DEFIDEVELOPMENT

【Dapp Pocket】What is yCredit? Andre Cronje Tokenizes Credit!

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【Dapp Pocket】What is yCredit? Andre Cronje Tokenizes Credit!

Dear DeFi enthusiasts,

This week marks the first article of our 2021 new project DeFi Special Research. We will publish a special topic every week to specifically study a DeFi project or event. Feel free to subscribe and follow. This week, let's talk about yearn.finance founder Andre Cronje's new project yCredit.

What is yCredit?

yCredit is a protocol that allows DeFi users to tokenize their credit collateral. In comparison, while Maker allows users to collateralize ETH to borrow Dai, yCredit enables users to collateralize various ERC20 tokens to mint yCREDIT tokens. These yCREDIT tokens serve as the user's credit credentials, allowing holders to borrow various ERC20 tokens on the platform.

The design of yCredit is based on the StableCredit concept introduced by Andre Cronje in September, a concept that combines decentralized lending, stablecoins, and AMMs. By using credit tokens yCREDIT as a bridge, various ERC20 tokens supported by the platform can be used as collateral to borrow other assets. For example, a user can collateralize AAVE tokens, mint yCREDIT, and then trade for LINK tokens on the platform's AMM. This process can be seen as using AAVE as collateral to borrow LINK. Considering that the utilization of various ERC20 tokens in the market varies, this allows users to more easily access tokens with higher utility while still maintaining their original assets.

Earnings Generated by yCredit

Earnings for Collateralizers

A fee of 0.5% is charged for all collateralizing, trading, borrowing, and repaying activities on the platform. These fees are distributed to users who have yCredit staked in the contract.

Earnings for Arbitrageurs

When a user collateralizes any ERC20 asset to mint yCredit, for example, collateralizing $100 worth of AAVE will mint 99.5 yCREDIT tokens. Subsequently, when a user burns 100 yCREDIT tokens, they can redeem their AAVE position. This anchors the value of yCREDIT to the dollar.

In other words, when the price of yCREDIT exceeds one dollar, users can profit by collateralizing ERC20 to mint yCREDIT and selling it off; when the price of yCREDIT falls below one dollar, users can purchase yCREDIT on the market and burn it, exchanging it for ERC20 tokens worth one dollar.

The specific operation is likely to involve multiple ERC20/yCREDIT token AMMs on the platform. However, since Andre Cronje has not yet publicly released the yCredit smart contract code, the exact implementation remains unknown. The currently available interface is the old scUSD contract, not yCredit.

Risks of yCredit

It has become commonplace for Andre Cronje to accompany project plans with the phrase "Use at your own risk." Nevertheless, many speculative investors are always eager to identify contract addresses and deposit funds. White-hat hacker Nour, on the evening Andre announced yCredit, tweeted a warning to all users, indicating that he had discovered a vulnerability in yCredit that could potentially be exploited through flash loan attacks to drain funds, advising users to withdraw immediately.

This disclosure sparked discussions among many netizens. From the dialogue between rekt and Nour, we can understand some facts behind the exposure of this risk:

  1. The project is entirely Andre's responsibility and is not associated with the Yearn team.

  2. Nour had contacted Andre and obtained his approval before disclosing the risk. However, Andre seemed not to address the risk immediately.

  3. Nour's disclosure did prompt some users to withdraw funds promptly, but some users who did not manage to withdraw blamed him for "seeking attention" and magnifying the platform's vulnerabilities in the eyes of hackers.

  4. Currently, only Andre should be able to use this contract, so he does not feel obligated to inform everyone about where the vulnerability was found.

  5. Nour believes that the risk of a DeFi project is not eliminated through audits alone. Only prolonged market testing, Test in Prod, can ensure security. He considers audits as a "joke."

As of the time of writing, Andre has not disclosed the extent of attacks on yCredit or whether vulnerabilities have been patched.

Conclusion—How to View yCredit?

Due to Andre Cronje's frequent new ideas and the fact that each project may not necessarily be as initially released, we can only imagine the future appearance of yCredit based on the descriptions in his articles.

Core Value

What value does yCredit bring to the DeFi ecosystem? We believe it lies in the tokenization of credit. In traditional finance, individuals with higher credit ratings have better financing opportunities, whether through lower interest rates or higher credit limits. In other words, credit has value. What yCredit accomplishes is capturing the value of this abstract concept of "credit" and providing it with liquidity, allowing users with surplus credit to sell it while enabling those in need to purchase it on the open market.

Arbitrage Opportunities

This project offers more arbitrage opportunities compared to many of Andre's other projects. As stated in his article, yCredit is expected to open many different ERC20/yCREDIT AMMs. In this rapidly changing market environment, coupled with the initially unstable price of yCREDIT, there may be significant arbitrage opportunities created.

Risks

Risks are certainly present. One prominent feature of Andre's projects is that he does not wait for audits before going live, hence the reminder to "Use at your own risk."

References

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