- Yam, the DeFi project that has been taking crypto by storm, died yesterday due to a critical bug in the code
- Some $520 million was locked into Yam before its collapse
- Lazy design and blind greed combined to bring the project down, and lose lots of people lots of money
Yam, the 10-day old DeFi project that took the crypto world by storm and caused the Ethereum gas price to surge to record levels, collapsed yesterday after a critical bug could not be fixed in time. Its creation, growth, and swift collapse encapsulated many of the worst aspects of the crypto space, with lazy design and blind greed behind the platform’s rapid ascent and collapse.
“Experimental Protocol”
Yam was openly described by its creators as “an experimental protocol mashing up some of the most exciting innovations in programmable money and governance.” Its aims were similar to those of Ampleforth, in that it hoped to be an automatically balancing stablecoin whose “elastic supply” and regular rebasing would help control the supply and consequently the price.
The Yam project design was “largely based on COMP and Ampleforth” but with “non-trivial changes”. These non-trivial changes seemingly included a bug that, despite some desperate reconciliation attempts, failed yesterday, killing Yam and rendering the over $500 million locked up in the project worthless. Driven by nothing but hype and the DeFi and food meme, the project attracted huge investments from those who didn’t know what they were buying and just assumed it would go up because, you know, DeFi. But it didn’t, and now many are nursing massive losses because of two things – lazy design and blind greed.
Copied Code and No Audit
Firstly, the Yam developers take a huge portion of the blame. In admitting that Yam was Frankenstein’s monster of some of the other DeFi projects that have already caused inexperienced traders to lose their hat, the developers knew full well that code issues could arise – and they weren’t alone:
$YAM looks like a scam… or to be more charitable, fairly transparent pump and dump nonsense.
Projects like this are not going to be good for defi…
What am I missing? Are the buyers willing participants in a silly game, or are people alleging actual value?
— Erik Voorhees (@ErikVoorhees) August 12, 2020
The Yam Developers took several untested, unproven, and inherently risky protocols and put them together like some noxious DeFi punch and watched as people got paralytic on the results, falling over themselves to get a piece of the action. The smart contracts that people were trusting their money with were never audited – there wasn’t time, what with so much money to make. The project launched on August 3 and, despite the obvious risks, it exploded.
Exploding Yam
Yam took over crypto Twitter, and consequently the stablecoin, which was supposed to stay at as close to one dollar as possible. shot up into the tens and then into the hundreds of dollars in valuation. So far, so normal (in DeFi terms). Then, shock of shocks, Wednesday brought with it the news that there was a critical bug in the rebase algorithm:
We have found a bug in the rebasing contract, please read below.
All funds in staking contract are safe, as this is an unrelated part of the protocol.
User YAM balances are also unaffected.
— Yam Finance (@YamFinance) August 12, 2020
The team weren’t phased however, and set about working on a fix, informing users that funds were safe, which would have come as a relief to those who had money locked up in the project.
Just hours later however it had become clear that the Yam ship had a much bigger hole in it than had initially been claimed. Not only that, the Yam team didn’t know how to patch it. Clearly out of their depth and floundering, they asked the community to “help us” because “we are all in this together”. This spectacular admission of failure was glossed over by the community, and users instead began designing escape rafts before the ship sank with their treasure.
When the escape rafts were finally built and about to be put to sea however, it was realized that they too had huge gaping holes in them and were useless. Now out of time, the Yam boat consequently sank, with hundreds of millions of dollars of investment going down with her:
YAM has obtained enough delegated voting power to start a proposal, but they didn’t account that they need to maintain 1% for the entire duration of the vote. So they got rekt by a rebase one hour later. It’s over.
— banteg (@bantg) August 13, 2020
Greed Overtakes Common Sense
The failure of Yam has highlighted the dangers of unregulated and experimental financial instruments, but it also represents the peak of DeFi idiocy. Project fundamentals have seldom mattered in the cryptocurrency world, but they fly out of the window when people are making three or four-figure returns.
The last few weeks have seen people piling into the most ridiculous DeFi projects, clearly thrown together over a few weeks with the sole purpose of earning as much money as possible before getting out prior to the inevitable collapse.
As usual, the early adopters who get in at private sales boast about their gains on social media, causing more inexperienced individuals to jump in and pump the coins even further, at which point the OGs get out, leaving the new entrants holding the baby when the price tops out and collapses. We saw it with ICOs in 2017 and we’re seeing it again.
Has the DeFi Train Crashed?
The hype train around DeFi has been going into overdrive for weeks now, existing purely as a pumping machine, ratcheting up the Ethereum gas price to unusable amounts for others as it went. Yam seems to have been something of a watershed moment, the time when the ride stops and everyone begins to disembark, dizzy and asking what the hell happened.
I think the $YAM thing is a tragic example of how everyone is moving so fast right now to be that next gem that it’s extremely easy to make a small mistake that ends up being critical. Be careful out there, devs…
— Bill Drummond (@burn_the_state) August 13, 2020
Yam may well end up being the posterboy for the DeFi craze – lazily created, dangerously designed, heavily flawed, and yet pumped to the moon because of sheer greed. DeFi has potential, but greed has taken it down a path that has made it neglect its founding principles.
