The Role and Utility of the $YALA Token
In this blog post, we’ll dive into the $YALA token and its role in the Yala ecosystem. $YALA is essential as it contributes to the well functioning of the protocol through recapitalization, mechanisms for maintaining systemic stability, and eventually governing the platform. We’ll explain how $YALA functions and why it’s so important for the Yala ecosystem.
What is the $YALA Token?
$YALA is a fundamental component within the Yala ecosystem. As a decentralized platform Yala leverages $YALA to empower its users and maintain a stable financial ecosystem.
Features
$YALA is designed to serve multiple functions within the ecosystem, making it indispensable for the platform’s operation.
System Stability
$YALA ensures the overall stability of the system through a set of mechanisms and policies. This includes maintaining the peg of $YU to the US dollar, ensuring sufficient collateralization, managing interest rates (stability fees), and implementing emergency measures to prevent or mitigate crises.
Automatic Stabilizer
The Automatic Stabilizer not only simulates $YU’s minting and burning during the lending cycle but also utilizes $YALA to preserve $YU’s price stability amid liquidations. This process is split into surplus and debt auctions.
- Debt Auctions: When the value of the collateral declines, bidders may be unwilling to repay the loan, leading to liquidation. This results in generating less $YU than the loan’s original value. When this occurs, a debt auction begins. Bidders use $YU in this debt auction.
- Surplus Auctions: Borrowers can borrow $YU at competitive interest rates. Once a loan is settled, any excess interest becomes system surplus. This surplus $YU is auctioned against $YALA, with the highest bid winning the surplus.
$YALA tokens raised during these auctions are burned, reducing the total circulating supply and maintaining economic balance.
Recapitalization
$YALA plays a crucial role in the platform’s financial health by acting as a safeguard of last resort. Automated mechanisms are in place to ensure system wide recapitalization during times of financial stress e.g. bad debt generation, ensuring that the system’s collateral is sufficient to cover all outstanding $YU. Equally, during times of fee accumulation and system surplus, mechanisms are in place to reduce the circulating supply of $YALA, therefore increasing its valuation as system fallback resort. Alternatively, in times of market stress, $YALA tokens can be minted and sold to recapitalize the system.
Fee Payments
Users utilize $YALA to access the Yala SDK, which includes essential components like the indexer and oracle. Additionally, $YALA is used for other transactions within the platform, such as those involving node operators, including liquidators and oracles, to maintain and enhance the system’s functionality and reliability.
Decentralized Governance
$YALA holders have the power to vote on important decisions, such as the addition of new collateral and associated risk parameters. This ensures the platform remains community-driven and transparent.
The Triple Role of $YALA
Utility Token
In addition to its governance role, $YALA functions as a utility token. Users can use $YALA to pay for accessing and utilizing the Yala SDK, which includes essential components such as the indexer and oracle.
Recapitalization Resource
$YALA also functions as a recapitalization resource, a mechanism for maintaining the stability of the platform. Below we describe the mechanisms triggered by the system in moments of either bad debt generation (Flop) or auctioning off of surpluses (Flap).
Flop
In situations where the collateral backing of $YU becomes insufficient, given system overcollateralization requirements, $YALA can be minted and sold in a debt auction to restore the system’s solvency. Within MakerDAO this is called the Flopper. The Flop Auctions are used to recapitalize the system by auctioning off MKR for a fixed amount of DAI. In this process, bidders compete by offering to accept decreasing amounts of MKR for the DAI they will end up paying.
Flap
When the system is profitable, the surplus $YU is auctioned. The bidders compete with increasing amounts of $YALA. The $YALA tokens received from this auction are burned, reducing the overall circulating supply of $YALA. With MakerDAO this is called the Flapper and here is how it works:
Flapper is a Surplus Auction. These auctions are used to auction off a fixed amount of the surplus Dai in the system for MKR. This surplus Dai will come from the Stability Fees that are accumulated from CDPs. In this auction type, bidders compete with increasing amounts of MKR. Once the auction has ended, the Dai auctioned off is sent to the winning bidder. The system then burns the MKR received from the winning bid.
Yala is implementing this same Flop and Flap mechanism from MakerDAO, this dynamic helps to balance the ecosystem, ensuring that it remains robust and resilient against market fluctuations.
Governance Token
The $YALA token is at the heart of Yala’s decentralized governance model. Holders of $YALA are empowered to participate in the decision-making processes that shape the future of the platform. This includes voting on key protocol changes, such as adding new collateral types, adjusting risk parameters, and other critical system updates. Additionally, holders can delegate their tokens to other users to vote on their behalf, ensuring broader participation and representation. By distributing governance power to its users, Yala ensures that the platform remains transparent, democratic, and aligned with the community’s interests.
How Does $YALA Work?
Collateralized Debt Positions (CDPs)
CDPs allow users to generate $YU by locking up collateral assets such as Bitcoin and other Bitcoin-native assets. Here’s how it works:
- Depositing Collateral: Users deposit collateral into a smart contract, creating a CDP. The amount of collateral deposited must exceed the value of the stablecoins generated to ensure system stability and overcollateralization. You can read more about it in this article.
- Generating Stablecoins: Once the collateral is locked, users can generate $YU, similar to DAI, which are soft-pegged to the US dollar. $YU can be used for various financial activities, such as payments, savings, or collateral management. The amount of $YU that can be minted is determined by a Loan-to-Value (LTV) ratio, initially set by the Yala Foundation that will later transition into System Governance by the $YALA holders, ensuring that the system remains adequately collateralized and stable.
- Maintaining Collateralization: The Yala Foundation has also initially set a liquidation threshold to maintain the peg. This means that the value of the collateral must always be higher than the value of the stablecoins to maintain the system’s stability. If the collateral value drops below a certain threshold, the CDP may be liquidated to cover the outstanding stablecoin debt. In this Medium article, you can read about different DeFi strategies.
Stability Mechanisms
$YALA plays a role in maintaining the stability of the stablecoins generated through CDPs. The platform employs several mechanisms to ensure this stability:
- Recapitalization Mechanism: In cases where the collateral backing the stablecoins is insufficient, $YALA tokens can be minted and sold to recapitalize the system. This ensures that the platform remains solvent and that the stablecoins maintain their peg to the US dollar. MakerDAO has a similar mechanism called the Flopper and Flapper.
- Burn Mechanism: When the system is in surplus, excess $YALA tokens are bought back and burned. This reduces the overall supply of $YALA, which can potentially increase its value and ensure a balanced token economy.
Governance
Governance is a key feature of Yala, and $YALA holders play an active role in it. Through a decentralized governance model, $YALA holders can:
- Propose Changes: Any $YALA holder can propose changes to the protocol, such as adjusting collateral types or risk parameters.
- Vote on Proposals: $YALA holders can vote on these proposals, ensuring that changes reflect the collective will of the community.
- Token Delegation: Holders have the option to delegate their tokens to other users, allowing them to vote on their behalf.
- Executive Decisions: In addition to regular governance polls, $YALA holders can participate in executive votes to implement critical decisions swiftly.
Conclusion
In this blog post, we’ve explored the role of the $YALA token. From its critical functions in governance and utility to its mechanisms for maintaining stability, $YALA plays an important role in the Yala ecosystem. As Yala continues to innovate and grow, the token will play a pivotal role in its success, offering a robust and decentralized financial solution for users worldwide.
To stay updated on the progress of our indexer technology, feel free to follow our developments on GitHub.
Keep an eye on Yala as we keep pushing the boundaries of innovation and shaping the DeFi space’s future.
About Yala
Yala connects Bitcoin liquidity with a meta yield stablecoin. Designed as both a potent asset and a liquidity enhancer, the stablecoin, YU, operates across various ecosystems, increasing efficiency without the need for bridges or relocating the underlying Bitcoin. Yala empowers Bitcoin holders and ecosystem participants with expanded utility, all while maintaining the security of Bitcoin’s infrastructure.
