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On Verge of Disaster: Fatal Bug of YAM Finance

YAM Finance, the brand new darling of decentralized finance liquidity mining became the ticking bomb the day after deployment.

The experimental protocol of the stablecoin of flexible supply, stepped into the limelight on Tuesday offering YAM tokens as a reward for staking. Although unaudited, the YAM Finance attracted nearly $500 million in less than 24 hours since launch. However, the critical protocol bug has been reported soon thereafter, threatening to lose all the funds deposited.

Initially distributed across various staking pools on Tuesday, YAM quickly rocketed in demand. According to blockchain analytics Nansen, the protocol attracted million-worth of deposits of various cryptocurrencies, including the single transaction of 30.000 Wrapped Ether (WETH) tokens, worth of more than $11 million during the first day.

YAM Finance is an innovative and experimental DeFI protocol that aims to offer YAM stablecoins as a reward for staking. Presented as an innovative and experimental protocol, YAM combines “innovations in programmable money and governance”.

The adjustable token supply allows an increase or decrease in the token amount according to the market conditions in order to keep the value of $1. Meanwhile, the governance of the token holders allows the further support of stability. According to the developers:

We have employed a fork of the Compound governance module, which will ensure all updates to the Yam protocol happen entirely on-chain through community voting. Immediately upon launch, ownership of every contract in the Yam protocol is given to the time-locked governance contract, controlled by YAM holders.

Although YAM Finance protocol was created as the “minimally viable monetary experiment” with zero value, YAM token surged in price reaching the peak of $159 per token on yesterday’s evening, according to CoinGecko. However, the drama started soon thereafter.

What happened?

Early Thursday night YAM developers detected a crucial protocol bug that could result in a million-worth disaster just a few hours later if nothing was done.

The bug was found in a protocol rebasing function that mints too much YAM tokens to the supply reserves. Meanwhile, the excess of the tokens stays in the reserves contract creating the oversupply that makes any further governance action impossible. This means the millions of funds in the protocol’s governance treasure will be lost.

The team behind YAM Finance published the emergency message asking for help from the crypto community to save the protocol.

According to them, the only opportunity to stop the million dollar-worth catastrophes and fix the bug was to modify the contract by initiating a proposal prior to the second rebase, which was supposed to happen at 8 am UTC August 13.

However, to implement the protocol change, the protocol needed around 1.6 million YAM tokens delegated by 7 am UTC on Thursday, meaning in less than 7 hours from announcing an emergency.

The community responded to the call for help by various “benevolent whales” that entered the liquidity pools to accumulate additional YAM tokens. Despite that, the process went slow at first, bringing the desperate developer to promise the “significantly more rewards” for delegates.

However, it accelerated significantly a few hours before the 7 am UTC deadline as the mass support from the DeFi community surged. The limit of 1.6 million YAM (or 160,000 pre-rebase YAM) tokens was crossed when less than 90 minutes were left until 7 am.

However, according to the YAM  Post-Rescue Attempt Update released shortly after the 7 am UTC deadline, “with help from security experts, we concluded that the rebase bug would interact with the governance module and prevent this proposal from succeeding.” Reportedly, the YAM Finance protocol will no longer be able to modifications by governance.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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