Disclaimer: this is a long article that I will update with refers to other articles I still have to write to expand each topic. I want it to be understandable to new and experienced users. This is not financial advice. I am invested in Yel.finance and these are the reasons why:
1 — Governance tokens vs meme coins
In these days (years actually) there is a lot of popular media articles about "crypto currencies" that made people rich. I'm not happy with those articles and all this hype because it shades the real investment opportunities we have in crypto.
When you buy a meme coin you are basically entering a Ponzi scheme where you will make money only if you can sell at higher price, and you can sell at higher price only if there are more people after you that are buying instead of selling. For one to make money someone else has to lose money. This is how crypto is seen by the average person out there (time ago myself included). This was the situation 10 year ago with Bitcoin: with it you can only buy Bitcoin, send Bitcoin , sell Bitcoin. Cool enough, ten years ago!
Enters Ethereum.
Ethereum is a blockchain similar to Bitcoin with a little difference: now we can make programs ("Apps") that run on the blockchain. Running on the blockchain means running on thousands of computers all around the world: for this reason it is impossible to modify the result of the program.
Nice tech blabbering you say, but what does that means?
It means that now we can make possible some ideas that were not possible because we can't trust random people. Example: say I have this idea of a lottery where people never lose; it works this way: any time a ticket lottery is sold the ticket price is invested in a bond, once each month we take the bond interests and we give it all at the owner of a single ticket picked at random. If someone want their money back we just sell the equivalent value in bond and give them the money back (minus bond fees). Cool right? Wrong. It is impossible to make in real world because people will try to cheat the random pick, bonds are not so liquid, and many other issues.
It is instead totally possible on Ethereum chain: the program will do all the steps including random selection of the winner, and since it is a program running at the same time on computers (the miners) all around the world it is impossible for a single (or a group) of people to modify the winner random selection.
One implementation of this lottery idea is https://pooltogether.com/, one implementation of bonds on Ethereum is https://compound.finance/.
There are hundreds of projects implementing ideas (services) on Ethereum, all this new space is called "DeFi" Decentralized Finance. DeFi started less that two year ago.
Yel is a new project in DeFi that is implementing the idea of a passive investment fund: users deposit some money and those money get invested dynamically in the best investment each day, following a risk profile the user choose (more on this later).
All this projects are not corporate entities: they are run by a core team, investors and users. Investors are given tokens that are used to vote on how the project should evolve and in many cases the earnings of the project are distributed to the token holders. Do you see a difference now between the Ponzi scheme and these tokens? These tokens, called "governance tokens" are very similar to stocks: you can vote in the governance and you will receive dividends on the income of the project.
$YEL is a governance token receiving the dividends from Yel.finance project and making the owner eligible to vote on Yel governance (1 token = 1 vote).
On meme coins the only way of making money is someone else to lose money.
On governance tokens like $YEL all token holders can make money from the earnings of the project, just like stocks.
First reason to invest in Yel: it is not a meme coin, it possible to have sustainable passive income owning it.
2 — DeFi Projects Jungle
DeFi really started before the summer 2020, at the moment I am writing it's fall 2021: we are at the beginning of it. Think about the first year after Bitcoin, or the first year after Apple or the first year after the first plane. This is what we are talking about. The first years after a technology and financial revolution that still has to have an impact on the general public.
DeFi projects code is public on blockchain, meaning that one can just copy it and launch his clone. What makes a project unique is being the first in something, or being the first to expand or innovate an existing idea.
The first "stock exchange" (with governance tokens instead of stocks) idea implemented in DeFi was Uniswap https://uniswap.org/, that was copied and enhanced by Sushiswap https://sushi.com/ and both are copied by tens of low level wanna-bees copycats. Both Uniswap and Sushi have governance tokens, $UNI and $SUSHI. At the time of writing $UNI market cap is 12 Billion Dollars and $SUSHI 2 Billion — yes Billion — Dollars.
The current value of a project is the market cap of it, and the value of a single token (share) of said project is of course the total value divided by the number of emitted tokens. This is a trick that meme coins use to attract uninformed people: they emit so many billions tokens that the price goes to a fraction of fraction of a Dollar, like $0.00000005. This means nothing. What counts is the total market cap. Sushi for example has only 250 Million tokens, so the price of a single $SUSHI token is (approximating) 2B / 250M = $8.00.
Top DeFi projects have Billion Dollars market cap at the time of writing, medium projects Hundred Thousands Dollars. See it yourself: https://defimarketcap.io/.
We will see later that Market Cap is one way to rate a DeFi project, but there is also TVL Total Value Locked.
So when you invest in a DeFi project you have to check if it is a clone of an existing project or if it is the first of it’s lineage; and you have to check the current market cap level compared to similar projects. If it is a clone it’s better to invest on the original, and if the market cap is already on the moon — and the project is legit — it will be a good dividend yielder but the capital value will not grow so much. Investing just for dividends is totally OK and wise of course!
Second reason to invest on Yel.finance is that it is the first of his kind with Equilibrium service (more on Equilibrium later).
Third reason to invest on Yel.finance is that it has less than 10M market cap at the time of writing: there is room to grow there in comparison for example to $SUSHI that has 2B or $SHIBA (…) that has 30B.
3 — Alternative chains
DeFi is all about innovating technology or copying technology: entire blockchains are cloned with little differences one another like DeFi projects are. After the success of Ethereum, compatible (read: cloned with minor differences) blockchains popped up like mushrooms.
Each blockchain has a native currency that is used to pay for transactions on the chain. Ethereum blockchain have Ether ($ETH), Polygon has Matic ($MATIC), Binance Smart Chan (BSC) has $BNB, Fantom has $FTM.
From an investment point of view native blockchain currency are a great investment, more safe and different from governance tokens, and totally different from meme coins (that are not investment, again, they are gambling), but we are talking governance tokens here.
If you have an Ethereum wallet with an address you can use the same wallet address in other chains, keeping the same address and client (like Metamask).
It’s like cloning the city of York on the other side of the ocean: you can have the same building with the same address, but on different cities — wallet address are the same. You can have your 0xebDBbca4744C66E3aE39F997fD5fB7dE29874ce5 address on Ethereum, but also on Polygon on Matic, etc: same address but different blockchain (city). Btw, yes: that is my tipping address if you wish to offer me a beer for this article.
Different chains have different transaction costs, at the moment Fantom Polygon and BSC are very cheap while Ethereum is extremely expensive.
Why do we care? At some point the major DeFi project started to be present on many chains. Sushi for example is present in almost all Ethereum compatible chains, making the project — and the relative governance token — less bound to the destiny of the single chain and more an independent entity.
Think at this like a multi platform browser like Firefox that runs on Windows Mac and GNU/Linux versus Safari that runs only on Mac: if for any reason the market share of Macs crash Safari will crash too, while Firefox is independent from those aspects.
Multi-chain DeFi Apps are the same. Plus they take a larger market of people, just like multi-platform browsers.
Yel.finance is on four chain from the beginning: Ethereum, Polygon, Fantom and BSC.
Forth reason to invest on Yel.finance is that it is multichain from the beginning, making it independent from the fate of a single blockchain.
4 — It's not the size that matters, it's the volume
In DeFi there are not order books like you have in real stock exchanges.
Tokens are sold and bought (swapped) using liquidity pairs: these are pools containing some quantity of two tokens, interacting with those pools you can only swap (barter) one token for the other. The ratio (price) at which the swap is made is calculated with a formula (AMM formula). This formula and this pair simulate an order book, it's complicated and moreover definitely too long to discuss it here: suffices to say that a DEX is a collection of token pairs in pools, and that in order to buy a Token A you need to find a liquidity pair containing it — it will have Token A and Token B — deposit some amount of Token B to receive the same value of Token A.
This liquidity (LP) on the pairs is deposited by investors like me and you that deposit their tokens in order to earn swap fees: in DeFi swap fees are payed to general investors, not to a single institution. It goes without saying that the more volume on the swap pair the more fees liquidity provider will get.
Any project in DeFi needs to have at least one liquidity pair containing its governance token in at least one DEX to make possible for investors to buy.
More established projects will have many pairs across many DEXes: for example Pooltogether has $POOL/$ETH pair on Sushiswap, $POOL/$ETH on Uniswap, $POOL/$USDC on Uniswap etc…
If there is none or very small liquidity on the liquidity pairs it become hard to buy or sell high quantities of a token; this is the reason why projects incentivize people to deposit liquidity on their pairs, de facto paying users to deposit liquidity. This is what LP farming is: projects pay some governance tokens at those investors who deposit LP on their staking pool.
Yel.finance has LP farming pools, but it has another way of incentivizing LP providers that is uncommon: high volumes on the pairs.
Yel.finance will have more than average volume on its pairs because of:
- arbitrage between the chains to take advantage of price difference (people buy $YEL on the chain where it is cheaper, bridge it on the one where it is more expensive and sell there, rinse and repeat until the price is the same);
- Constant Equilibrium fee buyback (more on this later);
- Equilibrium users converting their protocol revenues from $YEL to other tokens;
- Centrifuge (lottery) tickets will be sold in $YEL, and prize will be given in $YEL too;
- Yel Bridge will bridge Yel token across all Yel chains: people will buy Yel on a chain and use it to move value to another, selling there: this is again volume.
all this volume will give $YEL pairs on the DEXes an higher APR (fee revenues) than comparable token pairs; it will also make Yel more attractive for CEXes as they make money with transactions and the more the volume the more the transactions.
Fifth reason to invest on Yel.finance: high volume on the pairs incentivize liquidity and attractiveness for CEX listings.
5 — It's not price that matters, it's TVL
TVL is Total Value Locked, in other words: quantity of money invested in a project services. TVL of a DEX for example is the total value locked on all the pairs available in that DEX.
Yel.finance first service will be Equilibrium: a DeFi automated capital management service (more on Equilibrium here: https://yel-finance.medium.com/equilibrium-mad-science-explained-6425923b8eab) where users will deposit capital in chain currency (you now know that chain currency is Eth on Ethereum, Matic on Polygon, etc…) and the service automatically invest those capitals in the best farming opportunity for the chosen risk level.
Part of Yel.finance earnings will be Equilibrium fees, and Equilibrium fees will be 15% of the gains (more here about Equilibrium numbers https://yel-finance.medium.com/equilibrium-a2c577b74e8e).
It is important to understand that that Equilibrium will deal with Eth, Matic, Fantom, BNB, USDC, USDT, and many other governance tokens, and that fees will be paid by users in those tokens; only after a user has paid for the fee this fee will be converted in $YEL and distributed in the YEL staking pools.
Why this is important? It is extremely important because the dollar value Yel.finance stakeholder will get every day is independent by $YEL token price, but only by total TVL in Equilibrium. If Equilibrium collects $100 for a fee and $YEL value is $1.00, 100 Yel will be distributed. If $YEL value is $5.00 then 20 Yel will be distributed in the staking pools. No matter what $YEL price is, stakers will get the same dollar value, only bound to TVL on Equilibrium (and other factors in the upcoming services).
This will create an interesting side effect: if Equilibrium will be as performing as I think it will be — but you can take your own conclusions after you study it — we will have some huge daily income form it. This daily income will be distributed on the staking pools.
Let's make and example where the staking pools are frozen, no one can enter. With the increase of the YEL distribution fed in the staking pool the pool APR (percentage annual revenue) increases. If today we have 10% APR in the staking pool with 1M TVL on Equilibrium, when we will have 2M TVL on Equilibrium, fees will double, doubling the distribution, doubling the staking APR to 20%.
Do you see where this will go? If the staking pool were frozen the APR would be proportional to Equilibrium TVL, but since they are not frozen as soon as the APR will be higher than a similar pool with the same risk, people will move in. But to move in they have to buy $YEL to stake! So they will make $YEL price rise and total APR on the staking pool lower, because there is more people participating to the distribution. It's a self stabilizing mechanism that will make $YEL price grow following the TVL.
Fun fact: if $YEL price does not grow but only grows TVL, staked users will still get the same dollar value daily income!
Sixth reason to invest on Yel.finance: YEL staking pools will create buy pressure on $YEL following the TVL on the protocol. Early stakers will get both capital gain and same value dividends in the times when the price does not follow TVL.
6 — Capital gain for early investors
One should not invest in a project only for the capital gain: it would be like investing in a restaurant only to sell it after a couple years, or months.
One should invest in a restaurant because he wants to sell meals and take a profit form them.
It happens however on Yel.finance that in the current time it is reasonable to foresee a strong increase both in value of the building and in meals served.
Here is why: people investing now is investing early.
Here is a list of not yets, each one of those should lower the perceived risk, increase visibility ,hence increase money invested. No one can see the future, but it is reasonable to think that a lower risk investment will attract more capital with lower gains.
- Not yet a service running: as sound as it is Yel.finance started with an IDO this August (2021) and its main service Equilibrium is not started. It will start in beta 5th November. We are earlier than the grand opening to remain in the restaurant metaphor;
- Not Yet a main CEX: $YEL is not yet listed in any CEX (Binance, etc). Usually when a token get listed it gets a bump in price and visibility as it enlarge the possible market of buyers;
[Edit: Yel listed on Hotbit on 2021–11–08] - Not Yet burned a part of the supply: Yel.finance minted 400M $YEL token; a part of those are circulating, another part is in the project wallet to cover costs. If they reach self-sufficiency with the protocol earnings when there are still like 150M $YEL on that wallet, they may vote to burn those tokens shifting total supply to mere 250M. This would have a concrete value impact on the token price and a marketing opportunity;
- Not yet began to have marketing: marketing campaign are not started yet, they will start after Equilibrium will be up and running;
- Not Yet started Centrifuge: Centrifuge is a lottery that will burn the prize not won by anyone, slowly lowering the total supply;
- Not Yet a second main CEX: after the first one the second will also be an event. Following listing will not be so important;
- Not Yet the bridge: as a multichain protocol they are planning to implement their bridge, possibly bridging without fees only $YEL token, generating even more volume on their LP pools and another use case for $YEL token.
Seventh reason to invest on Yel.finance: we are early.
Conclusions
Yel.finance could be a life changing investment for those who invest early, and a sound investment with safe diversified APR for those who comes later.
One will be able to deposit and forget on Equilibrium for higher APR or just stake YEL to participate to the protocol revenues.
Each component enhance the other: some creates volumes on the LPs, some generate fees, all working together to give Yel token many use cases:
- You use Yel to receive a share of the protocol earned fees;
- You use Yel to vote how the project will evolve and how it will invest treasury money;
- You use Yel to buy Lottery tickets, that are sold only in Yel;
- You use Yel to bridge value across chains: they may put very low o no fees on the bridge, causing a LOT of traffic and volume and visibility – this is how you do marketing;
- You receive Yel as Equilibrium earnings;
- Due to the lottery burning Yel is also slightly deflationary.
You have enough data to compare Yel.finance to other protocols started last year or starting now, make your own conclusion about business sustainability, technology innovation, investor attraction capacity, near and long term capital and revenue growth.
My conclusion is that this project checks off almost all the point a rising star should have: it has it all! Real token usage, potential for marketing stunt with burns and bridge, potential for steady income!
Come to our Discord to talk about this and try to prove me wrong!
Hi, I’m -DvD-. I’m a mod in the Yel.finance Discord — this is why I invested on Yel.finance. Being on that Discord I realized which are the most misunderstood concepts of DeFi and here I try to simplify them.
I believe that knowledge should be free and accessible for all, but if you wish to offer me whatever beverage is good in your culture you can tip me at: 0xebDBbca4744C66E3aE39F997fD5fB7dE29874ce5, I’ll be super happy to know I helped someone! Cheers!
