Title: YIP-25: Great Yam Wall Initial funding and deployment

Author: @Feddas

Forum discussions:

YIP: Size and Effectiveness of The Great Yam Wall Specification for a Simple Ragequit-like Function YIP: Add RageQuit Functionality

Basic Summary

A core value proposition for YAM has always been the unique value of our growing treasury model. A ragequit function has been a goal of the community as a way to create a price floor. Full implementation of ragequit will not work as it was originally envisioned primarily because capital inside the treasury will be utilized to grow and develop the Yam ecosystem. This proposal is an alternative to initial ragequit designs called the Great Yam Wall.

The Great Yam Wall will be deployed to buy Yams to keep the Market Cap value above the value of the Yam Treasury. This will effectively create a price floor for Yam as originally intended by “Ragequit”. This will directly defend the price of Yam as it is falling and will bring up the price as the Yam Treasury grows.

Abstract

A function will be created that is callable by anyone. When called, the function calculates the necessary size to bring Yam Market Cap back above the value of the Yam Treasury and makes a purchase on the highest liquidity AMM.

This proposal will vote on what % of the entire Yam Treasury we should reserve for this function. Allocation will be in yUSD – a yielding stablecoin.

Specifications

Upon passing of this proposal, n% of the value of the treasury will be allocated for use in the function. This function will be coded and audited before deployment. Expect this process to start after significant development of current products (Umbrella, UMA, YDS, then we will get to GYW)

When the GYW function is called:

1. If Yam Market Cap > Yam Treasury Value there is no action
2. If Yam Market Cap < Yam Treasury Value the necessary purchase as calculated by the function will be executed on the highest liquidity YAM pair.
3. YAM procured by this function will be used in the most productive way possible determined by the community via governance. This might be burning, selling, using for incentives, providing liquidity, lending, etc.
4. The value of funds allocated to this function will be re-evaluated on a quarterly basis.

Analysis of different sizes of GYW

There are three scenarios where the Great Yam Wall will be used.

1. There is a massive sale of Yams due to a black swan event. o What is the lowest Market Cap Great Yam Wall recover from given a certain liquidity in AMM.
2. There is a slow consistent sale of Yams below the Market Cap < Treasury Value o How much support can the wall provide?
3. The Treasury Value grows above Market Cap. o How high can the treasury push the market cap up before it is exhausted?

Scenario 1: There is a massive sale of Yams due to a black swan event.

Question: What is the lowest Market Cap Great Yam Wall recover from given a certain liquidity in AMM. To find this, we need to find the max slippage given a liquidity and the amount of funds in the pool.

As a point of reference current Sushi ETH/YAM Liquidity is $2.8mm. Let’s use $3.38mm as liquidity in this example:

Conclusion 1:

Given that AMM liquidity is $3.38mm and the pool size is 5%-20% of treasury: If the Market Cap drops to highlighted amount, the Great Yam Wall will buy enough Yam to bring the Yam Market Cap up to Treasury Value, thus successfully defending against black swan event. Charts above can be used for other liquidity values.

Scenario 2: There is a slow consistent sale of Yams below the Market Cap < Treasury Value

Question: How much support can the wall provide? If there’s no large selloff and it’s a consistent sell pressure against Yam’s Market Cap, the wall can only buy as much as the funds in the pool. For example, if the pool holds 5% of the treasury, it can buy up to 5% of the market cap @ Market Cap = Treasury Value. Without any buyers except for the Great Yam Wall, there needs to be enough sellers to sell 5% of all Yams. A tall order for even the greatest of sellers, especially if the price has already gone down so far.

Conclusion 2:

Since the Great Yam Wall function can only be used when Yam Market Cap < Yam Treasury Value, whatever x% of Treasury we assign to the Great Yam Wall pool will require sellers to sell off the same x% of entire Yam market.

Scenario 3: The Treasury Value grows above Market Cap.

Question: What is the max slippage that the Great Yam Wall can push Yam Market Cap up to, given an AMM liquidity? This function also depends on if there are sellers or not. Worse case scenario if there is a “wall of sellers” in front of the Great Yam Wall, then this will have the same conclusion as scenario 2.

What happens if there are no sellers except for what is on AMM liquidity, it becomes the inverse situation of scenario 1. Let’s explore this:

The slippage table would be the same:

Conclusion 3:

Given that AMM liquidity is $3.38mm and the pool size is 5%-20% of treasury: Worse case is the same as Scenario 2. Best case is if there are no sellers and ONLY the Great Yam Wall is buying from the market, the final MCap would be a function of slippage given a liquidity amount and purchase amount.

##What is the optimal solution for the size of the Great Yam Wall? There are two considerations that we must make in order to determine the size: • If we earmark the funds, we do not have access to those funds to be used to develop other projects and grow the treasury value. Ultimately, the goal of Yam is to grow bigger and larger. It is best to keep the size of the wall small. • The larger the wall the larger the protection but the law of diminishing returns comes into play. If you look at the slippage table above, as the wall size gets larger, the protection does not increase as much as before.

TLDR: What is the best size of wall?

5% to 10%

It is a good balance between affording plenty of protection @ $3.388mm in AMM liquidity = 25% price protection and minimizing funds being tied up.

Voting – Results based on weighted average of all votes:

1. 0% Funding to the GYW
2. 5% Funding to the GYW
3. 10% Funding to the GYW
4. 15% Funding to the GYW
5. 20% Funding to the GYW