I. Abstract | II. Introduction | III. Tokenomics | IV. Risks | V. Conclusion
This litepaper explains the motivations and concepts behind Yamfore. A decentralised non-custodial lending protocol powered by Cardano. This litepaper elaborates on all the technical details of the protocol.
Traditionally, crypto-backed loans offered by either centralised or decentralised platforms / protocols have typically been facilitated between two parties. The borrowers, who seek to keep exposure to their crypto assets, but require access to immediate capital. And the lenders, who supply capital to the borrowers in return for ongoing interest repayments on their lent funds. The issue with this arrangement comes from the significant power imbalance between both parties. The borrower is often presented with unfavourable loan to value ratios, the constant upkeep with interest repayments and the possibility of a margin call at any time due to a sudden market downturn. If the borrower fails to meet any of these obligations, their collateral position is liquidated and their loan position is closed. This model arguably presents substantial risks to any individual seeking a crypto-backed loan and remains a far cry from a “set & forget” prospect.
Yamfore instead takes a different approach, and completely removes the lender from the equation. All crypto-backed loans facilitated through Yamfore are directly funded from the protocols internal stablecoin treasury. This removes many of the counterparty requirements of the lenders, such as ensuring the value of the borrower’s collateral never falls below a certain threshold or requiring ongoing interest repayments etc.
Because all capital lent is owned by the protocol itself, a greater level of risk is able to be taken on by the protocol on behalf of the borrowers. This enables significantly more favourable loan terms that otherwise wouldn’t be possible through traditional lending protocols / platforms. The Yamfore protocol simply relies on the accumulated staking rewards earned from the borrowers deposited ADA collateral in the protocol as payment for their loan position with no other / further payment obligations needed. Due to the lack of external liquidity providers, and strict reliance on the 4–5% APY staking rewards of all deposited ADA collateral in the protocol. The monetary growth rate of Yamfore, as well as the total amount of borrowers realistically able to be serviced at a time with favourable lending rates is severely limited.
There is a list of approved Stake Pools the Yamfore protocol strictly delegates to. The addition / removal of a Stake Pool from this list is decided via on-chain governance. The Yamfore protocol will have a number of staking keys which will be incharge of delegating all ADA secured in the protocol. When a loan position is initiated through Yamfore, the UTXO containing the borrowers ADA collateral is assigned to one of these staking keys. Each staking key simply points to an individual Stake Pool from the list of accepted Stake Pools the protocol can delegate to. The protocol will continuously assign each staking key an even amount of individual loan delegations. Given a sufficient aggregation of loans, this eventually averages out the total stake amount distributed amongst all staking keys / Stake Pools. This implementation prevents the need for the protocol to periodically rebalance its delegation whilst keeping the total stake value fairly distributed, thus minimising the risk of over exposure to a single poorly performing / malicious Stake Pool. Rebalancing of delegation only occurs when Stake Pools are added / removed via on-chain governance. These protocol self delegation costs are handled by the internal delegation wallet of the protocol, which is also staked and delegated to the same list of whitelisted Stake Pools. Ideally, all Stake Pools approved via governance for Yamfore to delegate to, should be well performing pools, consistent minting blocks, within an ideal stake saturation level etc.
The Yamfore protocol contains its own stablecoin treasury, which is utilised to issue payments for all crypto-backed loans initiated through the protocol. The stablecoin treasury will contain a combination of stablecoins native to the Cardano ecosystem. These stablecoins will be backed by verifiable on-chain assets and remain evenly distributed within the treasury at all times to ensure redundancy in the event of value depegging. The list of accepted stablecoins within the protocol can be added / removed via on-chain governance.
The Yamfore protocol also holds a liquidity treasury containing 50% (500 million) of the total fixed supply of the native governance and utility token of the protocol, $CBLP. The liquidity treasury will be utilised for capturing any surplus value from the crypto market by exchanging $CBLP for stablecoins and providing a secondary capital stream to the stablecoin treasury during heated market conditions.
*Note: The exact mechanisms of the liquidity treasury will be further expanded upon in the tokenomics section
To acquire a loan, a user must first provide ADA as the collateral to borrow against. The users deposited ADA collateral will also require a corresponding amount of $CBLP tokens deposited alongside it. This ADA / CBLP ratio will be dictated by the stablecoin treasury level. The loan amount a user wishes to borrow is always proportional to the value of their deposited ADA collateral, since the protocol only gives back a 1:1 value exchange for any deposited ADA collateral. The $CBLP tokens deposited alongside the borrowers ADA collateral simply act as a security deposit for establishing a loan position and are ALWAYS returned in their entirety to the borrower on closure of their loan position. A non-fungible token representing ownership of the loan position will be minted and sent to the borrowers wallet on initiation of a loan. These NFT deeds will be freely tradable via secondhand NFT marketplaces such as jpg.store, CNFT.io etc
A simple metric is used to determine the protocols ADA / CBLP lending ratio. For every ten percent the stablecoin treasury level drops, five percent more $CBLP tokens are required in the borrowers deposited ADA / CBLP collateral to establish a loan.
The illustration below visualises this metric:
The ADA / CBLP lending ratio is determined by calculating the percentage of value left in the protocols stablecoin treasury in comparison to the hypothetical max value amount. The stablecoin treasury starts with an amount representing the hypothetical max value amount. As profits are acquired by the protocol, this hypothetical max value amount increases. This increase requires the protocol to re-calculation the percentage of the value left in comparison to the new* hypothetical max value amount.
The yam formula below is used:
y / a = m
y = The current market value of stablecoins residing in the treasury
a = The combined value of the original hypothetical max value amount and all profits acquired thus far
m = The current stablecoin treasury level
As demand for crypto-backed loans increases and the protocol’s stablecoin treasury drains in value. The ADA / CBLP lending ratio ensures that a progressively higher ratio of $CBLP tokens are required to be allocated to a borrower’s collateral position to initiate a loan position. This heavily disincentives potential borrowers from opening up loan positions and brings added value to $CBLP token holders with the surplus demand for $CBLP tokens in the market. This surplus demand of $CBLP also introduces selling pressure from borrowers within the protocol exiting their loan positions to capitalise on the price appreciation of their $CBLP tokens. This directly releases capital within the protocol itself, aiding in further balancing of supply vs demand.
The Yamfore protocol primarily operates by collecting the earned staking rewards of the deposited ADA collateral of all borrowers in the protocol. All staking rewards earned from the deposited ADA collateral of borrowers during their loan term are collected as payment by the protocol with no other / further payment obligations.
During a loan term, the borrower is never subjected to any margin calls, ongoing interest repayments and maintains an indefinite loan term. The borrower is able to close their loan position at any time, pending the value of their deposited ADA collateral is equal to or above 105% of the borrowed principal amount. If a borrower wants to exit their loan position early and redeem their deposited $CBLP tokens, but their deposited ADA collateral isn’t at or above the required level. The borrower can choose to pay the owed deficit of their ADA collateral to close their loan position immediately, and redeem their deposited $CBLP tokens. As stated before, the $CBLP tokens deposited alongside the borrowers ADA collateral simply act as a security deposit for establishing a loan position and are ALWAYS returned in their entirety to the borrower on closure of their loan position.
*Note: Originally borrowed principal amount & 5% flat fee based off principle amount = 105%
Once a borrowers loan position is closed, 105% of the borrowed principal amount, as well as all earned staking rewards during their loan term is subtracted from the borrowers deposited ADA collateral value. The borrower then receives the leftover difference of their ADA collateral, as well as the entirety of their deposited $CBLP collateral. There are no other / further payment obligations for the borrower to fulfil. The 105% collateral requirement is NOT inclusive of any staking rewards earned by the borrowers deposited ADA collateral. This means the base value of the borrowers deposited ADA collateral itself has to reach a value of 105% of the borrowed principal amount. The protocols portion of ADA collected after the closure of a loan position is then exchanged to stablecoins and sent back to resupply the stablecoin treasury. This is accomplished by enabling arbitrageurs to create transactions containing the required stablecoin amount to facilitate a complete exchange. The transactions formed by arbitrageurs will completely consume all ADA residing in the UTXO of a closed loan position, with the arbitrageurs receiving a 5% ~ payment, based from the principal amount exchanged.
In summary, a borrower’s deposited ADA collateral ALWAYS needs to reach 105% the value of the borrowed principal amount, before the loan position can be closed and their deposited $CBLP collateral / any surplus ADA is made redeemable to them. This can either be through natural price appreciation or the borrower paying the owed deficit of their deposited ADA collateral to exit their loan position early. All crypto-backed loans initiated through Yamfore, function more closely to a perpetual long position on the price appreciation of ADA than anything else. This varies greatly from more traditional crypto-backed loans from other protocols / platforms that maintain the expectations of the borrowers eventually “paying back” their borrowed capital.
Below is an example of a hypothetical lending scenario
Bob takes out a $1,000USD crypto-backed loan through the Yamfore protocol. Bob provides $1,000USD worth of ADA collateral to the protocol. The stablecoin treasury levels were at 62% during Bob’s loan initiation, requiring Bobs deposited collateral to have an ADA / CBLP ratio of (80% ADA / 20% CBLP) *Note: This also results in a loan to value ratio of 80% LVR for Bob
Bob now deposits his collateral in the protocol in the required 80% ADA / 20% CBLP ratio aka ($800usd ADA / $200usd CBLP) Bob receives a payment of $800USD worth of stablecoins and retains exposure to his $1,000USD worth of crypto assets, now in the form of ($800usd ADA / $200usd CBLP) Bob’s collateral is securely locked in the protocol with no fixed loan duration.
After the commencement of his loan, Bob has had no further obligations to fulfil. Bob hasn’t been subjected to any margin calls, regardless of the price action of his collateral, nor has Bob been obligated to pay any ongoing fees. This has enabled Bob to operate with a strictly passive “hands off” approach, simply storing his loan NFT deed in a long term cold storage.
A year has passed since Bob opened a loan position through Yamfore. Bobs deposited ADA and $CBLP collateral have both doubled in value. The current market value of Bobs ADA collateral is $1,600USD, whilst Bobs $CBLP tokens are now valued at $400USD. Bobs ADA collateral has also been passively earning staking rewards during his loan term, totalling a value of $100USD. Bobs total collateral value now totals $2,100USD. Bob decides to close his loan position to access his appreciated assets. The protocol confirms Bobs ADA collateral has reached the required value of being equal to or above 105% of the borrowed principal amount. The protocol subtracts its share from the value of Bobs ADA collateral, a total of $940USD
*Note: 105% of borrowed principal = $840usd | All earned staking rewards = $100usd | Total combined = $940usd
The protocol then returns the difference of $760USD worth of ADA collateral as well as the entire $400USD worth of deposited $CBLP collateral back to Bob. This means a total of $1,160USD ($760usd ADA + $400usd CBLP) worth of collateral is received by Bob.
*Note: The $1,160usd collateral payment is not inclusive of the initial $800usd stablecoin payment received by Bob on commencement of his loan
The native governance and utility token underpinning the entire functionality of the Yamfore protocol is $CBLP. The $CBLP token is required to utilise the services of the protocol as well as provide a decentralised and fairly distributed method of enabling governance of the protocol amongst individuals with the most monetary stake in the system. The main utilities of $CBLP are as follows: Utility, Appreciation and Governance.
The $CBLP token is the key requirement in utilising the lending services of Yamfore. There is a total fixed supply of 1 Billion $CBLP tokens. This ensures the native token underlying the utility and governance of the protocol is deflationary in monetary nature. The price appreciation of $CBLP will follow accordingly as the protocol captures more market share, users, liquidity.
Yamfore is dedicated to a fair token distribution with a focus on community allocation. Therefore there will be no insider allocation given to venture capitalist, private investment firms or angel investors. The token distribution is community focused with 80%+ of the total circulating $CBLP tokens allocated for distribution amongst the community members. This ensures a fair and transparent distribution of $CBLP tokens amongst individuals truly supportive of the protocols success. And not heavily allocated to a select few individual strictly driven by monetary gain.
Below is an illustration of the $CBLP token allocation.
*Note: Anyone can easily identify the official team wallet, which holds the majority of $CBLP tokens by simply searching for the “$yamfore” ADA handle. This was deliberately done to ensure full transparency of funds and maintain inclusive accountability.*
50% of $CBLP will be allocated for the liquidity treasury. The liquidity treasury is tasked with effectively “dollar cost averaging” $CBLP tokens for stablecoins and capturing any surplus value from the markets.
25% of $CBLP will be allocated to the community with all generated revenue going towards bootstrapping the stablecoin treasury. This 25% distribution can be a single or combination of the following: IBO, ICZ, ISPO, IDO etc
1% of $CBLP will be allocated for the community airdrop. This will be structured to reward all active community members of Yamfore, and bootstrap initial governance of the protocol amongst true supporters.
Development Team & Misc:
19% of $CBLP will be allocated for the core development team, future hires, partnerships etc.
As mentioned already, the $CBLP token is primarily tied to the success and longevity of the Yamfore protocol itself. As the Yamfore protocol captures more market share, users, liquidity, price appreciation of $CBLP will follow accordingly. The Yamfore protocol primarily profits from the staking rewards of all deposited ADA collateral in the protocol from borrowers. This creates a sustainable profit cycle consisting of Demand, Funding, Liquidity.
As the protocol is utilised by users seeking crypto-backed loans, the $CBLP token required to utilise the protocol sustains demand due to its utility.
The ADA collateral deposited by borrowers in the protocol ensures consistent staking rewards are being collected by the protocol. The collected staking rewards are then exchanged for stablecoins which are resupplied to the protocols stablecoin reserves.
The influx of newly added funds improves the lending rates attracting borrowers that were “on the fence” in regards to the prior lending rates. This consistent inflow of capital ensures the protocol is able to continually facilitate crypto-backed loans.
This illustration below visualises this profit cycle:
The secondary and lesser discussed revenue generating mechanism of the protocol is the liquidity treasury. The Yamfore liquidity treasury, initially containing 50% of circulating $CBLP tokens (500 million) is strictly utilised for capturing any surplus value from the crypto market by exchanging $CBLP token to stablecoins and resupplying the protocols stablecoin reserves.
During times of significant speculation / “risk on” attitudes in the crypto markets. The value of most crypto tokens are well over-extended and disconnected from any notion of their “true’’ fundamental value. The liquidity treasury aims to benefit and capitalise on this influx of high-risk speculative capital flowing into the markets. The liquidity treasury does this by effectively “dollar cost averaging“ the overvaluation of $CBLP tokens stored in its reserves, consistently exchanging $CBLP for stablecoins throughout this explosive growth period. All generated profits are then resupplied to the stablecoin treasury of the protocol. The liquidity treasury UTXO containing all $CBLP tokens will be made available for arbitrageurs to form transactions partially consuming a designated $CBLP amount per epoch, for a 5% ~ payment, derived from the base amount exchanged.
During these bull market scenarios, the revenue generated from the liquidity treasury will be significantly higher than the usual profits acquired from the staking rewards of all deposited ADA collateral in the protocol. The liquidity treasury only initiates its vesting schedule when the total circulating market capitalisation of $CBLP is equal to or above the value of the stablecoin utilisation value. The stablecoin utilisation value can be found by simply subtracting the value held in the protocol’s stablecoin treasury from the current hypothetical max value amount of the stablecoin treasury. The calculation below is used to determine the initiation of the liquidity treasury vesting schedule:
Total circulating $CBLP market capitalisation / stablecoin utilisation value = ≥1.0
This effectively creates / sustains a short-term speculative flywheel effect that ensures a minimal equal return of value is achieved in regards to the $CBLP market capitalisation for every dollar supplied to the protocols stablecoin treasury by the liquidity treasury. This also has a secondary effect of creating selling pressure to alleviate some of the price overvaluation in the $CBLP token.
Governance is an integral aspect of Yamfore. The Yamfore protocol, similar to many other protocols, uses a token weighted voting process. This fairly gives the individuals with the most monetary stake in the protocol a larger say in the development of the protocol. This also creates a necessary threshold for crucial proposed changes to the protocol, requiring the true consensus of a large enough percentage% of $CBLP token holders to initiate / approve these proposals. This means that only $CBLP token holders are in complete control of the protocol’s lending parameters / development direction. These protocol parameters are only able to be altered via on-chain governance, inbuilt into the protocols smart contracts. This ensures the $CBLP token holders are able to adjust the protocol’s parameters in a democratic & trustless fashion without the reliance of any external entity to perform the required task.
Below is an illustration highlighting the parameters able to be altered via on-chain governance by $CBLP token holders.
Below is an illustration of the step by step process of Yamfore governance:
Step 1 | Proposal Deposit:
A wallet containing / delegated a certain % of the total circulating supply of $CBLP tokens can propose a governance action.
Step 2 | Voting Period:
The period of time $CBLP token holders are given to vote on an initiated proposal.
Step 3 | Quorum:
The required minimum percentage % of $CBLP tokens staked in the voting process to validate the results.
Step 4 | Consensus Threshold:
The required minimum percentage % of yes votes to approve the proposal.
Step 5 | Execution Delay:
The amount of time before the protocol implements the passed proposal.
Step 6 | Changes Complete:
The process is completed and the proposed changes are implemented!🎉
Similar to the use of any decentralised application on any blockchain. There exist some fundamental risks the end-user should be made aware of before interacting with the Yamfore protocol. The Yamfore protocol is an open-source collection of smart contracts operating independently on a blockchain. The distributed nature of the storage and operation of the protocol means no single individual, organisation or governing body owns or controls the protocol. Instead, the holders of the $CBLP token dictate the development / direction of the protocol.
The Yamfore protocol is provided on a “USE AT OWN RISK” provision without any associated warranties or guarantees provided. No developer or entity involved in the creation or promotion of Yamfore is responsible for any damages / loss of funds resulting from the usage of the protocol. The Yamfore protocol will go through extensive internal testing as well as external auditing before launching, however the risk of an undiscovered bug or exploit residing in the protocols smart contracts always remains a possibility.
Another risk, pertains to the financial risk a user takes when initiating a loan through the protocol. This risk comes in the form of overexposure to the native utility & governance token of the protocol, $CBLP. The $CBLP token is inherently riskier than ADA due to its relatively limited use case and smaller market capitalization. Ideally any user taking out a crypto-backed loan against their ADA would prefer the majority if not all of their deposited collateral to remain denominated in ADA.
Although the borrowers $CBLP tokens are ALWAYS returned in full on closure of their loan position. The market value of a borrowers deposited $CBLP tokens may vary greatly from the start of their loan term to the end of it. The Yamfore protocol is only concerned with ensuring the value of the borrowers deposited ADA collateral is of sufficient value before allowing a borrower to close their loan position and redeem their $CBLP tokens. It is entirely possible for a borrower to close their loan position and be in profit on their deposited ADA collateral, whilst down / neutral in price on their deposited $CBLP collateral.
If a user deems the protocols ADA / CBLP collateral ratio requirement too high and wishes to retain the majority / all of their deposited collateral in ADA. The user might instead choose to use a more traditional crypto-backed lending platform / protocol. The user of course forgoes all the advantages a community backed lending protocol offers, such as no margin calls, no ongoing interest repayments, indefinite loan terms etc.
The Yamfore protocol represents an alternative lending model for smart-contract protocols providing crypto-backed loans. Yamfore’s internal funding mechanism removes many of the counterparty requirements existing in other traditional lending protocols. These counterparty requirements include but aren’t limited to margin calls, ongoing interest payments, high loan to value rates etc. The combination of all these innovations enables Yamfore to become the first community backed lending protocol, offering truly “set & forget” crypto-backed loans for anyone and everyone.
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