YBX Tokenomics Deep Dive (+10)

Script3
Script3
Sep 20 · 10 min read

Platform tokens are a key innovation of the DeFi ecosystem and have powered much of its growth. The flexibility of their tokenomics models has enabled protocols to use platform tokens for a huge number of purposes, such as creating liquidity (Curve), incentivizing usage (Sushi), providing insurance (Maker), and of course, decentralized protocol governance. YBX is YieldBlox’s platform token. Its tokenomics model enables it to act as tokenized growth and become the first productive asset on Stellar! It bootstraps the growth of YieldBlox and the greater Stellar ecosystem, all while accruing value from their development.

For those who are unfamiliar, YieldBlox is a decentralized money market protocol built on Stellar. It expands Stellar’s functionality as a decentralized financial network by adding trust-free lending, borrowing, and more at a base-network level.

Tokenomics Overview — Growth Positivity

YBX’s tokenomics model accelerates YieldBlox’s development by incentivizing holders to maximize their growth positivity (+x🌱). Growth positivity is increased through growth-positive actions — actions that benefit both the protocol and the holder, such as staking. YBX rewards are paid to lenders and borrowers to improve protocol liquidity and usage. In addition, YBX stakers receive a portion of protocol fees for staking as staking improves YBX market dynamics and expands governance participation, among other benefits.

Growth Positive Criteria

For a protocol action to be considered growth-positive, it must benefit the user while achieving either Increased Protocol Usage, Improved YBX Market Dynamics, Improved Lending/Borrowing Efficiency, or Increased Governance Engagement.

YBX’s tokenomics model includes five growth positive utilities that users can use to maximize their growth positivity.

Utility 1: YBX Lending and Borrowing Incentives — holding YBX +1🌱

(achieves Increased Protocol Usage and Increased Governance Engagement)

YBX’s most basic utility is incentivizing lending and borrowing. Any user who lends and collateralizes or borrows assets on YieldBlox earns YBX rewards. The YBX governance system sets incentive allocations. This mechanism kickstarts protocol usage and encourages efficient lending and borrowing (if there is not much lending of an asset, its per-lender YBX yield will be higher, incentivizing more users to lend it).

Utility 2: YBX Staking — Basic Staking +1🌱

(achieves Improved YBX Market Dynamics, enables Improved Lending/Borrowing Efficiency and Increased Governance Engagement)

Staking is the core utility of YBX. YBX holders can stake YBX to receive sYBX (a token that denotes their staking contribution). sYBX comes with a variety of benefits, each of which benefits both the protocol and the staker. When staking, YBX holders lock up their YBX for a period of time between 3 months and 1 year. The longer the lockup period, the more sYBX the staker receives. At the end of the staking period, the user can withdraw their staked YBX and redeem their sYBX for a portion of the fees the protocol earned over the staking period. Protocol fees are paid out to stakers in YBX, which the protocol purchases on the Stellar DEX using a portion of borrower interest payments.

Fee Redistribution and Backstop Mechanism

Staking is a growth-positive action because it reduces YBX sell-pressure since it temporarily removes some YBX from circulation. This improves the YBX backstop mechanism’s effectiveness, as it functions better with low YBX sell-pressure. Thus, staking is beneficial for the protocol, as it lowers counterparty risk, and beneficial for the holder as they receive a portion of protocol fees for staking.

Utility 3: YBX Staking — Governance +1🌱

(achieves Improved Lending/Borrowing Efficiency and Increased Governance Engagement)

sYBX gained from staking YBX can be used to vote on governance proposals that modify the YieldBlox protocol. These can be proposals to add features, update interest rates, and much more. The governance model is the only way YieldBlox can develop over time. Therefore, governance engagement is crucial for the protocol’s long-term success.

The most common governance proposal users will encounter is the Incentive Allocation proposal. This proposal is voted on weekly and allocates how the protocol distributes YBX incentives to lenders and borrowers. Users use their sYBX to vote for asset lending or borrowing they want YBX distributed to (often the ones they are lending or borrowing). The protocol divides the daily YBX incentive payout based on the vote distribution.

Incentive allocation proposals are especially relevant for institutions. For example, A fintech platform building on Stellar and using YieldBlox as a lending and borrowing solution can stake YBX and use their sYBX to vote for assets their users are lending to offer their users a high-yield interest product.

Utility 4: YBX Staking — Borrowing +1🌱

(achieves Increased Protocol Usage)

Staked YBX acts as collateral in the YieldBlox protocol, which means users can borrow against it like they would against any other collateral. This allows stakers to stake their YBX with a long lockup period while still retaining some liquidity. They can always borrow against their staked YBX if they need immediate liquidity. At the same time, it increases protocol usage, making it a beneficial action for both stakers and the protocol and, therefore, a growth-positive action. Borrowing against staked assets is particularly useful for institutions using staked YBX to allocate incentives to certain assets. They can borrow to ease working capital requirements while their YBX is staked.

Utility 5: YBX Staking — AMM Staking +1🌱)

(achieves Improved YBX Market Dynamics and enables objectives Improved Lending/Borrowing Efficiency and Increased Governance Engagement)

Once AMM’s are released on the Stellar network, YBX users will have the option of staking YBX:XLM shares. This will function the same as staking YBX. By staking AMM shares, users will receive trading fees from the AMM and YieldBlox protocol fees received from staking, allowing users to double up on yield. YieldBlox makes this strategy especially potent because it trades YBX on the DEX through normal protocol operations (repurchasing YBX to distribute fees to stakers, selling YBX to provide backstop protection), so the AMM will fill a portion of those trades, meaning AMM share stakers will receive fees from the trade. This also makes AMM staking beneficial to the protocol as AMM stakers provide the protocol with liquidity to execute its trades, so AMM staking is a very growth-positive action.

Optimal YBX Strategy +10 🌱

As we have laid out, there are five main growth-positive actions YBX holders can take. The YieldBlox protocol allows holders to perform all growth positive actions at once to maximize value creation for both them and the protocol.

The five actions a user can perform with YBX (simplified):

· Sell (-)

· Earn and Hold (+)

· Stake (++)

· Stake + Vote (+++)

· Stake + Vote + Borrow (++++)

· Stake + Vote + Borrow + AMM (+++++)

In the above list, anything from “Earn and Hold” and below is seen as a positive outcome according to our previously outlined growth positive criteria (increasing in benefit as one goes down the list), and “Sell” is a negative outcome. Each user wants the most positive outcome for them and the protocol.

The benefit of users’ actions on the protocol and themselves can be illustrated with game theory. Let’s say there are two users who both have YBX. Their action strategies can be seen here:

2 Rational Actor Strategies:

The following strategies can be achieved when both parties act in growth-positive ways.

+2🌱 strategy
It is seen as a positive outcome if both users claim or buy YBX and do nothing (hold it) (1,1). The protocol still functions as it is supposed to, and users still get their YBX for lending or borrowing. Therefore, the protocol would see the base positive outcome of (1,1) (1 +1 = 2).

+4🌱 strategy
If both users stake their claimed YBX, a more positive outcome (over just holding YBX) occurs (2,2). This has the same benefits of holding, but stakers gain more benefits from fee distributions, and YBX selling pressure is reduced. These actions result in the second positive outcome of (2,2) (2 + 2 = 4).

+6🌱 strategy
If both users stake their claimed YBX and vote on YieldBlox governance proposals, the third positive outcome occurs (3,3). Both users still see the rewards of staking YBX for sYBX, but the protocol is now guided by their decisions, allowing them to increase their control and allocate YBX incentives where they see fit. This results in a fairly positive outcome for the users, (3,3) (3 +3 = 6).

+10🌱 strategy
Now let’s say both users stake AMM shares, vote, and borrow against their staked AMM shares. This is the maximum positive outcome for all parties (5,5). Not only do the users gain their share of protocol revenue, but they also get to claim trading fees from the AMM shares and liquidity from borrowing. This is also hugely beneficial for the protocol, as it provides maximum liquidity for the staking and backstop functions while increasing protocol usage. The most positive outcome occurs if both users use this strategy, (5,5) (5 + 5 = 10).

Irrational actor strategy outcomes

It should be clear by now that YBX strategies are a cooperation game. The better the ecosystem cooperates to act rationality, the better the outcome for the protocol and users. However, it’s impossible to guarantee that all actors will be rational, so we’ll briefly cover outcomes of 2-actor strategies where one or more actors is irrational.

We’ll cover a single irrational actor outcome first. Say one user sells, and the other performs all five growth-positive actions. In this scenario, a slightly negative occurs (5,-1) because the rational user’s actions offset the downside of the irrational user’s action. Additionally, due to the mechanics of staking, the rational user benefits here as they receive a higher staking APR since the other user didn’t stake and dilute yields. So overall, the damage to the protocol is negligible, and the rational user still benefits despite the lack of cooperation.

To round out our discussion of YBX strategies, let’s cover a purely irrational strategy outcome. When both users act irrationally by selling YBX, the worst outcome occurs (-5,-5). This is detrimental to the protocol and users. The protocol’s staking and backstop mechanisms do not function as well, and users will not be able to claim the benefits of staking YBX, vote on governance proposals, or receive AMM trading fees. If this outcome occurs, the total benefit score is -10 as the growth impact of YBX is reduced.

YBX Growth Cycle 🌱♻️

Now that we’ve outlined the optimal YBX growth strategy for users to take, let’s take a look at how YBX’s tokenized growth functionality interacts with the greater Stellar ecosystem. YBX, when functioning optimally, will create efficient lending and borrowing opportunities on YieldBlox, increasing ecosystem capital usefulness. This will, in turn, grow the Stellar ecosystem by bringing in new capital, which will grow the YieldBlox protocol as a portion of such capital will funnel into YieldBlox. To round out the cycle, YieldBlox’s growth increases YBX’s growth impact allowing YBX to create more efficient lending and borrowing opportunities which restarts the cycle.

To provide a concrete example, imagine that there is a fintech platform building on Stellar that uses YieldBlox to offer its users an interest-generating product. The following cycle might play out:

1. The fintech platform and other YBX stakers use their sYBX to vote to allocate YBX incentives to the assets the fintech platform users are lending. This increases the interest rates the fintech platform can offer users.

2. The increased interest rates attract more users growing the platform.

3. The new users deposit capital into the fintech platform, growing the Stellar ecosystem.

4. A portion of that capital is deposited in YieldBlox, increasing liquidity and attracting more borrowers.

5. Increased borrowing increases the interest fees generated by the protocol, which, in turn, increases the amount of YBX purchased for fee redistributions by the protocol, resulting in increased staking yields.

6. The increase in YBX purchases and staking yields drive up the value of YBX, which increases the value of the YBX incentives YBX stakers can allocate.

7. (cycle restarts) YBX stakers allocate incentives to create more lending or borrowing opportunities; this restarts the cycle.

Overall, YBX tokenomics enable YBX to serve as tokenized growth and ensure the expansion of both YieldBlox and the greater Stellar ecosystem. At Script3, we’re very excited about this tokenomics model and what it offers the ecosystem. We can’t wait to build the future of DeFi with you all!

+10🌱

Other News:

Sam Conner Live Show:

This Wednesday, September 22nd, at 3:30 EST, our CEO Markus will be chatting with Sam Conner about the YieldBlox protocol and the YBX token! Make sure to tune in and tweet any questions at us or Sam Conner!

@Script3official / @samconnerone

Airdrop Update:

Due to the insane amount of interest in the YBX airdrops, we’ve tweaked the rules on both the community portion of our airdrop and the beta testing. Don’t worry, all legitimate community members should still be able to qualify! These measures were just to combat bots and other airdrop farmers not actually interested in the YieldBlox protocol. Read more here!

Join our community!

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A DeFi Studio

script3

Script3 is a DeFi studio focused on strategic building. This publication is a place where we share our ideas and beliefs, and anything else we find interesting.

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Script3

Script3 —DeFi on Stellar | https://www.script3.io/ OptionBlox: https://optionblox.com/ YieldBlox: https://www.yieldblox.com/

script3

Script3 is a DeFi studio focused on strategic building. This publication is a place where we share our ideas and beliefs, and anything else we find interesting.