YT
Yield Token
YT represents the right to the yield of staked native yield tokens, obtained by staking native yield tokens and specifying a lock-up period. YT separates the native yield from the native yield tokens, allowing it to be traded on secondary markets and used to build other DeFi Lego components.
A true universal fungible YieldToken
Unlike YieldTokens from other protocols in the market, which are either NFTs or special FTs (e.g., Pendle), these are non-fungible. This characteristic leads to a lack of liquidity for YieldTokens and reduces the composability of the protocol.
OutStake's YT is a genuinely fungible token (FT), offering excellent liquidity and strong composability. For every 1 native yield token staked for 1 day, 1 YT is minted. If π₯ native yield tokens is staked for π¦ days, π₯π¦ YT will be minted. Therefore, theoretically, 1 YT is anchored to the native yield generated by staking 1 native yield token for 1 day.
YT can be freely traded and can be redeemed at any time to claim the accumulated native yield in the yield pool. When burning YT, the redemption of native yield is proportional to the amount of YT burned relative to the total YT supply.
The Stability Mechanism of YT
YT is also a non-USD algorithmic stablecoin pegged to the native yield rate. Theoretically, one YT represents the native yield produced by one native yield token over one day. Since YT is linked to the native yield rate and minted through the staking of native yield tokens, it differs from early algorithmic stablecoins like Luna. The value system of YT is a closed system, ensuring that a price death spiral will never occur.
Initially, the redeemable value of YT (the native yield that can be redeemed by destroying YT ) will gradually increase over time from the point when the first YT is minted, theoretically ceasing to grow once it reaches its theoretical value cap. Burning YT will redeem native yield proportionally, so it does not affect its redeemable value. The redeemable value of YT will only decrease when new YT is minted, and the decrease will be reaccumulated in the future (due to the staking of new native yield tokens).
However, in practice, some users may burn YT before the lock-up period of their staked native yield token expires, leading to a reduction in YTβs circulation while native yield continues to accumulate in the yield pool. This can eventually cause YTβs redeemable value to exceed its theoretical value cap, resulting in two possible outcomes:
In the future, burning YT will allow for the redemption of more yield, increasing the returns for long-term stakers.
Users can stake more Native Yield Tokens to mint new YT and immediately burn it to redeem native yield for arbitrage. However, this will provide more fuel for the next value breakthrough. Additionally, the number of PT minted from new staking will slightly decrease, leading to a higher implied fixed interest rate for the minted POT.
Broader prospects
YT is not only a tool for helping long-term stakers earn more yield but also a truly fungible, universal yield token. Additionally, it represents Web3's first decentralized algorithmic stablecoin anchored to native yield rates. In the competitive market, YT remains connected to these native yield rates. Looking ahead, Outrun will utilize YTβs unique features and community to develop even more innovative products.
The mathematical model of YT
While YT may appear simple on the surface, the ability for YT to be freely traded and for any YT holder to redeem native yields at any time introduces a highly complex game-theoretic process and mathematical model.
The following, we construct a minimal model to calculate impermanent profit and losses.
Assuming that the accumulated native yield in the YieldPool is 0, and 1 YT is pegged to the yield produced by 1 native yield token over 1 day, which we denote as π¦.
User A stakes π native yield tokens and locks them for π days, which will mint ππ YTs. We will consider other users as a collective entity, referred to as User B, who stakes π native yield tokens and locks them for π days, which will mint ππ YTs.
After π‘ days:
The Impermanent Profit and Loss Ratio (IPnLR) can be obtained by dividing the actual earnings by the expected earnings and then subtracting 1. IPnLR = (Actual Earnings / Expected Earnings) - 1
The impermanent profit and loss (IPnL) can be obtained by multiplying each user's impermanent profit and loss ratio (IPnLR) by their respective expected earnings. IPnLa = IPnLRa * Expected Profit_A IPnLb = IPnLRb * Expected Profit_B
From the above figure, we can deduce that there is an impermanent profit and loss conservation between User A and User B. If User A and User B lock up their assets for the same duration, both parties would experience no impermanent profit or loss. In other words, an individual user's impermanent profit and loss are correlated with the weighted average duration of other users in the staking pool.
Of course, the above is just a minimal model. The actual situation will be more complex due to the influence of multiple players in the game. Therefore, we will set a maximum lock-up time limit -- MaxLockInterval. The closer the user's lock-up time is to MaxLockInterval, the smaller the IL and the larger the IP. Additionally, users can reduce IL and obtain more IP by redeeming their principal immediately upon the expiration of the lock-up period and then staking to mint REY again. When the user's lock-up time is MaxLockInterval, there will definitely be no IL.
Based on the model presented above, Outrun can help long-term stakers earn more income. We believe that ETH staking itself aims to make Ethereum more decentralized and secure. Therefore, users who contribute to the long-term protection of Ethereum should be rewarded more generously.
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