What is yUSD? UMA launches yield dollar token, driving price up nearly 50%
DeFi remains a focal point in the cryptocurrency market, with stable passive income causing many investors to abandon the secondary market and move funds into high-yield DeFi platforms. In this trend, decentralized finance contract platform UMA officially announced the launch of a new type of token - Yield Dollar (yUSD) and liquidity mining on July 23, driving the token price up by nearly 50%.
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Yield Dollar (yUSD)
Yield Dollar (yUSD) is a variant of stablecoin with an expiration date and a constant value of 1 US dollar at maturity, and it can only be minted by collateralizing cryptocurrency assets.
What are the specific use cases of yUSD? To give a simple example, when Joe wants to maintain his Ethereum (ETH) position but also has a need for funds, he can choose to collateralize his ETH to generate yUSD, such as yUSD-SEP20 (expires on September 1, 2020). He can then transfer yUSD-SEP20 to liquidity pools like Uniswap or Balancer to convert it into stablecoins. Within the next 90 days, Joe can choose to repurchase the corresponding amount of yUSD to repay his debt and unlock his collateralized ETH. Alternatively, he can wait until yUSD-SEP20 expires and have ETH automatically deducted from his collateral after the expiration.
If Joe sells yUSD at a price of $0.95 and buys back yUSD close to the expiration date at a price of $1 on the market, it means that Joe "borrows $0.95 and repays $1 at maturity (because yUSD is constantly valued at $1 upon maturity)."
In essence, yUSD is similar to the concept of "bonds" in traditional financial markets, with the difference being that the borrowing interest rate for yUSD borrowers depends on market conditions. Factors affecting the borrowing interest rate include "yUSD selling price, yUSD repurchase price, and borrowing period," with the specific formula as follows:
n represents the time to expiration (in years), which in this example is 90/365 = 0.2465. From this, we can calculate Joe's borrowing interest rate as (1 / 0.95)^(1 / 0.2465) - 1 = 23%.
It is important to note that since factors influencing the borrowing interest rate include "yUSD selling price, yUSD final repurchase price," it is possible to earn money from borrowing (when the yUSD selling price > $1).
Simultaneously Announces Launch of Liquidity Mining
In addition to introducing yUSD, UMA has also announced the imminent launch of liquidity mining. In the announcement, Risk Labs has decided that users contributing yUSD liquidity to specific liquidity pools (such as Balancer and Uniswap) will receive UMA tokens as liquidity mining rewards to incentivize liquidity provision. Further details and official announcements regarding the liquidity pools will be made in the future.
Since UMA's official announcement of this news, the token price has surged by nearly 50%.
【Update on 9/1】After UMA launched liquidity mining on July 28, the token price has risen to 22.4.
