FAQ
Tech
What is your innovation?
Yala’s innovation lies in a) technology and b) yield, ensuring its long-term industry leadership.
From the technology perspective, Yala pioneers:
Unified Liquidity Layer Yala’s ultimate goal is to create a revolutionary, chain-agnostic framework that addresses liquidity fragmentation and enhances user capital efficiency.
MetaVault MetaVault is an advanced version of a simple vault designed to meet diverse risk preferences and offer flexible asset management. It establishes a robust omnichannel vault standard.
BTC Self-Custody (for large clients) Users’ Bitcoin is locked in self-custody accounts using a trustless, multi-signature script (P2SH) with a time-lock feature. This ensures asset security and user control while generating BTC LST yields and $YU yields.
From the yield perspective, Yala adopts a novel approach to multi-chain yield generation, allowing BTC holders to earn yields across multiple chains while maintaining Bitcoin-native security.
BTC & LSTs Yala accepts both native BTC and Liquid Staking Tokens to optimize returns.
$YU on DeFi & RWA Yala aggregates yield opportunities across DeFi platforms and RWAs via its stablecoin $YU.
Lite Mode Yala designs an on-chain portfolio management system curating investment pools to optimize yield through strategic combinations.
How are the assets stored and how many confirmation blocks would it have?
Pro-Mode: Native BTC will be stored at Yala, while private keys will be managed by Cubist, a third-party security expert specializing in key management.
Lite mode: Native BTC are sent to Yala MetaVault. The security here depends on the Vault’s permission control, custody method, and fund strategy.
Self-Custody Mode: Native BTC will remain locked in the user’s own custodial account.
Yala implements a 6-block confirmations for more safety as more blocks increase transaction security. After 6 blocks, transactions are typically immutable and tamper-proof. Other protocols, such as Babylon and Lombard, also adopt the 6-block standard.
Where is the Yala Vault for accessing Bitcoin LSTs stored, and how are they secured?
There are 3 scenarios:
On ETH or ETH/BTC-related Layer 2s, users directly use Bitcoin LSTs as collateral using Yala Pro mode. In this case, the security within Yala depends solely on the Yala core module (fork from LiquityV2)
On BTC: Users utilize MetaVault's Lite mode to deposit native BTC. The fund manager (Vault operator) can convert the BTC into Bitcoin LSTs and use them as collateral within their operational permissions. The security here depends on the Vault’s permission control, custody method, and fund strategy.
On the chosen destination chain: Large holders self-custody and use a P2WSH script to ensure their native BTC remains controlled while generating LSTs on the destination chain. Assuming the script code is secure, the underlying BTC’s security is theoretically on par with Bitcoin’s mainnet (and these BTC will not face liquidation risk)
Can you explain how you do better than a bridge protocol?
For Bridge and MetaMint, Please review the following flow:
Compared to conventional bridges that lock the asset in the smart contract to create a wrapped version on the destination chain, Yala allows customers to keep the BTC in their wallet or on the BTC mainnet and mint a certificate (YBTC) of this asset that is used in the smart contract to mint the stablecoin $YU.
The notaries manage the Yala bridge and are responsible for signing messages for BTC bridge in and out transactions. Yala requires 11 notaries, at least 9 of whom are randomly selected, to validate transactions decentralized. Notaries include institutions, investors, node operators, clients, custodians, and CEXs.
What backend mechanism enables the minting of $YU to multiple chains?
There are two ways to mint $YU on multiple chains.
The Notary Bridge supports generating YBTC on the target chain through MetaMint while deploying Yala CDP-related contracts on the target chain. Users can mint $YU on the target chain using YBTC or other collateral.
$YU will support native mint/burn cross-chain functionality, similar to the USDC CCTP implementation.
Product
What is the overcollateralization ratio and how are interest rates calculated? Are they the same for both native BTC and wBTC? (any other forms of BTC used?)
The Yala Foundation sets the over-collateralization ratio, currently at 75%, while interest rates are determined by market dynamics, driven by supply and demand. Collateralization ratios vary by asset type, reflecting different risk factors and stability fees. Yala governance will regularly assess and adjust minimum collateral ratios to ensure they align with market conditions and accurately reflect the risks associated with various BTC assets.
How much time would it take to either collateralize assets or stake on different DeFi protocols across ecosystems?
Depositing and withdrawing the native BTC depend on the Bitcoin block time, so 10 minutes. However, generating stablecoins and various calculations rely on the target VM chain's block time.
What are the sources of income for the protocol?
Our revenue stream comprises the following sources:
DeFi
Staking on nodes on partners protocol: 5-17% APY
DeFi pools: 5-10% APY
Liquidity mining on early blockchain launch: 10-67% APY
Restaking rewards (with the same collateral): TBD APY
Yala Savings Rate (YSR) - similar to DSR: 5% APY
Yala tradFi offering - including RWA (see our post): : 6-8% APY
Yala token rewards: APY TBD
Borrowing costs: 5-7% compounded daily.
Net margins = 7-60% APY
How do you source risk models?
Sourcing effective risk models requires blending traditional financial approaches with DeFi's unique characteristics. The main avenues to source and develop risk models are as follows:
On-chain activity monitoring: data aggregation of the activities on-chain, from individual wallets to DeFi protocols, allows us to create real-time risk profiles.
Backtesting: Leveraging simulation and machine learning models based on historical data (whole trading volumes at the minute ticker) helps Yala understand the implications of a given event and adjust the risk parameters accordingly.
Audit & vulnerability analysis: By undergoing audits and analyzing the audit reports from other partner protocols mitigates risks when implementing a risk model
Anti-Sybil attack - Trusta labs
Anti crypto crime - TRM labs
Who do you see as the ideal user of Yala?
We have segmented our ideal user profile into three sub-categories:
BTC miners/whales (40%): This group of people was reluctant to engage their BTC as they don’t trust the wrapping protocols nor bridges because of the centralization and complexity risks that could lead to the loss/hack of their assets.
Retail investors (15%): These people are long-time believers in Bitcoin and would love to leverage their dormant BTC to earn extra yields safely.
Crypto asset management firms (45%) (more Asia-based now, such as Hashkey or Amber Group, but Western funds would also come into the picture over time): Those firms offer stablecoin staking rewards and have some pressure to generate those yields that are often coming from part of the transaction fees they earn or revenue from trading strategies. Both sources are variable, and trading strategies, if not executed correctly, could even result in losses. Those firms are actively looking for “risk-free” yields, aka those generated by other DeFi platforms.
What is your GTM strategy?
Our go-to-market strategy focuses on:
Pre-launch Stage: Build recognition for the Yala Protocol, aiming to partner with 10-15 key projects and grow our community to 50,000 members.
Launch Stage: Achieve widespread adoption of our architecture, lending protocol, and stablecoin. Success will be measured by the ecosystem's Total Value Locked (TVL) and establishing around 10 distribution channels with exchanges, wallets, and payment platforms for user accessibility.
Post-launch, Develop a decentralized governance framework, aiming for a foundation governed by and belonging to the DAO.
This strategy leverages the network effect, with partners, community, and developers as vital stakeholders. The token will catalyze network growth, enabling decentralized collaboration. Additionally, decentralized governance ensures fair revenue allocation among participants.
Risk Mitigation
How does Yala mitigate risks?
The white paper details that the Yala protocol's risk operation centers around creating a robust framework for DeFi on Bitcoin by leveraging advanced cryptographic techniques and modular architecture. Here's a summary of the key elements:
Liquidation Management
Collateralized Debt Positions (CDPs): Users can borrow against their cryptocurrency holdings by locking them up as collateral in CDPs. If the market value of the collateral falls below a certain threshold (known as the liquidation ratio), it triggers a liquidation event to protect the system and lenders from defaults.
Automated Liquidation Process: Yala automatically liquidates the collateral if a CDP falls below the required liquidation ratio and the borrower fails to act. This process involves selling the collateral on the open market or through an auction system to the highest bidder to cover the debt and any associated fees.
Emergency Reserve: The treasury can act as a financial buffer or insurance pool, specifically reserved to cover losses that exceed the normal operational scope, such as in extreme market conditions or unexpected liquidity crises.
Loss Coverage: In a liquidation where the proceeds from the collateral sale are insufficient to cover the outstanding debt, treasury funds can cover the shortfall, preventing the losses from affecting other users or destabilizing the overall system.
How would you maintain the $YU peg?
Yala will employ several mechanisms:
Over-Collateralization: The stablecoin’s over-collateralization mechanism ensures that the value of collateral exceeds the stablecoins issued, providing strong security and reducing the likelihood of YU losing its peg.
Liquidity Reward Program: Yala will launch a liquidity farming program on Uniswap V3 to incentivize users to add liquidity for YU/USDT, YU/USDC, YBTC/WBTC, and YBTC/other BTC pairs. Users will earn points redeemable for Yala tokens and partner BTC project tokens. This creates consistent arbitrage opportunities, helping maintain price alignment between AMMs and the broader market. Additionally, the Yala platform will offer a 1:1 BTC/YBTC ratio, further enhancing arbitrage potential.
Market Maker Collaboration: Yala will partner with major market makers (MMs) to maintain the peg. MMs are incentivized by arbitrage opportunities, ensuring continuous price stability.
Peg Stability Module (PSM): The PSM will actively maintain the peg by managing YU supply. If YU trades above the peg, more will be minted; if it trades below, YU will be burned.
Direct Deposit Module (DDM): The DDM allows third-party lending protocols to offer YU at fixed interest rates. By influencing YU supply, the DDM directly supports the peg.
Market Landscape
What do you think of the state of BTC DeFi today?
Layer 2s come to market, and we have seen multiple protocols on Bitcoin that intend to enable DeFi on BTC. We want to highlight the following three pain points:
a. Layer 2 adds complexity and centralization risks, and the BTC block size and block interval limitation prevent all L2 transactions from being stored on L1.
b. Currently, the tech leveraged by L2 or other infra protocols are not native to BTC: Sidechains or ZK proofs L2 won’t be able to settle natively, not to mention that miners can’t verify ZK proofs, and other infra projects rely on centralized indexers built in-house
c. Liquidity segmentation: L2s have engaged in a TVL war that brings more harm than benefit to the whole ecosystem
Nowadays, the demand for yield from asset management companies, Bitcoin miners, and holders still needs to be satisfied as they are reluctant to trust centralized BTC yield systems via wrapping or bridging. The recent launch of the Ethena protocol showed the rising interest from BTC holders in experiencing alternative yield solutions, but dry powder remains to be invested in native and composable BTC DeFi protocols.
How and why will that change in the next 12 months?
a. For L2s: An immutable record of L2 transactions on L1 is required to achieve Bitcoin security, so the Data Availability piece will come into play.
-> Evolution: A modular approach similar to the modular blockchain narrative on Ethereum has already started. Avail has been actively sourcing partners to make its roll-up solution available on Bitcoin.
b. Privacy: BitVM is considered a good solution to enhance BTC functionality, but the cost of executing fraud proofs restricts its use.
-> Evolution: We have seen so far a trust-minimized narrative instead of a ZKP narrative that would solve the trust and centralization challenge raised by the community, but incoming updates on BTC would enable more secure and decentralized infrastructure (Decentralized indexer and oracle would be part of the landscape).
What are the missing pieces?
To establish a competitive edge on Bitcoin, we foresee the need for:
a native stablecoin: If you look at the summer DeFi in 2020, the backbone of this success is the stablecoin. Lending and borrowing wouldn’t be feasible without the emergence of such a tool, and stablecoin issuer firms flourished since. As a result, Bitcoin needs a native stablecoin that is not tied to any other ecosystem to offer composable liquidity.
lending and derivative protocols: Market participants could earn interest with attractive yield-generation opportunities. Additionally, these protocols enhance the liquidity of the cryptocurrency market by facilitating borrowing for various activities such as trading, liquidity provision in DeFi protocols, and leveraging investment positions.
a pool AMM platform: Similar to Curve on Ethereum, an AMM protocol would be required to minimize impermanent loss, fees, and slippage, ensuring a great user experience for BTC DeFi.
an insurance mechanism: Because of Bitcoin's latency of block production, price fluctuation could be a huge roadblock for users. Consequently, on-chain insurance modules are needed to hedge against the latter.
The Yala insurance module will lead the path. Alongside the MakerDAO framework, the insurance module addresses the unique challenges within the Bitcoin ecosystem, characterized by 10-minute block production times. This addition aims to safeguard Yala users from liquidation triggered by Bitcoin price volatility or engagement in higher-risk activities like restaking.
Note: The insurance module, Takaful, represents Yala's innovative approach to DeFi on Bitcoin, creating a cooperative framework where participants, insurers, and shareholders collectively manage risks and benefits. It details insurers' roles in fund management, contract formulation, and governance, incorporating qard hasan loans as a fallback for insufficient funds, thereby ensuring a resilient, compliant, and community-driven financial environment.
Once the above is established, more asset management firms and Bitcoin holders will actively contribute to the BTC-Fi ecosystem.
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