Jan 25, 2021
The Yield (YLD) Token, Supply Dashboard
While experimentation in the core token is all the rage nowadays, the Yield (YLD) token is just a standard token. It’s a mintable, burnable ERC20 token at the heart of the Yield lending dapp (and perhaps any future dapps in its circle).
Why Mintable?
As explained in the first intro to Yield and the last article, one of the core features of Yield is incentivizing borrowers. The standard across the market is simply to disincentivize borrowers from defaulting on their loans, typically by requiring that they risk more collateral than what they’re borrowing is worth wherein a default means they forfeit ownership of the collateral to the lender. Yield does this too, as it’s also necessary to compensate for crypto-market volatility, but it doesn’t stop there. It goes further to also incentivize borrowers to repay their loans by allowing them to earn YLD if they don’t default. For every loan a borrower repays, the borrower can earn up to 350* YLD (*subject to change). This YLD earned is minted and it’s where the mint function of the token comes into play. This is the core function or, if you will, utility of the YLD token.
It would be possible to instead allocate a fixed, limited amount of tokens for this similar to, say, COMP but that creates more of an extended bootstrap than *ahem* any serious tokenomic model.
Why Burnable?
Simply allowing borrowers to mint tokens in perpetuity without any means to manage or control inflation would be unwise. Similarly, the fees paid by the users of the platform have to go somewhere since there’s no formal entity or startup behind Yield seeking revenue. To that end, 100% of the fees on the platform (and Gardens) are used to buyback YLD from the open market and burn, permanently removing that portion of the supply from existence. This forms the other role of the YLD token.
Words can only go so far in explaining how these two functions might interact which is why today, the YLD Supply Calculator is public! Head over to dashboard.yield.credit to play with it.
While the dashboard offers somewhat idealistic estimates, it can be seen that the interaction between burning and minting should manage the supply quite nicely.
Other Roles
The functionality of the YLD token doesn’t stop at minting and burning. As mentioned earlier, users of the platform are charged fees which is then used to buyback and burn YLD. However, should a user choose to lockup a certain amount of tokens — 1K YLD in the beta but also subject to change — it gives them a -0.25 discount on the fees which yields 2 more benefits, especially for borrowers:
- because the YLD a borrower gets to mint/earn when they repay their loan is, in part, dependent — (interest — fee) * principal — on the fee they’re charged activating discounts increases the amount of YLD they earn for the same amount of principal and interest. Say SpongeBob borrows $3,000 worth of tokens @ 5% interest, without discounts he earns 270 YLD, but with discounts he earns 277.5 YLD
- when discounts are activated for a borrower, they gain a -2.5 to -5 reduction in their liquidation ratios. Small as they might seem but the difference between safe and liquidated is <0.1%. This gives borrowers one more option, aside from topping up their collateral, to saving their loans in the event of a market downturn
These utilities will be refined and improved upon as the Yield app hits mainnet and more utilities can be added as needed, particularly with regards to pooling but that’s a topic for next time.
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