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 stems 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 further payment obligations required.
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 borrower’s 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, the total stake amount distributed amongst all staking keys / Stake Pools will inevitably average out.
This implementation prevents the need for the protocol to periodically rebalance its delegation, whilst keeping the total stake value fairly distributed, thus minimizing 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. There will be 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.
Yamfore will utilize a diverse basket of stablecoins upon launch. These stablecoins will be backed by verifiable on-chain assets, and native to the Cardano ecosystem, not bridged from other ecosystems. These are the initial criteria for stablecoins types launching in conjunction with Yamfore, but the list of accepted stablecoin solutions can be added to / removed via on-chain governance regardless.
Yamfore treats all stablecoins received in its treasury as transitory assets. This is due to the protocols main objective of keeping a high level of capital efficiency, thus immediately lending out any & all capital received to borrowers. Because of this, stablecoins are never “stored” in the protocols stablecoin treasury for any significant periods of time. The exact type of stablecoin given to a borrower as payment for their loan position will be randomly determined by the protocol at the moment of loan initiation, and mainly be subject to availability.
The Yamfore protocol also holds a liquidity treasury that contains 50% (500 million) of the total fixed supply of the native governance, and utility token of the protocol, $CBLP. The liquidity treasury enables individuals to provide liquidity to Yamfore via depositing their ADA into the protocols staking portal. This allows individuals to forfeit their usual ADA staking rewards, in return for an allocation of $CBLP tokens that are distributed, and redeemable, on a per epoch basis.
*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. The ADA / CBLP lending ratio will be dictated via on-chain governance amongst CBLP token holders. 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 position as well. These NFT deeds are required to redeem the deposited collateral in the protocol, and can also be utilized to perform multiple trading strategies.
The introductory ADA & CBLP lending ratio is 70% ADA / 30% CBLP
During times of high demand, $CBLP token holders can vote to increase the lending ratio. This ensures a higher allocation of $CBLP is required for a borrowers loan position, bringing added value to $CBLP token holders due to the surplus demand in the open-market. And during times of low demand, the rates can be adjusted accordingly to ensure the protocols treasury remains highly utilized, and capital efficient.
The Yamfore protocol primarily operates by collecting the earned staking rewards of the deposited ADA collateral of all borrowers in the protocol. All ADA 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. 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 110% of the borrowed principal amount. If a borrower desires 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 & 10% flat fee based off principal amount = 110%
Once a borrowers loan position is closed, 110% 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 back. There are no further payment obligations for the borrower to fulfil. The 110% 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 110% 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 an 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 10% ~ payment, based from the principal amount exchanged.
In summary, a borrowers deposited ADA collateral ALWAYS needs to reach 110% the value of the borrowed principal amount, before their loan position can be closed, and their deposited $CBLP collateral / any surplus ADA is made redeemable to them. This can either occur 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 opens a $1,000USD crypto-backed loan position through Yamfore. 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 (70% ADA / 30% CBLP) *Note: This results in a loan to value ratio of 70% LVR
Bob now deposits his collateral in the protocol at the required 70% ADA / 30% CBLP ratio aka ($700usd ADA / $300usd CBLP) Bob receives a payment of $700USD worth of stablecoins and retains exposure to his $1,000USD worth of crypto assets, now in the form of ($700usd ADA / $300usd 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 $1,400USD, whilst Bobs $CBLP tokens are now valued at $600USD. Bobs ADA collateral has also been passively earning staking rewards during his loan term, totalling an additional ADA 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 110% of the borrowed principal amount. The protocol subtracts the owed amount of $870USD from the value of Bobs deposited ADA collateral.
*Note: 110% of borrowed principal = $770usd | All earned staking rewards = $100usd | Total combined = $870usd
Yamfore then returns the difference of $630USD worth of ADA collateral as well as the entire $600USD worth of deposited $CBLP collateral back to Bob. This means a total of $1,230USD ($630usd ADA + $600usd CBLP) worth of collateral is received by Bob.
*Note: The received $1,230usd collateral is not inclusive of the initial $700usd stablecoin payment received by Bob on commencement of his loan position
The native governance and utility token underpinning the entire functionality of Yamfore, is the $CBLP token. 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 amongst individuals with the most monetary stake in the Yamfore protocol. The main utilities of the $CBLP token are as follows: Utility, Appreciation, and Governance.
The $CBLP token is the key requirement in utilising the lending services of Yamfore. This requirement ensures that there will always be a core demand / utility to the $CBLP token. This is a necessity to ensure that Yamfore has an integral asset growing alongside the protocol itself, as the protocol captures more market-share, liquidity, demand etc.
There is a total fixed supply of 1 Billion $CBLP tokens. This ensures the native token governance and utility token underlying the protocol, remains deflationary in monetary nature. 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 fair and transparent distribution of $CBLP tokens amongst individuals truly supportive of the protocols success, and not just heavily allocated to a select few individuals.
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.
50% of $CBLP will be allocated for the liquidity treasury, which enables individuals to provide liquidity to Yamfore via depositing their ADA into the protocols staking portal in return for an allocation of $CBLP tokens that are distributed, and redeemable, on a per epoch basis.
25% of $CBLP will be allocated to the community, with all generated revenue going towards bootstrapping the stablecoin treasury. This distribution will take the form of the stablecoin treasury bootstrapping event, which the details of, have yet to be released.
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 the most dedicated community members of Yamfore.
Development Team & Misc:
19% of $CBLP will be allocated for the core development team, future hires, partnerships etc.
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 has two revenue sources facilitating its continuous growth. These two sources are in the form of the Profit Cycle, and the Liquidity Treasury.
The profit cycle is the revenue acquired from any successfully closed loan position, enabling the protocol to service more borrowers at a time, ultimately facilitating greater demand for the CBLP token. There will always exist a “base” ADA & CBLP lending ratio that the market will be willing to accept. When the ADA & CBLP lending ratio passes this point, no individual is willing to take on a loan position due to the unfavorable loan terms. When a borrower closes their loan position, and the principal & interest ( In the form of staking rewards ) is collected by the protocol. That ADA revenue is then exchanged via arbitration, and added back to the stablecoin treasury to facilitate further crypto-backed loans.
The collected principal & interest amount have now added more capital to the protocol, enabling more borrowers to be serviced. Specifically, the profits acquired from the interest repayments ( In the form of staking rewards ) are now facilitating extra purchasing of $CBLP tokens due to the influx of newly available capital to be borrowed from the protocol.
This “base” ADA & CBLP lending ratio will constantly be in flux, depending on general market sentiment, and a multitude of other economical factors. It is the responsibility of the CBLP token holders to ensure that this “base” lending ratio is always appropriately set for the current market conditions, via on-chain governance. An indicator of achieving this “base” ADA & CBLP lending ratio, is the stablecoin treasury of the protocol always remaining empty.
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. On closure of a loan position by the borrower, those staking rewards are then collected and exchanged for stablecoins, which are then resupplied to the stablecoin treasury to lend out again.
The influx of newly added funds in the stablecoin treasury, specifically the profits acquired in the form of staking rewards are now facilitating extra purchasing of $CBLP tokens. This is due to the protocol having additional capital to lend out. This consistent inflow of capital ensures the protocol is able to continually facilitate crypto-backed loans.
The Yamfore liquidity treasury contains 50% (500 million) of the total fixed supply of the native governance and utility token of the protocol, $CBLP. The liquidity treasury enables individuals to provide liquidity to Yamfore via depositing their ADA into the protocols staking portal. This allows individuals to forfeit their usual ADA staking rewards, in return for an allocation of $CBLP tokens that are distributed, and redeemable, on a per epoch basis.
The liquidity treasury distributes a fixed amount of $CBLP tokens per epoch. These $CBLP tokens are shared amongst all delegators in the protocols staking portal, in proportionality to their delegation size. This means the payment amount a delegator receives is directly tied to the raw value size % of their delegation in the staking portal, when compared to all other delegators. For instance, if a delegator owns 1% of the total value of all delegated ADA residing in the staking pool, an equivalent 1% of the entire amount of $CBLP tokens set to be distributed for that epoch, will be fully rewarded to that delegator as payment. This system takes a very fair and balanced supply & demand driven approach in regards to token distribution, similar to the NFBO. Similar to ADA staking rewards, $CBLP rewards are distributed to delegators on a per epoch basis, and available to be withdrawn at any time. Any earned $CBLP tokens that haven’t been withdrawn yet, simply accumulate passively in value.
Any ADA sent to the protocols staking portal remains “liquid” / unlocked at all times, and is available to be immediately withdrawn by the delegator whenever. There is a minimum wait time of 4x epochs, before a delegators deposited ADA begins earning any $CBLP rewards. This is also the case for any new ADA deposited into a delegators position, and if a delegator withdraws and re-deposits their ADA back into the staking portal. The delegator is of course able to claim their $CBLP rewards whenever they desire, without incurring this wait penalty.
A non-fungible token representing ownership of the delegators position in the staking portal will be minted, and sent to the delegators wallet on initiation of a stake position. This NFT will act as the delegators receipt, and is required to redeem any deposited ADA in the staking portal or claim any $CBLP rewards. The Yamfore protocol exchanges all accumulated staking rewards to stablecoins, and sends those assets to resupply the stablecoin treasury, immediately. This occurs on a per epoch basis, as soon as any ADA staking rewards are received by the protocol. All UTXOs containing the ADA revenue from the staking portal will be made available for arbitrageurs to form transactions that consume all ADA residing in those UTXOs. Arbitrageurs will be given a 10% ~ payment for any exchanges conducted, which is derived from the base amount they’ve exchanged. The liquidity treasury also utilizes the same list of accepted / whitelisted Stake Pools the Yamfore protocol already strictly delegates to.
Similar to many other protocols, Yamfore utilizes a token weighted voting process. This fairly gives 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.
These protocol parameters are only able to be altered via on-chain governance, inbuilt into the protocols smart contracts. This means that only $CBLP token holders are in complete control of the protocols lending parameters. This also ensures that $CBLP token holders are able to adjust the protocols parameters in a democratic & trustless fashion without reliance on any external entity.
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!🎉
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, 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 / exploit residing in the protocols smart contracts always remains a possibility. Depending on the severity of the bug / exploit, this could lead to partial, or complete loss of deposited funds.
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. This is a very similar concept / effect as impermanent loss, when providing liquidity to a decentralized exchange.
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.
On initiation of a loan through Yamfore, a Non-fungible token representing ownership of the loan position is minted and sent to the borrower’s wallet. This NFT deed is required to redeem the deposited collateral assets secured in the protocol. A borrower misplacing their NFT deed, equates to them forfeiting their deposited collateral assets. The borrower should always ideally store their NFT deed in a secure long term cold storage solution such as a hardware wallet or air-gapped device. This is highly recommended and only possible on community backed lending protocols such as Yamforer since loan positions are completely passive, and not requiring constant interest repayments or active / margin call liquidation risk management.
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.
🌎 Website: https://yamfore.com/
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