Introduction

Yama Finance is a stablecoin protocol that uses Hyperlane to create the ultimate omnichain stablecoin. The over-collateralized $YAMA stablecoin can be moved across all major EVM chains (and more) almost instantly and at zero slippage. Although not live yet, Yama plans to initially launch on Arbitrum, Eclipse, and Fuel.

Yama combats many of the scalability, capital efficiency, and even security issues surrounding stablecoins today. It is instantly available on any chain that Hyperlane exists on, accepts various collateral types (including interest-bearing), and does not rely on token bridges to achieve interoperability.

The Problem

Today, blockchains need special infrastructure to connect with each other. This is the interoperability problem, and blockchains commonly rely on token bridges to facilitate the inflow and outflow of liquidity onchain.

Except, bridges are only as efficient as they are liquid. Bridging relatively large amounts of money incurs a lot of slippage, and bridges are notoriously insecure creating huge risks for blockchains and their ecosystems.

The decentralized stablecoin landscape is exceptionally bare after the collapse of Terra’s $UST. Stablecoins today lack diverse collateral types, especially interest-bearing assets as collateral. Many protocols restrict borrowing against “risky” collateral with unreasonably high collateral ratios, and those that use a Peg Stability Module (PSM) often keep their stablecoin liquidity idle rather than deploying it to benefit their stablecoin.

The Goal

Yama will have its own built-in bridge powered by Hyperlane to make cross-chain $YAMA transfers seamless. There will be no slippage and users only need to pay gas fees. $YAMA can be moved to any network that Hyperlane exists on, positioning itself as the de facto stablecoin for new chains that deploy Hyperlane in the future.

It can be minted against various assets (especially interest-bearing), or traded 1:1 with $USDC or $USDT via the PSM. $YAMA will be an outlet for both traditional leverage and leveraged yield farming, and will even work towards multi-collateral CDPs where users can open a single debt position with many different assets as collateral.

With $YAMA’s omnichain capabilities, borrowing and moving it around will be super accessible and easy. Yama’s infrastructure aims to eliminate cross-chain inefficiencies around stablecoins, and this creates bigger implications for DeFi as a whole.

How Does it Work? $YAMA Stablecoin

Users can borrow the $YAMA stablecoin by depositing any supported crypto assets as collateral. This is known as opening a “CDP vault”, or a collateralized debt position. A CDP vault is a smart contract that mints $YAMA and keeps a borrower’s collateral locked until they repay their $YAMA loan. $YAMA can be minted with various crypto assets including interest-bearing tokens like stETH.

$YAMA loans are over-collateralized. A borrower’s collateral value must always be higher than their $YAMA debt value by a certain ratio, or they will be liquidated. This threshold is known as the collateral ratio, and it varies by collateral type depending on volatility and other risks.

The collateral ratio of interest-bearing tokens will generally track their underlying asset (ETH and stETH collateral ratios will be similar). $YAMA plans to implement a simple interface for leveraged yield farming where users can choose how many times they want to “loop” minting $YAMA and using it to buy more interest-bearing collateral.

Like most loans, borrowers pay a fee for as long as they borrow $YAMA. Interest rates are set by governance and vary by collateral type. Interest payments are enforced by the CDP vault contract, so interest is automatically added to the debt amount over time. Borrowers cannot retrieve all of their collateral until they repay their $YAMA debt and any accrued interest.

The protocol will earn yield on collateral for borrowers to offset their interest rates. At the very least this reduces their rates, and in some cases may create a 0% or negative rate depending on the difference between yield and interest. Yield strategies are implemented by Yama governance and vary by collateral type.

If a borrower’s collateral value falls too low, their collateral is forcefully sold by the protocol (liquidation) via Dutch collateral auctions. Anyone can bid on collateral with $YAMA for a small discount, and Yama gets back the $YAMA debt owed by the now-liquidated borrower. In the future, $YAMA stability pools are planned to facilitate liquidations.

Rather than unreasonably high collateral ratios that damage capital efficiency, $YAMA liquidation fees will always be 100%. This creates a stronger incentive for users to only borrow $YAMA if they can avoid liquidation, and overall deters borrowing close to the collateral ratio.

$YAMA will also have a Peg Stability Module (PSM) to let users trade $USDC and $USDT 1:1 for $YAMA. Yama will uniquely externalize its PSM liquidity, deploying idle stablecoins in the PSM onto popular AMMs which deepens $YAMA liquidity.

$YAMA’s peg mostly relies on the market being able to profit whenever $YAMA is not $1. It can be arbitraged by borrowers and market makers as it floats off peg.

• When below $1, borrowers can buy more $YAMA per dollar and repay their loans for cheaper, or they can use the PSM to get 1 $USDT/$USDC for every 1 $YAMA. This deflates $YAMA supply and puts buy pressure on $YAMA.

• When above $1, anyone can take 1 $USDC or $USDT to the PSM and get 1 $YAMA in return, in which the difference in price is profit. This inflates $YAMA supply and puts sell pressure on $YAMA.

How Does it Work? The Omnichain Aspect

$YAMA’s omnichain infrastructure is the Hyperlane cross-chain messaging protocol. Hyperlane facilitates the transfer of data across different blockchains and is currently live on Ethereum, Arbitrum, Optimism, Polygon, BNB Chain, Avalanche, Moonbeam, and Celo.

Yama will have its own built-in bridge for swiftly moving $YAMA across any of these Hyperlane chains. Cross-chain transfers of any size incur zero slippage and no external fees since they are completed via a burn-and-mint method. Users only need to pay gas fees.

On the chain $YAMA is leaving, it is burned by the bridge contract. On the chain $YAMA is going to, the transfer amount is minted by the bridge contract. These cross-chain bridge contracts use Hyperlane to communicate with each other.

$YAMA is also instantly available on any chain that Hyperlane deploys on. As its own bridge, Yama does not need to wait for adequate liquidity in order to be moved cross-chain. Instead can easily be burned and minted accordingly on any Hyperlane chain.

Partnerships

Naturally, Yama is partnered with Hyperlane as it is integral infrastructure for the omnichain aspect of the protocol. As part of both the Eclipse and Fuel ecosystems, Yama has established partnerships with these networks as well. Granary Finance is also exploring a potential partnership with Yama but no details have been announced yet by either teams.

Yama has no additional partnerships otherwise, but this is unsurprising given the fact is has not even released a whitepaper yet. With Hyperlane’s growing popularity and how easy it is to move $YAMA cross-chain, there is massive partnership potential with protocols and blockchains alike looking to integrate or build on top of $YAMA.

Tokenomics

$YGT Price: N/A

Circulating Supply: N/A

Total Supply: N/A

Market Capitalization: N/A

$YAMA Price: N/A

Circulating Supply: N/A

Market Capitalization: N/A

There are few official details on the Yama Governance Token ($YGT) so far. To participate in governance, users can stake $YGT and vote on $YAMA parameters like interest rates, collateral ratios, new collateral types, yield strategies, and the total amount of $YAMA that can be borrowed per collateral type (debt ceiling).

So far, there is no plan to pursue a revenue-share or veToken model for $YGT. Instead, the protocol will use revenue for $YGT buybacks to increase buy pressure and reduce the circulating supply.

Conclusion

Yama Finance is taking a truly novel approach to an omnichain stablecoin. With Hyperlane, moving $YAMA cross-chain does not come with the dreaded slippage and fees. $YAMA will be a go-to avenue for leveraging up on a diverse range of crypto assets and their corresponding yield-bearing tokens, and is all-around extremely capital efficient and innovation-focused.

Yama Finance will “right the wrongs” of previous and existing stablecoins, and its robust infrastructure sets a huge precedent for cross-chain DeFi as a whole.

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