DeFi vs Bitcoiners „degenerates“, or something else entirely is not really clear, but an informal Cointelegraph study found two radically different views of YAM’s overtaking experiment.
Erik Voorhees, CEO of ShapeShift, said on August 11, „YAM looks like a scam. […] Projects like this aren’t going to be good for DeFi. Meanwhile, Messari CEO Ryan Selkis described YAM Finance as a „perfect P&D [Pump-and-Dump] configuration“ with a 20% chance of becoming DeFi’s version of DAO, the near-death experience of Ethereum in 2016.
Meanwhile, Bitcoin software engineer and former lead developer Jameson Lopp called on the crypto community to „avoid and shame people who promote ridiculously irresponsible financial products“ like YAM.
Theoretical experiment or classic „pump and dump“?
Taylor Monahan, founder and CEO of interaction interface provider Blockchain MyCrypto, told Cointelegraph, „YAM marks a turning point where things go from being a little wild to being downright scary. He mentioned that „everyone knows there’s a lot of value at stake“ in DeFi’s projects – more than $6 billion this week – „but no one imagined that an openly unaudited project with an absurd brand would capture $500 million in less than a day.
The error discovered in the YAM protocol code led to excessive YAM reserves being coined, making „no future governance action possible. The project asked for help from the DeFi community, whose support was imminent, as BitMEX CEO Arthur Hayes tweeted: „I did my part to save YAM, did you do yours? CoinGecko also helped the project, and founder and CEO Bobby Ong described YAM to Cointelegraph as „a very successful, if risky and neglected, crypto economic experiment.
YAM demonstrated that a successful community project can be put in place over other communities „by leveraging the diverse DeFi communities such as Chainlink, Synthetix, Aave, Maker and others,“ Ong explained to Cointelegraph:
„This is a very interesting experiment as it also implemented a rebating function that Ampleforth made popular in its protocol rules. The tokens with rebasing functions essentially make it a massive multiplayer crypto game with players from all over the world betting on the price of the token. It creates an asset class that is not correlated with the price of Bitcoin Code, Ether or any other token, since its price is purely governed by its own protocol rules.
Others, while sympathetic to YAM’s enterprise, were not willing to go so far as to describe it as an experiment, at least not in the scientific sense. Ruaridh O’Donnell, co-founder and director of information systems at Kava, a DeFi lending platform, told Cointelegraph, „Calling it an experiment implies that it was a carefully crafted system designed to test a new concept. It wasn’t that. It was a quick mix of existing ideas from DeFi. Then he added, „But sometimes that’s what we need to inspire the real versions that come later.
O’Donnell advised taking a longer view. „New markets always have periods of overload. They often follow an S-curve model, where growth is slow at first, before it becomes exaggerated when people speculate about the potentials of the new technology, before it becomes obscured when people learn more,“ he said.