The brand new DeFi-Stablecoin project YAM was able to achieve a gigantic growth within a very short time due to a massive hype. However, as fast as the system developed, it was over again. An error in the Rebase Smart Contract protocol led almost 100% of the investors losing their entire investments within minutes.
„Easy come, easy go“ says an old and always true saying. But what has happened in the last few days in the new DeFi-Stablecoin project YAM is astonishing even for investors who have already gone through several negative experiences.
The YAM project, which was published on August 11, gained an incredible amount of interest within a very short time.
It advertised by distributing free tokens for investors. By regulating the token offer via rebase, the network value was to be kept stable in relation to the increase in profit by traders, who borrowed the invested money against interest. But things turned out differently. With an incoming capital volume of over 470 million US dollars, the value of the token rose to over 125 US dollars within 2 days.
Many skeptics doubted the sustainability of this system due to the rapid development and they should be proved right.
On August 13 (2 days later), YAM developers issued a warning to all investors via Twitter, that a serious error in the Smart Contract could lead to a complete collapse of the network. All of them were requested to get out their money and save it.
Within a few minutes, the value of the token dropped massively. In the end, almost 100% of the investors exited with a complete loss.
A tiny code with massive consequences
According to YAM Finance, the error was an inflation bug in the rebase logic of the YAM protocol. This caused an increase in the network’s supply of additional tokens with a worth of several hundred thousand US dollars. The excess amount then meant that finally no more changes could be made to the protocol.
The team then spontaneously proposed, that the users should deposit and lock 160 000 YAM in an intelligent contract in the network so that the error could be reversed. Within the limit of 7 hours these tokens should be delegated in the YAM contract to stop the disaster. Unfortunately, it was then discovered, that despite this quick action nothing more could be done.
Brock Elmore, an important developer of the YAM protocol finally commented on Twitter:
„I’m sorry for everyone. I have failed. Thank you for your insane support today. I am sick with grief.“
Elmore had already warned of the risks before and emphasized that YAM is a DeFi experiment.
But since the bug could have been detected in advance by a simple test of the Smart Contract architecture, the developers must be accused of some negligence here.
The YAM team later announced, that they were already working on the YAM 2.0 platform.
Hudson James, a developer at the Ethereum Foundation said:
„We live and learn. YAM is a powerful, beneficial experiment no matter the outcome“.
However, it remains to be seen how much interest will be shown in this successor and how much trust investors will place in the new project.
As this example shows, despite the good approach, there are still major challenges to be overcome in the DeFi sector, and the DeFi market is still in its infancy and not yet fully mature.
In the case of YAM, the error could have been prevented simply by better administrative handling of the tests and even if there was a spontaneous solution idea, it could not be implemented properly.
So on the one hand the developers are learning from this incident. But also the investors are encouraged here, to be careful and not to invest their money in things they cannot really understand, only to lose it again a short time later in the worst case, just like it has happened again and again since the beginning of the crypto-currencies by certain scams or hacked platforms, especially in the ICO area.
It remains to be seen how the world of DeFi projects will prove itself over time with these old familiar and yet new challenges.