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Youves Platform Launches uDEFI: A Synthetic Token That Tracks The Top 5 DeFi Tokens
After uUSD, Youves introduces a new token. Currently, on Testnet, uDEFI is a token that tracks the value of the top five DeFi tokens on the market. (Currently LUNA, LINK, UNI, CAKE, AAVE). This list will be rebalanced every six months.
By: Lee Evans
26 September 2021
Tezos-based DeFi platform Youves launched in July this year and allows users to provide XTZ as collateral and in return take out a loan by minting an amount of uUSD stablecoin.
Youves has currently 3.8 million XTZ locked in uUSD vaults and a circulating supply of 5.2 million uUSD.
After uUSD, Youves introduces a new token. Currently on Testnet, uDEFI is a token that tracks the value of the top five DeFi tokens on the market. (Currently LUNA, LINK, UNI, CAKE, AAVE.
This list will be rebalanced every six months. So if the top five changes in six months, then so does the list of tokens that uDEFI tracks.)
Each token has a specific weight in the tracker value. The number 1 DeFi token in market cap value has the biggest share in the uDEFI tracker value. The values are provided by the Tezos-based Ubinetic oracles.
The creation of the uDEFI token and the value it represents is done in the same way as the creation of uUSD. Users can provide a collateral in XTZ, and subsequently they can take out a loan in the form of uDEFI tokens. The XTZ in your collateral is delegated to a baker and you will continue to earn staking rewards.
The collateral value is 3:1, which means that you need to provide $3 USD worth of XTZ to be able to mint $1 USD worth of uDEFI. You’ll pay a minting fee and you’ll pay interest over the loan until you burn your uDEFI tokens.
To ensure uDEFI has actual value, the platform allows liquidation once the collateral value of a user’s collateral falls below the minimum value of 2:1 ratio.
Just like uUSD, you can lock uDEFI in a savings account and earn extra yield in the form of uDEFI tokens.
For more detailed info on how this works for uUSD, read the uUSD article here and the Youves documentation here.
Just like when you minted uUSD, you will be able to receive YOU tokens (the Youves platform’s governance token). The only difference is that in the case of uDEFI, this is optional.
You will only receive YOU tokens if you opt in to the conversion option. YOU tokens can be staked and earn yield.
Once uDEFI is live on mainnet, you will be able to choose if you stake your YOU tokens in the uUSD pool, or in the uDEFI pool. If you stake in the uUSD pool, you will earn a percentage of the platform’s uUSD revenue.
Additionally, if you stake your YOU tokens in the uDEFI pool, you will earn a percentage of the platform’s uDEFI revenue.
uDEFI is a synthetic token
It’s important to realize that uDEFI is a synthetic token. This means that it is not actually backed by the assets it tracks. Instead, uDEFI is backed by the XTZ that is put up as collateral.
Youves provides a value target through the oracle system: the uDEFI tokens started out with 1 XTZ value on 21 September 2021 at 08:00 UTC.
From there, Youves tracked the value change of the selected top five DeFi tokens and adjusted the XTZ value of uDEFI accordingly. If the total value of the top five went down 5%, the value of uDEFI would be adjusted to 0.95 XTZ instead of 1 XTZ.
The uDEFI token is soft pegged to that value. Just like uUSD and any stable coin that is traded on decentralized exchanges, the actual value is determined by ask and demand.
The more the price deviates from the target value, the less people will be willing to trade it the wrong way. If a USD stablecoin is worth 0.75 USD, few will be willing to sell it for that price, while many will be willing to buy it.
This way demand will swing the other way, and the price will move back towards its target value. With low circulating supply, low liquidity on exchanges and low volume, price swings will be more extreme.
The more the market for a specific token matures and grows, the more accurately it will trade on it’s’ target value.
Be aware of the following factors to visualize your risks:
Just like uUSD, uDEFI offers a lot of opportunities to increase your yield on your XTZ. But please be aware of the following:
– uDEFI tracks volatile tokens. This means that your collateral ratio can be affected by several volatile values instead of 1. (Your uUSD collateral value is affected by value swings of XTZ while USD is a pretty stable factor.
Your uDEFI collateral value is influenced by value swings of both XTZ and the top five DeFi tokens. This makes it harder for you to predict which way your collateral ratio moves and if you risk liquidation.
– uDEFI is not backed by the tokens it tracks. uDEFI is backed by an XTZ collateral.
– uDEFI market value is soft pegged to the value of the tokens it tracks within the Youves platform. This means that the market value of uDEFI is based on ask and demand of the uDEFI token on the exchanges, (in some cases possibly independently of the actual value of the DeFi tokens it tracks on Youves platform.)
On the other hand, the value of uDEFI within the Youves platform is based on the value of the DeFi tokens it tracks which the oracles provide. If you do not understand this, think twice before you get involved and do more research on this topic first.
– The market value of uDEFI tokens can be highly volatile in the beginning. Low volume and small sized liquidity pools on DEXes demand a different approach for buying and selling.
(High amounts buys and sells are not possible without immediately losing value). If you do not understand why, think twice before you get involved and do more research on this topic first.
Make sure you read the official Youves documentation before you take any further steps.
Try uDEFI on testnet now
uDEFI is currently on Granada testnet here. You can play around with it using a Granadanet Kukai testnet wallet here. You can get testnet XTZ through this Telegram bot: @tezos_faucet_bot.
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