The crypto scene is a fast paced, relentless space that never seems to stop, with a new project or two cropping up every single day. Not all projects are brand new innovations however, with a majority starting out as forks or copies of existing projects (Pancakeswap, Apeswap, Pantherswap, Fishswap, Garudaswap… the list is a long one). That’s not necessarily a bad thing per se, since some of these forks go on to become better projects than it’s original, but one can’t help but become desensitized to it all.
So when I was told that an upcoming project would be attempting something completely new and unique in the market, my interest was piqued. Their “whitepaper” or Gitbook is an extensive one, complete with step by step examples and over 23k words detailing their innovative idea. If that sounds like a little bit too much bedtime reading after a hard day at work, you’re in the right place — Luckily for you, I’ve done all the reading so you don’t have to.
Let’s get cracking.
The official description over at YSL.IO is that its a “cutting-edge DeFi tool designed to optimise and amplify the returns from yield farming platforms, whilst maximizing the benefits of locked liquidity to create a truly unparalleled token economy”.
For all the laymen out there like myself, YSL.IO is a series of vaults.
Unlike the other vaults out there however (Aperocket, Pancakebunny, Beefy to name a few), YSL.IO isn’t focused on just compounding your farming rewards multiple times a day to generate better APY. While compounding IS one of YSL.IO’s features, it’s unique selling points lie in:
- How it optimises and amplifies those farming rewards.
- A referral program that allows benefits for both the referrer and the referee.
Tokenomics — A quick primer
Before we go on any further, its worth taking a quick minute to understand the tokenomics of the YSL.IO platform. There will be 4 different tokens and I’ll cover the first three in more detail in the following sections:
- YSL — The utility token
- sYSL — Rewards from using the services on the YSL.IO platform (optimisation/amplification/referrals etc)
- aYSL — Used in amplification
- xYSL — An x-tremely deflationary token
xYSL on the other hand, is YSL.IO’s extremely deflationary token that’s been created with their own unique twist compared to all other deflationary tokens in the market. They YSL.IO team have released a Medium article discussing the ins and outs of the token, but the prime area of focus is how it’s deflationary mechanisms are completely independent of trading activity.
Being an inflationary token that has no upper supply limit, there are 14 different scenarios in which YSL is minted and paired with BUSD to create LP tokens in the YSL-BUSD pool on Apeswap, with the LP tokens instantly locked away for 1000 years.
That means that regardless of whether a user is buying, selling or even just harvesting their rewards from the vaults, the amount of locked liquidity in the YSL-BUSD pool increases. Over time, this will result in a large enough liquidity pool that it becomes very difficult for any one person to affect the price of YSL (price stabilization).
YSL’s goal = Continuous generation of YSL-BUSD
locked liquidity resulting in a stable YSL price.
The YSL tokens’ pursuit of a stable price has a secondary benefit in that it reduces the risk of impermanent loss. Users will be able to earn buyback and inflation rewards by staking their YSL-BUSD LP tokens in the vault, feeling safe in the knowledge that the more locked liquidity is being created, the lower the risk of impermanent loss.
The sYSL token is the method in which users will truly profit from the YSL.IO platform. The important thing to understand here is that the sYSL price is pegged to the amount of liquidity locked in the YSL-BUSD pool on Apeswap.
The larger the pool of locked liquidity,
the higher the price of sYSL
As we’ve discussed before, there are 14 different scenarios that result in the continuous generation of locked liquidity. Because of this feedback loop, over time the price of sYSL will only appreciate — Here’s a quick example:
- Someone harvests their sYSL rewards from the vaults and decides to sell it.
- The sale of sYSL triggers the creation of more locked liquidity in the YSL-BUSD pool
- The price of sYSL increases since there’s now more liquidity locked away in the pool
Confused? Don’t worry, I was too. Luckily there’s a great example (complete with the exact formulas and numbers!) from the YSL teams’ gitbook that we’ll take a look at in a minute under the Optimisation section that takes us through this process.
Optimisation is the first innovative function that YSL.IO will bring to the table. Via the creation of locked liquidity, YSL.IO offers a flat 165% boost in rewards (minus fees) compared to what you’d normally get by farming on Apeswap or Pancakeswap.
Providing liquidity in the BANANA-BNB farm on Apeswap would net you 249.13% in returns after a year. Instead, depositing those same BANANA-BNB LP tokens into a YSL.IO vault would see you earning returns of 348% APR that would be automatically compounded back into the vaults hourly, resulting in a final 3143.7% APY!
“How is this possible?”, you might ask. Initially, the math doesn’t seem to add up. If YSL.IO only earns 249.13% in BANANA from Apeswap, how can it afford to pay out to its users 3143.7% in sYSL? Fret not, I highly recommend you check out this great step by step example which dives into the math behind how this all works.
The second innovative function that YSL.IO is bringing to the market, there are 2 types of amplification that will be available to all users — Strategy 1 amplification and Strategy 2 amplification.
Strategy 1 Amplification
Strategy 1 aims to encourage and reward investors who participate in the referral program. Both the referrer (existing user) and the referee (new user) will benefit from Strategy 1 amplification, though in different ways. The referee (new user) would receive an additional 5% boost in their earnings from the vaults compared to optimisation (for a total of 170% APR compared to optimisation’s 165%), while the referrer (existing user) would receive 10% of the Compounded Returns that your referee has deposited funds into.
Going back to our earlier example, the final APR for a user who deposited BANANA-BNB LP tokens would be 358.55% APR from Strategy 1 amplification.
For a step by step walkthrough on how these numbers are calculated, check out this Medium article by the YSL.IO team.
Strategy 2 Amplification
Where Strategy 1 amplification is activated by being referred to YSL.IO, Strategy 2 amplification works very differently. It can be thought of as the most “premium” version of the Optimisation feature that rewards investors with a 225% boost to the base farm’s APR (less any fees). Activating strategy 2 however, is not “free” and will require that the user holds in aYSL at least 10% of his TVL on the YSL.IO vaults.
Which methodology should you go for then? Optimisation, Strategy 1 amplification or Strategy 2 amplification? The example in the YSL.IO teams’ gitbook doesn’t make it clear so let’s take a quick look here.
In the following comparisons we’ll take a look at four users who are each staking $10,000 in the BUSD-USDC stablecoin farm on ApeSwap. The farm has an APR of 10.26%.
User 1 — Traditional yield optimiser
- Funds in a traditional yield optimiser like Autofarm or PancakeBunny would see your daily rewards harvested and compounded daily for a resulting APY of 10.80%.
- If we’re taking Autofarm as an example, you’d pay about 3.4% of your profits as fees
User 2 — Optimisation
- Stake the same funds in a YSL.IO vault however, and the optimisation feature automatically kicks in. This gives you an APR of 12.99% that’s automatically compounded every hour for a final APY of 13.87%.
- The only fee involved is a controller fee of between 0.3% – 1%.
User 3 — Strategy 1 Amplification
- User 3 is referred to YSL.IO by a friend and because he’s joined using a referral link, optimisation is deactivated in favor of Strategy 1 amplification. This gives you an APR of 13.38% that’s automatically compounded every hour for a final APY of 14.32%..
- As before, the only fee involved is a controller fee of between 0.3% – 1%.
User 4 — Strategy 2 Amplification
- Activating strategy 2 amplification deactivates both optimisation and strategy 1 amplification. Due to the larger boost provided by strategy 2, you enjoy an APR of 17.71% that’s automatically compounded every hour for a final APY of 19.37%.
- An additional $1100 (10% of your TVL + aYSL entrance fees) would have to be provided to buy aYSL in order to activate strategy 2 amplification. This aYSL can be converted back to sYSL should user 4 choose to exit Strategy 2 amplification
- Once again, the only fee involved is a controller fee of between 0.3% – 1%.
In the end, whether you choose to activate optimisation, Strategy 1 amplification or Strategy 2 amplification will depend on your risk appetite and your assumptions for the market. Either way, it’s clear that having your LP tokens staked in the YSL.IO vault will give you better returns compared to a traditional yield optimiser. Ultimately, this just provides an additional strategy amongst the many out there for you to choose from.
Because I am not a financial advisor, I’ll skip my personal thoughts and whether or not I’ll be investing into the project. Instead, in the remaining time before YSL.IO launches on the 13th of September 2021, I highly recommend you check out their Gitbook and DYOR regarding some of the topics I briefly touched on above.
Signing off for now.